At the start of the year a new law came in which changed the way that the taxable value of properties is assessed on the Costa del Sol. It is important for buyers to understand, as on some occasions the so called Valor de Referencia De Cadastro can be higher than the market value and this can cause issues and unexpected tax costs.
It used to be the case that a property would have the sales value of the property and then a cadastral value. This value is multiplied by a certain coefficient, depending on the area it is in, to determine what that property is worth according to the tax office. This value is normally much, much lower than the actual sales price.
When you come to buy your property, you pay transfer tax on whichever is the higher amount. The problems start when the cadastral value is higher than the price that you’re actually paying. We’ve recently had experience of this case with a client and seen how difficult it is to deal with, so we wanted to make you aware of it too.
We expect these incidents to increase because there’s a new law now in Spain which has changed the way they calculate this imputed value. Rather than have the cadastral value and multiply it by a coefficient, they have now attached an actual market value to each property. If you visit the government website (you will need an NIE number to do this) and enter the cadastral reference number of the property, it will come up with what they call the Valor de Referencia, which is the amount that they now use as the taxable base.
Unfortunately, this can differ quite significantly from the current market value, as it seems they are basing the value on the size of the plot and property, and are not taking into account the condition of the property.
Recently we were helping two clients from the United States and they were negotiating on the price for a big villa, on a large plot of land, but which needed a lot of work to bring it up to standard. Due to the state of the property and a difficult location, we were trying to negotiate a price which allowed them to do the work and were thinking of around 600,000 euros.
However, the new Valor de Referencia stated its value as 3 million euros!
This means, that unless we could successfully appeal against that value, my clients would’ve had to pay 7-percent transfer tax, not on the 600,000 euros they were hoping to spend, but on 3 million. So, they might have bought it for 600,000 euros, but they then would’ve had to pay 210,000 euros in taxes.
To appeal the Valor de Referencia and get a decision could take as long as six months and so is definitely something to check before you fall head-over-heels with a property.
It rarely happens, but if you think you’re getting a real bargain, chances are there may be a sting in the tail. I’d recommend you ask your agent, or your lawyer just to check what the Valor de Referencia is, to make sure you don’t pay more tax than you bargained for.
About the author:
Sean Woolley is the founder and director of real estate agency Cloud Nine Spain. During lockdown Sean wrote the book “From the Ground Up – The Insider’s Guide to Buying Spanish Property,” sharing his years of experience, real life stories, tips and tricks with buyers interested in investing in Spanish Real Estate, which is now available on Amazon.