How is property tax calculated?


When buying a used property, one of the most important questions is how much tax you have to pay. The purchase price is included in the sales contract, but this price is not taken into account by the tax authorities in all cases. It is known that the transfer tax (Impuesto sobre las Transmisiones Patrimoniales, ITP) has been uniformly 7% in Andalusia since April 2021.

You can read more about the costs of the purchase here.

The question arises, on what basis is the 7% calculated? First of all, let’s take a look at what prices we are talking about.

ADVERTISED VALUE

Although the owner wants to get as much as possible on the real estate market, it is worth adjusting the prices to other properties for sale, otherwise it will not be possible to sell soon. You can conduct market research and get advice from real estate agencies on what price they recommend putting the property on the market. In some cases, it is also possible to request an offer from independent valuation companies, who often do not even look at the property and simply prepare an estimate based on the price of other properties offered for sale on the market.

CATASTRAL VALUE

In the land registry office ( El Catastro Inmobiliario ), a price is registered, which is called the cadastral value. There is no need to be afraid, because it has nothing to do with the real value of the property, it is usually much lower than that. This is also “advantageous” because this value is used as a reference for calculating, for example, the annual real estate tax (IBI) or the municipal capital gains tax (Plusvalia).

Another oddity is that the square meter data in the land register is not always the same as the data in the Land Registry property register ( Registro de la Propiedad ).

You can read more about this here.

NEGOTIATED VALUE AND DECLARED VALUE

During the purchase, in the reservation contract, the seller and the buyer fix the purchase price and the method of payment, as well as its schedule. The negotiated price is not always included in the final sales contract ( Escritura ), as the parties can also agree that part of the purchase price will be paid by the buyer in a different way, so a smaller amount is entered in the final contract. This will be the official reported value. This option is used in cases where both parties find the taxes to be paid on the negotiated price to be high. The golden rule is that the declared value can never be less than the cadastral value.

REAL VALUE 

The actual value used as the ITP tax base for years prior to 2022. In many cases, they were fixed using the minimum price in the cadastre, to which different multipliers were applied per province (1.03 in Andalusia). This value did not necessarily have to be related to the price agreed between the buyer and the seller. Although this system was adopted, the Supreme Court opposed it in a judgment dated May 23, 2018. He believed that the declared value was in many cases lower than the value assigned to the property by state bodies. In such a case, the state could launch an audit procedure to prove whether the value declared by the buyer is lower than the value determined according to its criteria or not.

REFERENCE VALUE: VALID FROM JANUARY 01, 2022

By introducing the new value, the government’s goal was to “reduce the litigation caused by the actual value, which is an ambiguous concept and the courts compared it to the market value”. 

11/2021 of July 9. No. 1, on measures to prevent and combat tax evasion, which was published in the Official Gazette on July 10, states that: 

“Market value should be understood as the most probable price at which an asset can be sold between independent parties, free of encumbrances.

In the case of real estate, the value is the reference value defined in the real estate registration regulations on the day the tax is due.

However, if the value declared by interested parties or the actual value established on the basis of the cadastre, or both, is higher than the reference value, then the higher value must be considered the tax base.

If there is no reference value, or if the General Directorate of Cadastre cannot verify it, the tax base is the highest of the following: the value negotiated and declared by the interested parties, the established reference price, or the market value. 

A NEW REFERENCE VALUE EVERY YEAR

The reference value of real estate is determined year by year in accordance with the cadastral regulations by applying average value modules, based on the prices of real estate sales actually carried out before the notary or registered in the land register, which are received in the framework of the annual real estate market reports prepared by the General Directorate of Cadastre in the first days of each year. It may happen that if, at the end of the year, the buyer is informed by his lawyer of the amount of transfer tax to be paid, but the final contract (escritura) is not signed by the parties until the beginning of the following year, the authorities will already calculate a new amount, based on the new reference value.