From 1 January 2022, a new reference value will come into force that will be the taxable base for the Transfer Tax (ITP), a tax that is paid when buying a used home. Thus, the buyer will no longer pay this tax on the basis of the purchase price recorded in the notary's office, but on the basis of a value to be determined by the Cadastre. According to the Treasury technicians, this new value comes into play to avoid tax fraud, but this measure will cause a stir, so we want to explain what the buyer will have to do if he refuses to pay.

Experts in the sector, lawyers and tax advisors criticise this new reference value because they consider that it will mean a "hidden" tax increase, as this reference value does not take into account the characteristics of the house itself. It is possible that the buyer has acquired a house at a very good price because it is in need of major renovation and the new reference value of the Cadastre will be higher than the real purchase price.

José María Mollinedo, secretary general of Gestha, the trade union of technicians of the Ministry of Finance, assures that this new reference value of the Cadastre aims to put an end to tax fraud and avoid illegal practices such as notarising the sale of a property below the price and the rest was paid by the buyer to the seller in B money, so that both would pay less tax.

The expert offers the steps to be taken by the buyer of a property in the event that he does not want to pay the ITP in accordance with the new reference value and pays it in accordance with the purchase price as recorded in the notary's deed. In fact, it will be the notary who will warn the buyer that he/she must pay the ITP in accordance with the new reference value of the Cadastre if it is higher than the deeded value. The taxpayer can refuse, but in this case he/she could be subject to a value verification procedure by the regional administration, which is known as the complementary liquidation for value verification. In practice, this means that the administration asks the buyer to pay the ITP according to the new reference value, in which case the buyer must be well prepared and must have sufficient evidence to prove that the purchased property has a lower value than the new value of the Cadastre.

This is the case, for example, of houses that need a good renovation when purchased, that have been affected by a flood or a catastrophe, or that have a bad distribution and/or orientation. In these cases, the new reference value is not so detailed, as there is no government surveyor visiting each purchased property. How will this value be calculated? This market value will be calculated on the basis of property purchase prices, according to information provided by Notaries and Registrars. Specifically, it is based on the calculation from the prices of real estate transactions that are made before a notary and depending on the cadastral characteristics of each property. This value will be determined year by year, simultaneously, in all municipalities. According to José María Salcedo, partner at Ático Jurídico, there will be no need to visit the property and, therefore, there will be no need to know the state of conservation, materials used, whether it has been refurbished or not, etc. Salcedo is not opposed to the creation of a new reference value, but "to its obligatory imposition on the taxpayer.

Salcedo does not oppose the creation of a new reference value, but "the compulsory imposition of it on the taxpayer, including a sort of presumption of fraud, which means that anyone who pays tax at a value other than the reference value will have to prove to the Treasury that they are not paying less tax than they should". This new value will affect not only the ITP (tax paid when buying a used property), but also Inheritance and Gift Tax (ISyD) and Wealth Tax, i.e. the regional tax authorities will no longer visit or check in situ the property sold, inherited or donated to see if the taxpayer has been taxed at the correct value, but the taxable base will be the reference value approved by the Cadastre.

Castilla La Mancha since 2015 already uses this new reference value as a means of checking values, with disastrous results.steps to be taken by the buyer who acquires a house below market value. Thus, at the notary's office it is advisable that the notary advises the buyer of the importance of gathering as much evidence as possible to later prove before the regional administration that he has paid the corresponding ITP and not less.

What evidence will he need?

Mollinedo recommends that at the time of signing before the notary the buyer attaches photographs of the property or invoices for improvements that have been made to the deed of sale of the property. In other words, he should bring evidence that the value of the property is lower than the value stated by the corresponding Autonomous Community. In the event that the regional tax authorities check the value of the property for ITP purposes, the buyer can challenge this value before the TEAR (the Regional Economic Administrative Court). This court will ask the Cadastre to correct or ratify the reference value assigned to that particular property value and sends it the evidence that the taxpayer has provided in the claim.

These proofs are sent to the Cadastre and they see if there were indeed important defects in the house that had to be corrected, so that the Cadastre may or may not agree with the taxpayer. In case that it does not give the reason, this one can continue litigating by judicial route, although the technicians of Inland Revenue confirm that few people usually litigate because it requires of lawyer and procurator and in the majority of occasions the buyer does not compensate him the risk of spending more money in the trial than the tax that is claimed to him, especially with the risk of losing the lawsuit and to support the costs of the trial.

Source:Idealista

Author:@pmartinez-almeida