Does this sound familiar? “We’ll dissolve the co-ownership of the flat using what we paid for it back then as the value. That way there is no capital gain for income tax. Neat.” Then the doubts arrive. What if the value you declare is lower than the Cadastre’s reference value (valor de referencia, or VR)? Will the regional tax office send a parallel assessment? Will it fine you? Does a higher VR affect your income tax (IRPF)?
I answer those questions below with two worked examples, the binding rulings of the Spanish tax directorate (DGT) and the case law that matters. The setting is an extinción de condominio, the Spanish legal way to end co-ownership, where one co-owner keeps the property and compensates the others.
Reference value Spain property: which value counts in each tax
The value you declare affects each tax differently. For AJD (actos jurídicos documentados, the stamp duty on the deed, which forms part of the combined transfer tax and stamp duty known as ITPAJD), the VR is a compulsory minimum base. Declare below it and you invite an assessment and a penalty. For income tax, both the gain of the co-owner who leaves and the future acquisition value of the co-owner who stays rest on the real amount of the compensation, not on the VR. Market value works as a floor for the first and a ceiling for the second.
The VR is an administrative value set by the Cadastre from sales signed before a notary. It is the minimum base for ITPAJD and for ISD (impuesto sobre sucesiones y donaciones, gift and inheritance tax), and it is capped at market value. Finally, settle in money any imbalance in the shares, so the tax office cannot ask for gift tax on an excess of allotment (exceso de adjudicación, when one co-owner receives more than their share).
| Tax | What is calculated | Which value counts | Risk | How I protect you |
|---|---|---|---|---|
| AJD | The new part the co-owner taking the property “acquires” | The higher of the declared value and the VR, applied to the percentage newly acquired | An assessment if you declare below the VR | Treat the VR as the floor for AJD, and challenge it afterwards if you need to |
| Income tax of the co-owner who leaves | Gain or loss | The compensation paid; if it is below market value, market value prevails | A declared value below the VR can trigger a check | A market valuation matching the compensation when that is below the VR |
| Income tax of the co-owner who stays (future sale) | Acquisition value of the new share | What was actually paid for that share, plus costs and taxes | Using the VR, when it is higher than the declared value, as your future acquisition value | Your future acquisition value starts from the real amount, not from the VR |
| TPO (transfer tax) or ISD on excesses | Whether there is an excess and how it is classified | It depends on whether it is compensated, and on the context (shares, divorce and so on) | A gift assessment for not compensating and declaring below the VR | Avoid imbalances caused by the VR; state that there is no intention to make a gift |
| Plusvalía municipal (IIVTNU, municipal land value tax) | Acquisition or transfer value of the whole property | In a properly done dissolution it is not triggered and the current value does not matter | Only in dissolutions that do not comply with art. 1062 of the Civil Code | Nothing to protect if it is done properly |
Declared value lower than the reference value: one flat owned 50/50
Álex and Bruna own a flat 50/50. The VR of the flat is €150,000. They put €100,000 in the deed because they want to, ignoring the notary’s warnings. Álex keeps the flat and pays Bruna €50,000. (If you want the wider picture of how that payment is taxed, I explain it in my guide to buying out a co-owner of a property in Spain.)
Stamp duty (AJD): Álex pays on the share he acquires
The tax is calculated on the higher of two figures. The declared value of €100,000 gives €50,000 for his new 50% share. The VR of €150,000 gives €75,000. The VR in the proportion acquired is the floor of the base.
I would recommend that Álex self-assesses on €75,000. That way his regional tax office cannot check the value afterwards. If he self-assesses on €50,000, he will almost certainly receive a letter asking for the unpaid tax, late-payment interest and a penalty of 50% of that tax. The reasoning on the other side is easy to predict: the rule is clear, and the deed itself records that the notary warned you. Keep in mind that if you declare below the VR, the tax office does not even need to check the value, because the VR is already the base by law.
Income tax of Bruna, who leaves
Her gain or loss is the transfer value minus the acquisition value. DGT binding rulings V1512-23, V1744-24 and V0512-25 say that the transfer value is the real amount of the disposal: what was actually paid, meaning the compensation of €50,000, as long as it is not below normal market value (art. 35.2 of the Income Tax Act). This holds regardless of the ITPAJD base that is tied to the VR.
Income tax of Álex, who stays: a later sale or gift
For a future sale or donation, the acquisition value of the share he acquired starts from the compensation, €50,000. The VR is irrelevant to him (rulings V0512-25 and V1694-22). There is one exception. If the parties declare and compensate an excessive value, say €700,000, far above the VR, the ceiling for the acquisition value is market value. So market value is a floor for the transfer value and a ceiling for the acquisition value. If there is no VR on the day of the dissolution and the tax office sets the value in a later check, that checked value becomes the real amount from which the acquisition value starts (V0293-24). For the wider income tax picture, see income tax when dissolving co-ownership in Spain.
Several flats divided into equal lots
The same co-owners own two flats, which they value at €100,000 each, and they divide them: Álex takes flat 1 (VR €100,000) and Bruna takes flat 2 (VR €120,000). AJD and gift tax come into play. Income tax does not, because there is no change in anyone’s asset position.
Is the AJD base the full value or only the part acquired?
Only the part acquired anew, meaning the share of the other co-owners, applied to the higher of the declared value and the VR. Álex’s base is €50,000. Bruna’s base is €60,000. If there is no VR, the minimum is market value (ruling V2597-24).
Can the tax office charge gift tax on the difference?
Rulings V0143-22 and V2556-24 take the view that the “fictitious” excess between the declared value and the VR, if it is not compensated, is taxed as a gift (and then, if you wish, you ask for a correction). In our example, Bruna is pushed by a VR of €120,000, against the €100,000 declared for the other flat, to an excess of €10,000. If she does not compensate Álex for it, the DGT invites her to pay gift tax: AJD base €50,000 and ISD base €10,000.
