One of the consultations we most frequently receive in our law firm is whether it is possible to challenge the Reference Value published annually by the General Directorate of Cadastre. The Reference Value is the ‘minimum’ administrative value that must be considered when paying certain taxes on purchases, inheritances, donations, etc. In today’s article we review its main features, the problem of this valuation, and whether it is possible (or not) to challenge this value in Spain.
What taxes are affected by the Reference Value? How does it work in practice?
The Reference Value affects a multitude of taxes. Inheritance Tax. Gift Tax. Transfer Tax. Stamp Duty Tax. And also, Wealth Tax (although in this case, it will only be applicable to properties acquired after January 1, 2022.)
Let’s see how it works with a simple example. Pedro buys a property for €150,000, that has a Reference Value of €200,000. When he pays the Transfer Tax, the tax must be calculated over the Reference Value. However, if the price of the property is higher than the Reference Value (for instance, €220,000) the tax is calculated on that amount. In summary, taxes are calculated either in the Reference Value or the declared value, depending on which one is higher.
How is the Reference Value calculated in Spain?
In order to calculate the Reference Value, the price of all the purchases and sales signed before a notary in Spain is analysed, and a system of average value modules is applied depending on the area. The problem with this system is that it puts a lot of importance on the area in which the property is located, but none on its specific features: state of conservation, materials, whether it is renovated or not, if it is a first floor or a fourth floor, etc.
How can I challenge the Reference Value if I disagree?
There is no specific procedure to challenge the Reference Value directly. However, it can be challenged ‘indirectly’ when it has tax implications. That is, when the taxpayer has to file a tax (IHT, Transfer Tax) in which the Reference Value is applicable. To challenge it, it will be necessary to request an appraisal of the property from a valuation company (approved by the Bank of Spain.) that certifies that the real value is lower than the Reference Value. The challenge procedure can be made in two ways.
Option 1: Pay the tax according to the Reference Value and claim later.
The first option consists of paying the corresponding tax (Inheritance Tax, Gift Tax, etc) according to the Reference Value. And then filing a rectification procedure with the Spanish Tax Agency, requesting a reimbursement of the amounts unduly paid, and attaching to your claim the appraisal of the property. This route forces the taxpayer to pay in advance and claim a refund later, but it is more advisable since it avoids the payment of interests and/or penalties.
Option 2: Pay the tax directly at the ‘real value’.
The other possibility consists of paying the tax directly at the ‘real’ value considered by the taxpayer. The tax administration will open a review procedure and will request the difference to be paid by the taxpayer. At this point, an appeal would have to be presented, attaching the appraisal, to contest both the Reference Value and the tax-man’s complementary liquidation. The problem with this route is that you will have to face both the interest for late payment, and even a penalty procedure for non-compliance with tax regulations, if your claim is not successful.
Conclusions
If you want to challenge the Reference Value of a property that you are going to buy, donate, inherit, etc, because you understand that it is higher than the market value, do not hesitate to contact us. At White-Baos we will study your case in detail and offer you expert legal advice on the matter.
The information provided in this article is not intended to be legal advice, but merely conveys information relating to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
E-mail: info@white-baos.com
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