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Tax changes in housing

Posted by Michel B. on 27/10/2020

Important housing tax changes pending materialization in the short term were already announced at the beginning of the year.

The Government has taken advantage of the approval of the Draft Law on Prevention and Fight against Tax Fraud in the last Council of Ministers to include a modification that affects the Wealth Tax, the Inheritance and Donations Tax (ISD) and the Tax on Patrimonial Transmissions-Documented Legal Acts (ITP-AJD). Changes whose processing has already begun in parliament and that fill tax experts with doubts.

Among the estimated measures are:

The limitation to 1,000 euros of payments between employers.
The end of tax amnesties.
Reduction of the debt limit with the Treasury.
More vigilance on cryptocurrencies.
The Ministry of Finance details that “given the high level of litigation in the valuation of assets and rights affected by these taxes, a reform is being carried out to give legal security to taxpayers and tax administrations, in accordance with the doctrine of the Supreme Court.”

“In the case of real estate, the reference value of the Cadastre becomes the taxable base of the patrimonial taxes, objectively”.

This means that the tax base used in these two taxes will no longer be the real value of the properties, but rather their market value; that is, the reference value established by the General Directorate of Cadastre.

According to the Treasury, “in all real estate sales actually made and formalized before a notary.” This means that it will be calculated from the prices of real estate transactions and that they are provided by notaries and registrars.

The Executive insists that the new calculations will be made based on “fair and transparent technical rules and will be set by the Land Registry through a guarantor administrative procedure for general knowledge”, the experts have doubts about how the regulations will comply with all those commitments.

The new form of valuation, despite being based on real transactions, can never take into account the circumstances of each property, nor its state of conservation, or the fact of having been renovated or not.

Let us remember that the regional Treasury will no longer have to send an expert to visit ‘in situ’ each property sold, inherited or donated, since the tax base will be the reference value established by the Cadastre. This contrasts with the current situation, in which the Courts require an individualized assessment of the property and, in most cases, the expert’s visit to the property.

“The Government prefers to change the norm, rather than adapt its practices to the jurisprudence of the Courts.”

In this sense, Luis del Amo, technical secretary of the Register of Tax Advisory Economists of the General Council of Economists, recalls that tax changes would affect taxation.

Carlos Cruzado, president of the Finance Technicians (Gestha), for his part, argues that setting a single value “will reduce litigation and increase transparency, as the Government admits,” although he not only sees positive aspects.

“It remains to be seen how these reference values ​​are going to be reached and if the rules are actually going to be fair. It is being considered that the entry into force of this regulation is temporary, but all this requires a regulation that develops how it will materialize. Ideally, the changes will come into force when that regulation is in place, not before, and that, in some way, the individual case of each property is taken into account, in addition to achieving a value adjusted to the real market ”, he adds.

Cruzado also puts on the table that these changes are going to involve “an enormous job for the Cadastre”, which could cause a collapse of the body (which in 2020 has about 2,260 public employees) and make it difficult to achieve the initial objective: that this reference value is published annually so that it adjusts to the evolution of the market.

Both the president of the Finance Technicians, the partner of the law firm Ático Jurídico and the technical secretary of the Registry of Tax Advisors Economists acknowledge that the modifications will result in a tax increase in many cases. An increase that is part of the Government’s objectives of collecting between 2021 and 2022 about 9,000 million additional euros through the creation of new tax figures (‘Google rate’) or the increase of others already created (VAT of the sugary drinks, companies and, predictably, personal income tax on high incomes). An obvious example is in the Estate Tax.

In this case, taxpayers must declare the properties they own according to the highest of these three values: the cadastral, the one verified by the Administration or the acquisition. But the approval of the new Law will add a fourth value: the Land Registry reference ”. And he adds that “this new market value will affect those who have properties with a very low acquisition or cadastral value, since they will be obliged to pay taxes, when before they did not have to.”

Along these lines, Luis del Almo believes that “the most affected will be those with very old properties, whose cadastral value will surely be very low compared to the reference value.” In this case, insists the technical secretary of the Registry of Fiscal Advisory Economists of the General Council of Economists, “they may even be discriminated against.”

What’s New

The new regulations will leave the taxpayer in a much more uncomfortable situation than before. And it is that this official reference value approved by the Cadastre is presumed true, unless proven otherwise.

Once it enters into force, the taxpayer will be in charge of proving that the property has a lower market value than that stated in the Cadastre. Therefore, it implies a transfer of the burden of proof, since now it will be the taxpayer who must prove what the real value of a property is.

Said test may consist of;

In the provision of a notarial act to prove the real state of the property.
An expert report may also be provided, showing that the reference value does not correspond to the real value of the property.
In short, we are facing means of proof that will have a cost for the taxpayer.

The president of Gestha insists that, in case there are discrepancies between taxpayer-Administration or there is an error, “the only alternative that the taxpayer will have will be the resource.”

Without forgetting that there is always the contradictory expert appraisal to claim what the autonomies mark, although this supposes a cost for the taxpayer.

It also recommends creating a simple channel so that taxpayers can, individually, claim the reference value of a property without a real estate operation involved.

The Treasury explains that this new use of the reference value “has the support of the Autonomous Communities unanimously and the standard presented is the result of the consensus reached in the Superior Council for the Direction and Coordination of Tax Management, an inter-administrative body in the one in which the CCAA are represented, together with the Ministry of Finance and the Tax Agency ”.

Everything indicates that its implementation will be fast. The Executive insists that all the autonomies “have expressed their willingness to sign, imminently, collaboration agreements with the State for the coordination of actions related to the reference value.”

Finance sources explain that the Project will be made public imminently. In addition, it will be necessary to develop a regulation that specifies how the reference value will be established, what type of evaluation factors will be included and whether it will facilitate the taxpayer to appeal.

The Government does not rule out that the final entry into force of the regulations could take months. Experts believe that it could be operational during the first quarter of 2021.

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