Carlos Baos: Expert legal advice by Spanish lawyers on the Costa Blanca

It is without doubt one of the most common questions asked by taxpayers when accepting an inheritance, making a gift, or purchasing a property. Is it possible to challenge the Reference Value? In effect since January 2022, the Reference Value is the minimum value that, by law, must be used to calculate certain taxes.

In today’s article, we explain the main problems caused by this value. How it is calculated. And also, the different alternatives you have at your disposal to challenge this value, if you consider that it does not represent the real value of your property.

How does the Reference Value work?

The Reference Value acts as the “minimum value” when paying taxes, such as Inheritance Tax, Gift Tax, Transfer Tax, Duty Stamp Duty, etc. The tax base will always be the higher value between the declared value and the Reference Value. Therefore, if you buy a property for €90,000, but the Reference Value is €110,000, you will have to pay taxes on the basis of the Reference Value.

What is the method used to calculate this tax?

The General Directorate of Cadastre publishes these values every year. The calculation is based on the analysis of the price of real estate transactions signed before a Spanish Public Notary, and on the application of average value modules. The main flaw of this system is that it completely neglects the particularities of each property: its state of conservation, whether it is renovated or not, if it is a ground floor or a penthouse, etc. As a result, the Reference Value is often significantly higher than the real market value.

How can the Reference Value be challenged?

Basically, there are two options.

• On the one hand, to pay the corresponding tax based on the value that the property is actually being transferred (even if it is lower than the Reference Value). Then, wait for the Tax Agency to challenge the declaration and argue that the Reference Value does not correspond to the real value of the property. However, bear in mind that, in the event that your claim is not successful, you will have to pay not only interest for late payment, but also, foreseeably, a penalty.
• The most conservative option is to pay the tax based on the Reference Value (even if you think it is unfair) and then claim against the Tax Office, asking for a refund of the overpaid amount.

Please note that, in both cases, the Reference Value is presumed to be correct until proven otherwise. Meaning that, to argue that this “minimum administrative value” is excessive, in both cases, you will need to provide a valuation carried out by a valuation company approved by the Bank of Spain that certifies it.

If you want to challenge the Reference Value, please do not hesitate to contact us. We will study your case and offer you expert legal advice.

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Carlos Baos (Lawyer)

White & Baos.

Tel: +34 966 426 185

E-mail: info@white-baos.com

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