New legislation for the payment of transmission tax
NEW legislation with effects from January 1, 2022 has recently been introduced to regulate the tax base on which both Transmission Tax and Inheritance and Gift tax should now be calculated.
Theoretically the new legislation substitutes the previously concept of “real value” based on self-assessment of the parties to a transaction (without prejudice of the possible revision by the tax office) by a property’s “value” which is supposedly equivalent to market value.
The Law contains modifications of many different existing acts of legislation, mainly of a fiscal nature, with a double purpose, firstly to incorporate EU Law into Spanish legislation on tax avoidance and secondly, to introduce changes in fiscal regulations with the aim of preventing and fighting against tax fraud by reinforcing fiscal control.
These new regulations affect especially anybody who is going to purchase a property from January 1, 2022 especially if the purchase price is less than the so-called market reference value that is determined by the Administration. The new legislation introduces the following modifications:
1. - The tax base, that is the amount on which tax is paid, is considered to be the market value of the property transmitted or the rights transferred. This value may only be reduced by the charges that reduce the value of the property but cannot be reduced by the existence of debts over the property even if these are guaranteed by a mortgage or a lien.
For tax purposes, the value of assets and rights is their market value.
However, if the value declared by the parties, the price paid or both are higher than the market value, then the highest value is used to determine the tax base. Market value is considered to be the most probable price for which an unencumbered asset could be sold between independent parties.
2. - In the case of real estate, the value that should be used as the tax base will now be the reference value established by the legislation on the Cadastre at the time of the accruement of the tax.
However, if the value of the property declared by the parties to the transaction is higher than the Cadastre reference value, then this higher value is used as the tax base.
When there is no Cadastre reference value of this cannot be certified by the Cadastre, the tax base, without prejudice of a future revaluation, will be the highest of; the value declared by the parties, the price paid or the property’s market value.
3. - The Cadastre reference value may only be challenged if one appeals against the valuation carried out by the tax office or if one applies for an rectification of the tax payment due to a challenge against the reference value.
4. - When the tax payer applies for a rectification of the tax paid due to the reference value being considered to seriously prejudice their interests, or if an appeal is lodged against a revaluation made by the Tax Office, the Administration will make a decision after receiving a report from cadastre which either ratifies or corrects the reference value on the basis of the paperwork provided.
At present, transmission tax is levied at a rate of 10% based on the property’s value.
With the introduction of the new legislation, one will now have to check the Cadastre reference value to see if this is higher than the price of purchase of the property as if so, the transmission tax will be based on this value even if it is higher than the actual price paid by the buyer for the property. Sadly, however, the opposite is not applicable.
If the reference value is lower than the price paid by the buyer, the transmission tax must still be paid on the higher property price at the said rate of 10%.