In Spain, as we all know, the purchase of a property entails the payment of taxes after signing the corresponding deed, specifically: VAT and Stamp Duty for new-build homes, and Property Transfer Tax* for second-hand properties. The method used for the calculation of the latter has changed as from 1st January 2022, Law 11/2021 to prevent and fight against fraud came into force, which includes a modification of the base tax used to calculate the Inheritance Tax and the Property Transfer Tax. Until that date, the tax base they used was the real value of the sale declared in the deed, unless the tax authorities could demonstrate that the market value was higher.
In order to reduce the judicial processes derived from these cases, the new law has introduced a ‘reference value’ that will be used as the tax base for the calculation of the taxes mentioned above. This means that if, for example, before we had to pay 10% of the purchase price of the property for Property Transfer Tax in Comunidad Valenciana, now we will have to pay 10% of the ‘reference value’. This value will be determined by the General Management of the Cadastral Home Value based on the prices of the sales declared before a notary and taking into account the location and type of the property. However, it will not take into account the state or, for example, if a refurbishment is necessary (which implies a devaluation of the price), so it is possible that the ‘reference value’ is, in certain cases, much higher than the market price. In any case, buyers can claim, providing evidence, if they consider that this value is higher than the market value, although the General Management of Cadastral Home Value states that this value will not exceed the market value and that a reduction factor will be applied with this purpose.
*The taxation for Property Transfer Tax in the Valencian Community at the time of writing this text is 10%