Two sources take that view apart. The notary Máximo Javier Juárez, an expert in tax matters, argues in his April 2025 tax report in Notarios y Registradores that the supposed excess is a fiction, and that in tax law fictions require a rule with the rank of a statute. And the Supreme Court, in ruling 963/2022 of 12 July 2022, held that excesses of allotment are regulated specifically by art. 7.2.B of the Transfer Tax Act, separately from the gift and inheritance tax, and that to assess a gift there must be animus donandi, the intention to make a gift.
What to do if the reference value unbalances the shares
With Álex and Bruna’s flats, there are three ways forward:
- The DGT’s proposal: Bruna self-assesses ISD on €10,000 (the uncompensated excess) and AJD on €50,000 (the compensated part).
- Declare both flats at the higher VR (€120,000), so that each pays AJD on €60,000.
- Put whatever value they want in the deed (€100,000 per flat), but Bruna pays AJD on €60,000 and the parties state in the deed that there is no animus donandi.
It is like the greengrocer’s: take the avocado you prefer.
One caution. So far, the rulings that invite you to pay gift tax concern lots, where everything balances and nobody pays anything. In ruling V2496-23 (one flat, compensation far below the VR) the DGT did not say there was a gift. It said only that the buyer pays AJD on the percentage acquired, calculated on the VR, and that if he disagrees he can ask for a correction. No gift tax.
Sample tax clause for the deed when the declared value is below the reference value (English translation)
The text below is an English translation so you can understand it. The deed itself is signed in Spanish.
Take this example. Pepa (50%) and her nephews Jorge and Juan (25% each) dissolve the co-ownership of a flat they value at €100,000, with a VR of €110,000. Pepa keeps the flat and pays €25,000 to each nephew. Prudently, she pays AJD (say at 1.5%) on the VR (art. 10.2 of the Transfer Tax Act): the base is €55,000, the 50% she acquires. Because the compensation is €50,000 and not €55,000, the following set of tax statements is meant to discourage the tax office from assessing a gift.
“The co-owner taking the property will pay ITPAJD under the AJD heading, on the part she acquires ex novo, based on the reference value. Since the reference value of the whole property is €110,000, the excess of allotment arising from that value would amount to a combined €55,000, while the excess of allotment shown by the declared value, which has already been paid, amounts to a combined €50,000, so the co-owner taking the property would have a further excess of allotment of €5,000 to compensate. If, in relation to this higher value, the Tax Authority were to understand that the lack of compensation implies, or could imply, a free attribution, a waiver or a gift subject to ISD, the parties expressly declare:
That in no stipulation of the co-ownership dissolution is there any animus donandi on the part of any of them in favour of another.
That they understand that the fact that the reference value is higher than the declared value gives rise to no credit that the co-owner taking the property must compensate; and that if the Administration considered that it did, they declare it extinguished in this same deed by set-off against the extra work carried out in managing and advising all the co-owners in the procedures of the inheritances that gave rise to the co-ownership now being dissolved.
That they reserve the right to challenge the reference value and any assessments they consider incorrect, and they grant each other powers of attorney to do so.”
The reference value as an income tax “tell”
The VR was born in Law 11/2021 on the prevention of and fight against tax fraud, to stop the tax office from systematically losing value checks. In practice, the Administration decides the “right value” using its own rules, turns it directly into the minimum base of ITPAJD and ISD, and if you disagree, you pay first and then appeal and prove its mistake.
The DGT (ruling V0512-25) tells you not to worry: the VR belongs to other taxes, and for income tax you put the compensation as the transfer value. Unless it is below market value.
The third final provision of Law 11/2021 says the Cadastre determines the VR “objectively and with the limit of market value”. With Álex and Bruna’s figures (declared €100,000, compensation €50,000, VR €150,000, and art. 35.2 of the Income Tax Act), my opinion is this. The VR is not automatically carried over as market value, but it does put a discrepancy on the table that could trigger a check by the tax agency (AEAT) if Bruna declares €50,000 as her transfer value instead of €75,000.
Should you declare below the reference value?
Dissolving a co-ownership is the cheapest way to tidy up your property, but since 2022 the VR has acted as a Jiminy Cricket for our valuations. If the numbers do not add up for you, work out the strategy that protects you best before you sign. I have studied thousands of co-ownership dissolutions in Spain, and I work with clients in English. You can start with my overview of dissolving co-ownership in Spain. If a letter from the regional tax office has already reached you, read what to do when you receive a Spanish property tax reassessment.
Frequently asked questions
Is the AJD base the full value or only the part acquired?
The part acquired anew. If a 50% co-ownership is dissolved, the base is 50% of the value.
Do I have to use the reference value if it is higher than the declared value?
Yes. For real estate the base is the VR unless the declared value or agreed price is higher, in which case the higher figure is taken. If you do not do this, the tax office will assess with interest and a penalty, and it does not need to check the value first. In the deed, put the value you agreed. In the self-assessment, use the VR if it is higher.
Are the reference value and market value the same?
No. Market value is the most likely price between independent parties for a property free of charges. The VR is an administrative value set by the Cadastre from sales made before a notary, the minimum base for ITPAJD and ISD, limited by market value.
When is there a risk of a gift tax assessment?
When one co-owner is allotted more than their share and does not compensate the difference. For the DGT this is a free transfer subject to ISD. The Supreme Court, by contrast, requires animus donandi.
If your declared value is below the VR, or the Spanish tax office has already written to you, let us look at the numbers together before anything is signed or paid.