The new way of calculating taxes for home acquisitions

As of January 1, we will see a change in the way taxes on home purchases are calculated. We are referring to the ITP (second-hand acquisition) and the Inheritance and Donations Tax (free acquisition). The truth is that the new system will also affect the tenancy, as it applies to Wealth Tax.

Law 11/2021, on measures to prevent and combat tax fraud, introduces a new reference value. Known as the cadaster value, this objective index will determine the tax liability for the aforementioned taxes.

This new situation affects the way taxes on home purchases are calculated and promises to be controversial. Not only because, apparently, it threatens certain constitutional principles, but also because it is a system that has been applied for more than five years in Castilla-La Mancha and has already been overruled by its TSJ and its TEAR.

How to calculate home purchases taxes from 2022 and onwards?

As of 2022, the cadaster reference value will start to be used. This value, which is different from the Cadastral value, tries to be an objective index, calculated based on market prices. To calculate it, the value will be based on the notary’s acts, and it will be the General Direction of the Cadaster who will determine this value annually.

The cadaster reference value can be consulted online in this institution. It will affect the Transfer Tax and Stamp Duty as well as the Inheritance and Donations Tax and the Wealth Tax.

Respectively, it will represent the tax base of the tax, the minimum value to be taxed or one of the values to be considered at the time of the liquidation. Therefore, it is presented as a measure against tax fraud, establishing objective values and avoiding the verification of value by the Administration.

Can the Catastro reference value be refuted?

Yes, it is possible. The problem is that it will be up to the taxpayer to prove that the value of the property is lower than the value established by this institution.

Although you will be able to use all the means of proof admitted in Law, this operation is not be simple. Moreover, we cannot forget that unilaterally, using a value different from the reference one may lead to the initiation of penalizing measures.

What is the problem with this new system?

The problem with the new system is that it may threaten the principle of economic capacity, established in the Constitution. According to this principle, the tax burden should be proportional to the economic capacity demonstrated by the taxpayer. In this case, it would be a tax that is proportional to the payment made, and not to an objective criteria determined in advance by the Administration.

Furthermore, it could even be contrary to the principle of presumption of innocence, as it is a presumption of fraud.  It is understood that the taxpayer acts with fraudulent intent and for that reason, an objective value is established, imposing on them the burden of proof if they consider that the value of the property is lower than the cadaster reference value.

Indeed, this is why it has been successfully appealed in Castilla-La Mancha, where it has been applied since 2015.

It is, therefore, a legislative novelty that affects the way of calculating taxes on the acquisition of a property (and, in some cases, tenancy too), and that will be full of controversy. If you have doubts about how to calculate your transfer taxes or need to appeal them, please contact us.