To buy a property, we must accept the market price set by the owner and proceed to pay it, either in cash or through a mortgage. However, for legal purposes, the owner is not the only one who sets a value for their property, because there is also an appraisal process conducted for tax purposes, which, as buyers, it is important for us to understand and take into account.
This refers to the cadastral value of the home, which is what we’d like to discuss with you today on our blog.
What is the assessed value of a home?
The land registry is an official administrative record that is mandatory for all real estate properties. It falls under the jurisdiction of the Ministry of Finance and Public Administration, and its purpose is to compile physical, legal, and economic data on these properties; therefore, it is necessary to report any relevant facts, acts, or transactions involving them, such as:
- The acquisition and consolidation of property; the establishment, modification, and acquisition of an administrative concession and of usufruct and surface rights; as well as changes in ownership interests.
- The construction of new buildings, as well as the expansion, renovation, or remodeling of existing ones, whether partial or not.
- The total or partial demolition or dismantling of buildings.
- The subdivision, division, consolidation, and grouping of real estate properties.
- The Establishment of the Horizontal Property Regime for Real Property.
- A change in the type of crop or land use.
- A change in the use or purpose of real property or premises that are part of buildings or facilities.
In addition, it is a basic mechanism that allows the Treasury to collect certain housing-related taxes, such as the Real Estate TaxProperty(IBI), the Municipal Capital Gains Tax (Increase in the Value of Urban Land), the Individual Income Tax (IRPF), and the Transfer and Inheritance Tax. This is primarily because it relies on the property’s assessed value— an administrative estimate of its price that allows for the calculation of the amount the owner must pay for each of these taxes.
How is the assessed value of a home calculated?
To determine the assessed value, the Tax Agency takes into account several factors that are directly related to the home:
- Its location, since the geographic location affects this calculation.
- The property’s characteristics, such as its size, age, materials and type of construction, condition, etc.
- Its intended use—in our case, residential.
Typically, the assessed value does not exceed the property’s market value; therefore, municipalities may update it annually by applying the coefficients published in the General Budget Laws. This helps bring assessed values closer to the current market value of real estate.
As a point of interest, keep in mind that the reference coefficient typically used for the market is 0.5. This means that, ideally , a home’s assessed value should be half of its current market value.
What is the difference between a home’s assessed value and its market value?
As we just mentioned, the assessed value of a property is an administrative value and objective value established by the tax authorities for tax purposes. Meanwhile, the market value is the price set by the seller, taking into account various factors, such as the home’s characteristics, its location, and the current state of the real estate market.
That is why these two values are usually different: regardless of how much you pay for the home, the tax authorities will assign it a separate assessed value. This value will determine the amount of taxes you must pay on your income tax return for that tax year.
Difference from the cadastral reference value
Now that we understand the definition of a home’s cadastral value, it is important to distinguish it from another similar concept: the cadastral reference value. This concept was introduced in 2022 to better align the value with the actual market price, since its calculation takes into account the actual sale prices of properties registered in the Property Registry.
Specifically, a list of property reference values is published each year, based on the location of the properties. This provides property owners with very useful information so they know how the tax authorities are valuing their properties. In fact, the cadastral reference value is the parameter used to establish the taxable base for calculating taxes such as the ISD ( Inheritance and GiftTax ), the ITP (Property Transfer Tax), and the Stamp Tax (AJD).
In this regard, it is important to note that, as of January 2023, the reference value is the minimum taxable value. This means that it will be the amount used as the tax base for calculating taxes in cases where taxpayers report having paid more for the property than the cadastral reference value indicates.
How can I find out the assessed value of my home?
To calculate the assessed value of their home, homeowners do not need to take any action, as the government is responsible for determining it. However, they can easily access this information, given its implications for meeting their tax obligations.
Therefore, to find out the assessed value of a home, we can check the property’s most recent property tax bill, which also contains other useful information, such as the value of the land and the structure.
In any case, this isn’t the only option available to us, because we can also look it up on our most recent tax return or request it through the Land Registry’s online portal, or by visiting one of the cadastral information centers , or by submitting documentation proving that we are the owners of the property to the regional office of the Land Registry.
Calculating the Cadastral Value of a Home
If, despite everything we’ve said, you still want to calculate the assessed value of your home on your own, we have good news for you: you can do it easily if you know both the amount of property tax you’ve paid and the tax rate applied to you. To do this, divide the tax amount by the aforementioned tax rate and multiply the result by 100.
Knowing a home’s assessed value to avoid surprises
In summary, before purchasing a home or engaging in any type of real estate transaction—such as a transfer by inheritance—it is important for the future owner to take into account both the cadastral value and the cadastral reference value, because these two figures will allow them to calculate the amount of the various taxes they will have to pay later on. This will help you avoid any unpleasant surprises and ensure you are prepared to meet your various tax obligations.
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