The Ministry of Finance and Public Function has changed the way it calculates the tax base of two taxes related to housing: the tax on Ancestral Transmissions and Documented Legal Acts (ITA) and the tax on Inheritance and Donation (ISD).
The tax base of these two taxes will be calculated as of January 1, 2022 based on the reference value, not the real value of the property,as collected by the Ministry in this measure . Until now, payment of these taxes has been calculated through the effective price that would have been determined when the property was sold, but this will now be based on the average Cadastre calculation. According to the Finance Ministry, this will serve to discourage litigation and will not be retrospective.
This new index, however, does not affect the estate tax (IBI) because its tax base is the cadastral value and not the real value as in the previous two taxes. The new index does not affect the property tax (IBI) because its tax base is the cadastral value and not the real value as in the previous two taxes.
So what is the reference cost and how will it affect taxpayers’ pockets?.
How does the reference value affect the taxpayer’s pocket?
In a press release issued by them, the Finance Ministry assures that there will be no tax increase when reference value is used as a tax base in ITPs and ISDs, as it is technically not the case.
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But Javier Collado, professor of taxation and tax consulting at the Center for Financial Studies (CEF), argues that this new reference value for the Treasury “will affect the taxpayer’s pocket.” And he gives an example: if you are going to buy a second-hand property for €200,000 but the reference value is €240,000, the transfer tax base will be based on the reference value. So the taxpayer will have to pay €40,000 more in the settlement.
“For practical reasons you will have to pay more because it is common to buy real estate at below market value,and although the tax does not change, if it is calculated with a baseline that is higher than the purchase price to pay more,” Collado explains.
In addition, the CEF professor believes that changing the Treasury to a reference value will not only affect sales, but also indirectly affect the price of some rentals: “People who buy and then rent as an investment. are going to buy below the reference value, and when the difference is settled, you’re going to raise the rent to pay that tax difference.”
How is the reference value calculated?
The Ministry’s benchmark value will be calculated each year by averaging the price of real estate across areas of the same municipality, although the area does not necessarily have to be the same as the borough or district.
The data for its calculation will be extracted from all real estate sales made with a notary or registered in the Property Registry, as indicated on the Portal of the General Directorate of the Land Registry on its website .
The press secretary of the General Council of Notaries, Maria Teresa Barea, explains that “the factor used to determine the reference value is that of notarial statistics and is calculated using the prices and values that notaries report in public acts. through an index, although it is not the only indicator used by the Administration “..
In addition, the Ministry of Finance has determined by order of the Ministry, that for both urban and rural homes a minimization factor of 0.9should be applied . This would mean a 10% reduction in the payment of tax, according to Javier Collado in conversation with Newtral.es.
“What they are going to do with this minorization factor is to adjust the values provided by the notaries. In other words, it will be used as a correction factor that will apply the cadastre to adapt these values to the reality of the transactions “, explains Collado to Newtral.es.
How does this affect autonomous communities?
If the reference value forces the taxpayer to pay more for ITP and ISD, the levy will be higher for autonomous communities, although this measure does not affect the amount of tax they set..
Hence, if they want collection to remain at pre-benchmark levels, they will have to reduce the tax burden..
The press office of the Ministry of Finance and Public Functions explains to Newtral.es that “the autonomous communities will not be affected, they will continue to apply the taxes as they have done so far”. And they add that “the benchmark was a measure developed and agreed with all the communities. All the Autonomous Communities have signed agreements with the Cadastre to jointly manage and develop the benchmark value in each territory “.
Will the benchmark value be a measure to resolve litigation, as the Treasury expects?
According to a press release from the Treasury Department, the change to this value included in the Law “On Measures to Prevent and Combat Tax Fraud” “is related to the need to address the problems of managing these taxes caused by litigation in which the tax base is defined as the real value.”
And in the press of the ministry they insist that “instead of fighting tax evasion, the idea is to reduce litigation because there is inconsistency in using certain values closer to market value (higher) to set prices. real estate “..
But a professor of taxation and tax consulting at the CEF believes that they may end up paying “only for sinners” because “there will be transactions where there is no black money, and only for reference value will they have to pay more tax.” , in the case where the reference value exceeds the sales value.