Congress has given the green light to a bill that will completely change the way in which the Capital Transfer Tax (ITP) is calculated, the tax paid by those taxpayers who buy a used home. And it is that the buyer will not pay taxes for what the house has cost, but for its market value: the reference value approved by the General Directorate of the Land Registry. This new value of The reference will come into force in January 2022, as stated by the Ministry of Finance, which will affect all purchases that are signed from this date, as it is not retroactive.
This change in the valuation of real estate is contemplated in the Bill of measures to prevent and fight tax fraud that has been approved in the Congress of Deputies and that is currently being debated in the Senate. What does this modification suppose? This market value will be calculated from real estate transaction prices, according to information provided by Notaries and Registrars, so there will be no need to visit the property and, therefore, there will be no need to know the state of conservation, materials used , if it is renovated or not, etc. This new value will affect not only the ITP, but also the Inheritance and Gift Tax (ISyD).
That is, the regional Treasury will no longer make a visit or an on-site check of the property sold, inherited or donated to know if the taxpayer has paid the correct value, but the taxable base will be said approved reference value by Cadastre. Castilla La Mancha has already used this new reference value since 2015.
In the event that the taxpayer does not agree with this new reference value, they must prove their mistake. The burden of proof, therefore, will fall on the taxpayer, who must demonstrate that the Cadastre reference value does not correspond to market value . Unlike what happened until now, since it was the Administration that was obliged to prove that the value for which the taxpayer had paid was not the real value of the property.
How it affects the buyer of a used home
When buying a second-hand home, the buyer must pay the ITP, which is a regional tax and the taxable base of this tax will be the market value. In the case of real estate, the new law presumes that this market value will be the Land Registry reference from January 2022. On many occasions, the regional Treasury checks the value of the house bought because it considers that the buyer has paid less taxes than his due. This is called a value check. And this is where the new benchmark comes in.
That the regional treasury requires the buyer of a cheap house or the heir of a home to pay a higher payment than initially paid by the Property Transfer Tax (ITP) or the Inheritance and Donation Tax (ISD) is already recurring . The reason is that they value the houses above the notarized price.
This “extra tax” claim is known as “supplementary settlement by checking values” and it is also accompanied by the corresponding default interest. The corresponding regional Treasury opens a claim when it determines that the value of a house sold or inherited is higher than the price at which it was deeded, according to the values managed by the regional administrations. Or the reference value, when it comes into force in January 2022.
This shows that there is a big difference between the market price and the value established by the administration.
And how are the CCAA going to determine the value of a house? As of January 2022, they will do so using the new reference value approved by the General Directorate of Cadastre to motivate their value checks. Thus, let us remember that the administration will not be obliged to send an expert to make a visit to the house sold, inherited or donated, with which the taxpayer who makes substantial reforms in his house to revalue it before selling it, you will be punished considering that it is worth the same as one in the same area without reform.
However, to date, Cadastre has not yet approved this reference value. The draft standard provides for this possibility, stating that “When there is no reference value or it cannot be certified by the General Directorate of Cadastre, the taxable base, without prejudice to the administrative verification, will be the highest of the following magnitudes: the value declared by the interested parties or the market value ”.
Ultimately, when the Land Registry reference value comes into force, taxpayers must declare according to said value, because it is required by law.
How to act until the new Land Registry reference value comes into force
Until the new Land Registry reference value takes effect, the legal forecast remains incomplete . Because the rule provides that in the case of real estate, the tax base will be said reference value. And this one, throughout this year, will not be in force yet.
In the absence of said reference value, the Administration must resort to the greater of these two magnitudes: the value declared by the interested parties, or the market value.
Therefore, it is foreseeable that, the value checks carried out this year, once the Law on Prevention and Fight Against Tax Fraud enters into force, must determine, for each property, what its market value is. . And this, without being able to apply the legal presumption that said market value corresponds to the Land Registry reference value, not yet in force.
For this reason, we consider that, in 2021, the assessments will have to be done as before . That is, using any of the means provided in article 57.1 of the General Tax Law. And they may be challenged by taxpayers, as up to now. That is, claiming that the methods used are not adequate to obtain the market value of the property. And criticizing, depending on the case, the lack of an expert visit to the property (expert opinion), or the use of a means such as mortgage appraisal, which has been reviled by several Superior Courts of Justice.
Ultimately, we consider that the delay of Cadastre in approving its reference value will give us a slight respite, before the battle that is being prepared against the new value checks, once whether the reference value is applicable.
Be careful to pay according to the reference value in case of writing for a higher amount
Now with this new tax anti-fraud law, the taxpayer is obliged to pay taxes for the notarized value if it is higher than the official value of the Autonomous Community of the moment. Thus, the new wording of article 10 of the Property Transfer Tax Law establishes that “if the value of the property declared by the interested parties, the agreed price or consideration, or both are higher than its reference value, it will be taken as the basis the highest of these magnitudes is taxable ”.
Let’s see it with an example: the taxpayer who buys a home for 450,000 euros, but the official valuation of the corresponding Autonomous Community is only 270,000 euros. Many taxpayers considered that, in this case, they are claiming the possibility of pay the official value of the Community, without exposing themselves to receiving a value check. And also, that article 46.3 of the Transmission Tax Law was not applicable in these cases.
How to challenge the new Land Registry reference value
The new Law introduces a presumption of the so-called “iuris tantum”, consisting in that the market value of the properties is the official reference value approved by the Land Registry.
There are two ways to challenge this reference value because taxpayers consider that it does not reflect the purchase value:
- Self-liquidate for the official value and immediately afterwards request the rectification of the self-assessment, also challenging the reference value.
- Self-assess for the value that the taxpayer estimates that the home has (usually the deed) and later appeal the verification of values that may come from the autonomous administration. In this resource, both the settlement and the reference value will be appealed. In this case, the Tax Administration will resolve a prior mandatory and binding report from the General Directorate of the Land Registry, which ratifies or corrects the aforementioned value, in view of the documentation provided.
That is, it will be the Treasury who will request a report from the Land Registry to ratify or correct the reference value of the home purchased or inherited. Let us remember that the door opens to contest the refusal of the Treasury to request said report, when said refusal is not duly justified.
The taxes related to the sale
For used homes the most important tax is the Property Transfer Tax (ITP) . In this case, the amount depends on the percentage that is applied to the registered price and of the autonomous community in which the house is located although as a general rule a type of between 6% and 10%. However, for VPO, large families and young people there are usually reduced rates. For example, in Madrid, large families who buy a free home will pay 4% ITP on the notarized price provided that the home purchased is the usual one. These types currently apply:
It should be noted that for VPO, large families, people with disabilities and young people there are usually lower rates. For example, in Madrid, large families who buy a free home will pay 4% ITP on the notarized price, provided that the home purchased is the usual one.
The agency, an optional expense
The only optional expense of the sale of a home is that of the agency, the entity that the client can hire to process the settlement of taxes and carry out other paperwork. They are free professionals, so in this case there are no specific rates, and they are usually contracted only when a mortgage is opened to acquire the property. Its approximate cost is 300 euros.
For more information you can visit the College of Property Managers website of Barcelona-Lleida.