- From 2022, the Land Registry reference value will be the base for transfer tax, stamp duty and inheritance and gift tax, unless the declared price is higher.
- An October order sets a reduction factor of 0.9 so that this value does not exceed market value.
- It affects purchases, inheritances and gifts of property, and its effect is worth anticipating before acting.
On 14 October 2021 Order HFP/1104/2021 of 7 October was published in the BOE, setting at 0.9 the reduction factor applicable to the reference values of properties, both urban and rural. It came into force the following day. It implements Law 11/2021 against tax fraud, which introduces the reference value as the new tax base for property transactions. The aim is to give taxpayers more certainty and to reduce disputes over differing valuations by different administrations.
From 1 January 2022, the value determined by the Land Registry (Catastro) will serve as the taxable base in transfer tax, stamp duty and inheritance and gift tax. In practice the higher of that reference value and the price or value declared by the parties will be used, which changes the logic with which these taxes were calculated until now. It is therefore a change worth bearing in mind from now on, even though the specific amounts are not yet known.
What the reference value is
The reference value is calculated by the Directorate-General of the Land Registry from the real prices of sales formalised before a notary, by area and type of property, and not through the individual checks that the regions carried out until now. The starting point is an average value module per area, to which the factor of 0.9 is applied so that the result does not exceed market value.
The order sets that factor, but the specific values are still missing: the Land Registry has to approve and publish the modules and the areas to which they apply. When that happens, taxpayers will be able to know in advance the base that will be used, which brings certainty, although in some areas it may mean bases higher than the present ones.
Who it affects
It affects anyone buying a second-hand home or a commercial unit, because the tax paid will be calculated on the higher of the agreed price and the reference value. It also affects those who inherit or receive a gift, who will be taxed on the reference value of the property received. And in Wealth Tax it will be taken into account for some properties acquired for consideration. Anyone buying or inheriting in an area where prices have risen sharply in recent years could feel the change more.
For families with property assets and for companies that buy premises or land, the change introduces a new element when calculating costs and planning transactions. The differences between the agreed price and the reference value can be significant, and their effect may vary greatly from one area to another. It is therefore best to avoid generalisations and look at the specific situation of each property.
What to review
Anyone planning a sale, an inheritance or a gift in the coming months should compare the expected price with the reference value once it is published, and assess whether it is better to bring the transaction forward or delay it. Each decision depends on personal circumstances and the applicable regional taxes, so it is advisable to consult your adviser before signing.
It is also useful to check that the cadastral description of the property is correct, because errors in surface area, use or age can raise the value assigned. If there are discrepancies, a correction can be requested from the Land Registry. And where the taxpayer disagrees with the result, there are review routes that are worth knowing about in good time.
Knowing the base before signing is the best way to avoid surprises in a property transaction.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
