Who Pays Taxes and Community Fees in a Rental Contract With the Option to Buy

On July 11, 2020, the Law on preventing and fighting against tax fraud came into force.

It reforms different taxes related to property, namely: personal income tax, Transfer Tax, Inheritance and Donation Tax and Wealth Tax.

Here are the changes to take into account:

You can only reduce the 60% of the rent you receive as an owner in personal income tax if you previously declared it in self-assessment.

The Law modifies article 23.2 of the Personal Income Tax Law, including the following wording: “This reduction will only be applicable on positive net returns that have been calculated by the taxpayer in a self-valuation tax filing. This self-valuation has to be made before any data verification process is initiated by the Treasury.”

The reduction may not be applied if the owner declared less income or unduly deducted expenses, losing the reduction of undeclared income or expenses deducted.

Maintaining the tax benefit of inheriting a house in life if it is sold five years later.

If you receive a house as a living inheritance, you keep it in your estate for five years, and you sell it after those five years, you are only taxed by Inheritance and Donations Tax and not in Personal Income Tax.

These so-called “in-life succession agreements” are only possible in Galicia, the Basque Country, Navarra, Aragon, and Catalonia and will only apply to transfers by succession agreement made after the entry into force of the new Law (on July 11, 2021).

In addition, transfers made by succession agreement between the same people will be accumulated. However, they will be considered a single transfer when they are carried out within three years.

How does the way of valuing properties change Transfer Tax and Inheritance, and Donation tax?

The tax base of these two taxes will no longer be the real value of the properties but their market value. And the regulations presume that this is the reference value approved by the General Directorate of the Land Registry. Therefore, the taxpayer must demonstrate that said reference value does not correspond to the property’s value. Therefore, the burden of proof is reversed.

The regional Treasury will no longer make a visit or an on-site check of the property sold, inherited or donated. Still, the tax base will be obtained by reference to the value approved by the Land Registry.

According to information provided by Notaries and Registrars, this market value will be calculated from the prices of real estate transactions. It will come into effect in January 2022, which will affect all operations that are signed from this date, not before.

As has been said, this new market valuation will be the Land Registry reference value and, therefore, will affect both the Transfer tax, the Inheritance Tax and the Wealth Tax. Thus, the taxpayer must pay taxes on said value when buying, inheriting or receiving a home as a donation.

“Each year, the Cadastre, before October 30, will publish “the precise elements for determining the reference value of each property by applying the aforementioned average value modules and the corresponding reduction factors, in the manner which regulations will determine.”

And the National Official Gazette will publish on the first 20 days of December an “informative announcement for general knowledge of the reference values ​​of each property, which, since they do not have the condition of personal data, may be consulted permanently through the Electronic Office of the Cadastre. “

What happens if the reference value is lower than the market value for which I have bought?

With this new anti-fraud tax law, the taxpayer is obliged to pay taxes for the notarized value if it is higher than the official value of the Autonomous Community. Thus, the new wording of article 10 of the Property Transfer Tax Law establishes that “if the value of the real estate declared by the interested parties, the agreed price or both are higher than its reference value the highest of these magnitudes will be taken as the taxable basis.”  

In addition, the same provision is included in the Inheritance and Donations Tax.

What if the reference value is not the market value? Can the valuation be challenged?

The new Law introduces a “iuris-tantum” presumption, which establishes that the market value of the properties is the official reference value approved by the Land Registry. The presumptions “iuris tantum” are those that admit evidence to the contrary.

There are two ways to challenge this benchmark:

• Self-liquidate for the official value and immediately afterwards request the rectification of the self-assessment.

The verification of values will also reach the seller of the property

The Treasury will apply the new valuation both to the person who transmits the property and to the person who acquires it.

This will affect the seller in both personal income tax and local capital gains ( Plusvalía).

Entries of the Treasury to homes are allowed by surprise.

The recently approved Law 11/2021 modifies article 8.6 of Law 29/1998, which now expressly provides that “The Contentious-Administrative Courts will have faculties to authorize entries into homes and other constitutionally protected places, which the Tax Administration has agreed within the framework of an action or procedure for the application of taxes even before the formal initiation of these tax inspection proceedings if having required said access to the owner, he opposes it, or there is a risk of such opposition.”

Maria Luisa Castro

Director and Founder
María founded CostaLuz Lawyers in 2006 and is the Firm’s Director. María is registered Lawyer number 2745 of the Cadiz Bar Association and is licensed to practice in all areas of law throughout Spain. Working closely with her team, María has developed the firm into one of the most highly regarded and trusted Spanish Law Firms acting for English-speaking clients with legal problems in Spain. We’re here to help. Contact us today for a free no-obligation consultation.
 

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