If you have a dream of buying a property in Spain, you will want to keep reading our Buying a property in Spain series. In this article, you will learn about the Reference Value.
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If you plan to buy in Spain, you should know what the term “Reference Value” means.
Despite the fact that this Law has been in force since January 2022, it is surprising that there are many professionals who are still unaware of its existence. The relevance of this new law is extremely important since it directly affects the amount of taxes (stamp duty) that must be paid when you buy a property. For this reason, I will try to explain, in a simple way, what its objective is.
The Real Price
When you buy a property, as is usual, there is a Real Price. It is the price you pay for the purchase of the property, and that is the price that will appear in the Deeds. This means that if you find a great bargain, in theory, you will pay taxes (stamp duty) on the actual purchase price. However, in the Spanish system, there has always existed the possibility that the Hacienda or tax office would do a Value verification.
This meant that even though you had bought a good bargain, at a good price, if the tax office considered that the Market value was higher, they would ask you to pay the taxes (stamp duty) on that higher value, and not on the real price that you had paid. This caused unpleasant surprises for buyers, who suddenly received letters from the tax office claiming a large amount of money.
These letters from the Tax Office may be appealed, and in many cases, they could be won. However, on some occasions, the expense of Lawyer’s fees to appeal them, was greater than the amount being claimed. For this reason, many buyers preferred to pay the new tax that was being demanded. This additional tax, in most cases, was unforeseen and had not been taken into account by clients when doing their calculations before buying the property.
Change in Law – Reference Value
To avoid all the resources that existed to determine what they understood to be the Market value, the Government invented, from its incredible imagination, a way that this Market value could not be appealed to by the buyers (in many cases, these appeals meant that the tax office was not able to collect the amount demanded).
So, they approved a new law that came into force on the 1st of January, 2022. In said law, most properties in Spain now have a fixed market value that has been set by the tax office, which is called the Reference Value.
And if the real value is higher than the tax office’s set value, this will be the one applied (it is clear that the tax office is not stupid and will always apply the higher value, to collect more taxes). But, if the real price is lower than the Reference Value, you will have to pay the tax (stamp duty) applying the new law (the Reference Value).
You must find out the Reference Value before buying a property in Spain, so you know the tax that will be calculated with your purchase. So when you are buying a property, remember that you have to know what the Reference Value of the property is. In doing so, you will not be surprised when doing the calculations of approximate costs in the purchase of the property.
TAKE NOTE: At the moment, all the properties in Spain do not have a Reference Value, although the intention is that in future years, all properties will. Now almost all urban properties have one. Hardly any rustic properties have a reference value.
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About the Author: Fran has been a lawyer in Spain for more than 20 years and is based in the Costa Tropical. He is fluent in English and Spanish and can facilitate you buying a property in Spain. While he is located on the Costa Tropical, he can assist with any properties in Andalucia and eastern Spain. You may read more about his services and what offers he has for free consulting, see lawyer in Spain.
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