Spain: Higher taxation of real estate transactions and on existing properties

On 01.01.2022, a new law from 2021 came into force in Spain, which, according to its name, serves to prevent and fight fraud in real estate – Ley 11/2021, de 9 de Julio, de medidas de prevención y lucha contra el fraude.

In essence, a value is now determined once a year for every property located in Spain, which is used as a so-called Cadastral Reference Value for real estate transactions, namely for purchase/sale, but also for donation and inheritance and for the assessment of property tax.

Officially, this value is determined by the relevant cadastral office, although in practice, according to previous experience, the Spanish tax authorities – Agencia Tributaria – determine this value and then notify the cadastre.

This value is then to be used as the basis for determining the taxation of a transaction and filing a tax return.

Due to the large number of properties, transactions in 2022 have so far also been carried out without taking the new regulation into account. This is because corresponding values have not yet been assigned to all properties. However, according to reports, this should be done by 01.11.2022.

Although no representative data is yet available, transactions carried out so far show that in many cases the properties are valued significantly higher under the new regime. In some cases, especially in sought-after locations on the Balearic Islands and on the Spanish mainland coasts, the tax value has been doubled or tripled.

This appears to be problematic especially in cases where the actual market price obtained at the time of sale is significantly lower than the Spanish authorities‘ new tax value.
This can lead to income tax (Impuesto de renta) or capital gains tax (Plusvalía) no longer being based on the agreed and paid purchase price, but on ‚moon prices‘ that the Spanish administration has come up with.

This is because the new valuation is not carried out after an inspection of the property, which then also takes into account the structural condition and any renovation backlog. Rather, according to various offices in Mallorca and on the Spanish mainland, the valuation is carried out exclusively on the basis of files.
In many cases, especially for properties built decades ago, this could lead to completely inflated property valuations.

In this respect, it seems questionable whether the official purpose of the legislator to prevent dubious and illegal transactions can actually be achieved.
On the contrary, the new regulation may give the impression that the Spanish treasury has found a way to collect significantly higher taxes on real estate transactions and thus relieve the chronically tight state budget with its very high budget deficit.