1. What is cadastral value and how is it calculated?

Cadastral value is an administrative assessment objectively set by the Directorate-General for Cadastre (Dirección General del Catastro), a body under the Ministry of Finance. It is assigned to every urban or rural property according to the criteria set out in each municipality's schedule of values (ponencia de valores).

To determine this figure, two fundamental elements are taken into account: land value and construction value. The calculation factors in property location, building age, material execution costs, state of conservation, construction quality, and municipal urban planning guidelines.

As a general rule, legislation stipulates that the cadastral value must not exceed the market value. To ensure this principle is upheld, the administration usually applies a market reference coefficient set at 0.5. As a rule, this places the cadastral valuation at around 50% of the property's commercial value at the time the Schedule of Values is approved.

Taxes linked to cadastral value

Cadastral value serves as the tax base or benchmark for settling several recurring local and regional taxes:

• Property Tax (IBI - Impuesto sobre Bienes Inmuebles): An annual local tax that uses the cadastral value as the direct tax base to which each town hall applies its tax rate.
• Municipal Capital Gains Tax (Plusvalía Municipal / Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana): Uses the cadastral land value to calculate the gain in property value during transfers.
• Personal Income Tax (IRPF - Impuesto sobre la Renta de las Personas Físicas): Triggers property income imputation for second homes or unlet properties that are not the primary residence.
• Wealth Tax (Impuesto sobre el Patrimonio): Includes the cadastral value as part of the asset valuation assessment to establish net taxable wealth.

2. What is the Cadastre reference value?

Introduced by Law 11/2021 on measures to prevent and combat tax fraud, the Cadastre reference value came into force in January 2022. Unlike the traditional cadastral value, this figure does not seek to quantify property wealth for recurring taxes such as IBI, but rather to establish a minimum tax base for indirect wealth taxation.

The Directorate-General for Cadastre determines this value annually using purchase and sale prices declared before a notary in public deeds and registered in the Land Registry. After processing this data, the administration assigns value modules to each homogeneous area and applies a discount factor of 0.9 to ensure that the reference value remains below actual market price.

Use of the reference value in tax assessments

The reference value is the mandatory figure used to determine the tax base in two key operations:

• Property Transfer Tax and Stamp Duty (ITP and AJD - Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados): Payable on resale property purchases.
• Inheritance and Gift Tax (ISD - Impuesto sobre Sucesiones y Donaciones): Applicable when inheriting or receiving a property as a gift.

If the parties sign a purchase agreement or process an inheritance at a higher value than the reference value, tax is paid on the higher figure. If the deed is executed below the reference value, the regional tax agency will settle the difference by applying tax rates to that official reference value, demanding top-up tax payments and late-payment interest.

3. What is market value?

Market value represents the estimated amount for which a property would exchange on a given date between a willing buyer and a willing seller, after an adequate marketing period and in an arm's length transaction where both parties act freely and knowledgeably.

Unlike administrative valuations, market value is highly dynamic. It responds directly to supply and demand, macroeconomic shifts, mortgage credit availability, and the unique characteristics of the property.

Commercial value is influenced by intangible and specific factors that the Cadastre does not immediately reflect: recent refurbishment quality, views, natural light, interior layout, condition of communal areas, or the property's energy efficiency.

4. Key differences between cadastral value and market value

The conceptual distinction between cadastral value and market value is decisive when structuring a property transaction or planning the tax impact of an inheritance or gift.

While cadastral value is a static, objective tax estimate of a confidential nature, market value is the actual price privately agreed upon for the financial transaction.

Analysing the relationship between cadastral value and market value requires understanding their operational differences:

• Primary objective: Cadastral value is used to collect local taxes and impute income. Market value sets the economic equilibrium point of the purchase and sale.
• Updates: Cadastral value requires municipal schedules of values that are typically updated years apart. Market value fluctuates continuously depending on local socio-economic conditions.
• Discrepancy margin: Due to the legal reduction coefficient, cadastral value usually sits between 30% and 50% below a property's market value.
• Regulatory effects: Attempting to sell a property at its cadastral value will result in a significant financial loss for the owner, alongside potential tax valuation checks if that price falls below the regional reference value.

5. Special cases: Officially Protected Housing (VPO) in Comunidad de Madrid

In Comunidad de Madrid, the interaction between these three valuations exhibits specific peculiarities when dealing with Officially Protected Housing (VPO) or protected status properties.

For these properties, regional regulations impose a maximum legal sale price. Even if free-market demand could drive market value above that figure, the law prohibits transferring the property at an amount higher than the statutory ceiling set for the corresponding protection category and municipality.

In a VPO located in Comunidad de Madrid, the maximum legal price acts as an unbreakable ceiling on market value. If the owner wishes to transfer the property at free market prices, they must first request property disqualification (descalificación) from the relevant Madrid authority, provided that the protection category and the time elapsed since final classification allow it.

6. How do these three values co-exist in a property purchase?

When preparing to buy or sell a property, all three values come into play at different stages of the transaction:

1. Pricing phase: The seller should rely on market value to set a competitive listing price, ignoring Catastre references as an economic pricing metric.
2. Mortgage application phase: The bank will order an official valuation through a valuation company supervised by Banco de España to certify the market value and set mortgage funding limits.
3. Deed signing and tax settlement phase: The notary will record the agreed purchase price. For the settlement of ITP (by the buyer) or ISD (by heirs), the reference value will be checked. Tax will be levied on whichever figure is higher between the deed price and the reference value. Meanwhile, municipal capital gains tax (plusvalía municipal) will be calculated based on the cadastral land value.

7. Why a professional valuation assessment is key

Correctly evaluating cadastral value and market value prevents financial imbalances and disputes with the tax authorities. Setting an asking price based solely on cadastral data or administrative reference values can lead to offers detached from market demand or unexpected tax liabilities for the buyer.

A valuation conducted by an expert team incorporates an analysis of local notarised deeds, land planning status, building condition, and autonomous community tax regulations.

If you would like to determine the true commercial value of your property with full legal and technical rigor, request a consultation with our specialist technical team in property valuation.