How are real estate assets in an inheritance valued in Spain
How are real estate assets in an inheritance valued In Spain. Real estate assets in an inheritance are always valued, whether it is to address tax payments or to carry out the distribution and allocation among the heirs. Depending on the value assigned to the assets, it is possible to make the mistake of favoring or harming some of the parties involved.
Therefore, in this article, I want to provide you with all the necessary information you need to know if you have to value real estate assets in an inheritance and address any doubts you may have.
In the valuation of real estate assets in an inheritance, it is extremely important to understand that it is a complex process involving multiple parties with different interests and needs, and the appraiser must act with the utmost rigor. The decisions derived from the value obtained through an appraisal can have a significant impact on the immediate future of the parties involved. Let’s clarify any doubts regarding this matter.
If you want to read specific content directly, you can find the contents of this page in the box above. As a specialized property valuation expert, I have summarized what you need to know about how to make a home appraisal for inheritance.
What is an inheritance
An inheritance is the process by which the assets and liabilities of a deceased person, also known as the deceased, become the property of their heirs. The right to inherit, whether by law or through a will, entitles a person to receive all the assets and debts of the deceased upon accepting the inheritance.
The universal heir, legitimate heir, or legatee has the option to refuse the inheritance, renouncing it if they deem it appropriate.
Anything other than establishing the market value of the property in an inheritance would be a falsehood and would result in one heir being harmed to the benefit of another, I can guarantee you that
What is an inherited property
An inherited property is a property that was part of the real estate assets of the deceased and, through the succession process, becomes the property of the heir(s).
The types of inherited properties are diverse, with the most common ones in this type of process being apartments, houses, garages, storage units, plots of land, and vacant lots. In addition to these, there can also be properties that are subject to economic activities such as hotels, hospitals, or shopping centers.
Who appraises a property in an inheritance in Spain
The appraisal of real estate properties in an inheritance should be done by a property appraiser. This is a specialist in real estate valuation who knows how to study and analyze the property, and based on that, use the most appropriate method to determine its value.
In the appraisal of inherited properties, it is necessary to obtain the market value of the assets either as of the date of death or as of the date of distribution. This market value will guide the decisions and distribution of the assets.
Hence, it is important to know how to hire the right appraiser for this purpose.
When are properties appraised in an inheritance
As I mentioned in the first paragraph, properties in an inheritance are always appraised. Depending on the stage of the succession process, a different value should be applied to the property.
On one hand, a value is established for the property for the purpose of inheritance and gift tax payment (I will explain how it is appraised below). On the other hand, it will be necessary to know the value of the properties if the intention of the heirs is to distribute and allocate the assets once the tax has been paid, or even in the future.
Below, I will provide you with the two stages and the respective values to be established in each of them.
Remember that nothing breaks up families more than an inheritance, and an appraisal of assets promotes understanding
Valuation of an inheritance as of the date of death
Often, there is a question of whether the valuation of an inheritance is as of the date of death or not. In relation to this, I have to tell you that for a fair distribution, the valuation should be done at the time of asset allocation.
The real estate market is constantly fluctuating. In the case of an inheritance, it often happens that the heirs accept the inheritance (within 6 months, with a maximum extension of 1 year) without individually allocating the assets. This means that they all have joint ownership of everything. The problem arises when, after some years, they want to distribute the assets individually and dissolve the joint ownership of the properties.
It is precisely at that moment when the assets should be valued because their value may be higher or lower than at the time of the deceased’s death.
How are the properties in the inheritance valued for tax purposes
Since January 2022, the cadastre in Spain is responsible for valuing the properties in the inheritance for tax purposes. This means that it is mandatory to pay inheritance tax based on the value determined by the cadastre through the reference value.
The cadastre provides an «approximate market value» without taking into account the condition of the property (as it does not visit it) and external characteristics of the property. Based on the average of transactions carried out before a notary and information obtained from the registry, they offer an estimated value of the property.
How to calculate the acquisition value of an inherited property
To calculate the acquisition value of an inherited property, you need to consider the base value for inheritance tax purposes plus the sum of associated expenses. This includes notary fees and the payment of taxes.
As mentioned earlier, the acquisition value of the inherited property is related to the reference value that the tax administration uses to determine the tax liability when receiving an inheritance. Expenses are added to this value.
Based on the acquisition value, the amount of capital gain or loss can be calculated.
How inherited properties are valued for distribution
In order to carry out a fair distribution, inherited properties are valued based on their market value. It is important to determine the price at which a third party could acquire the property if it were to be sold.
The distribution of an inheritance and the allocation of a property to a single heir are based on this principle.
Market value of properties in an inheritance
Market value of properties in an inheritance refers to the value that the property holds at a specific moment, considering its current condition. Obtaining this value is the only way to ensure a fair distribution where none of the heirs are unfairly disadvantaged or advantaged.
How to determine the value of a property in an inheritance
It is necessary for the appraiser, based on their professional judgment, to apply one of the established methods for property valuation.
These methods, outlined in Order ECO 805, can be used as a basis for valuing inherited properties. The methods include comparison, cost, residual, and income capitalization.
The most commonly used method is the comparison approach. If this method cannot be used due to a lack of comparable properties, the cost approach may be applied.
The value obtained for a property in an inheritance should be based on a comprehensive analysis of the local real estate market. After collecting the necessary data, comparisons are made and adjustments are made using a homogenization table to account for relevant factors.