Real estate valuation in Europe

It is interesting to examine valuation practices beyond France’s borders. We have therefore asked four lawyers specialising in real estate at firms, which are members of CMS, to provide brief answers to the following questions relating to the valuation of properties within their respective jurisdictions (the United Kingdom, Italy, Spain and Germany): is there a compulsory valuation method or one preferred by the tax authorities in your country? If this is not the case, what is the method generally adopted by practitioners? Are there any differences depending on the taxes in question?

In each of the countries examined, there is no general rule applicable to all taxes, which would be compulsory for determining the value of a property.

In the United Kingdom, the market value is defined as the price that the vendor may reasonably expect in the event of a sale on the market. This definition applies to corporation tax, to capital gains tax for private individuals and to registration fees. As a general rule, the British tax authorities will agree to view the price applied between independent parties as a market price. The British Royal Institution of Chartered Surveyors (“RICS”) regularly publishes a “Red Book” on the valuation of properties, covering the different principles for valuing immovable assets, which, although it is in no way compulsory, is commonly used. In addition, the English tax authorities may request advice from a government agency specialising in property valuation (Valuation Office Agency).

In Italy, for the purpose of income tax, the general rule also consists of referring to the market value of the property. This value is determined by applying the comparable price method on the open market (or “CUP” method).

It is customary to refer to a database managed by the Italian tax authorities, which includes, for each type of property (residential, offices, commercial, industrial), for each period (six months) and for each sphere (district, area) the minimum and maximum prices applied within the framework of property sales (all declared to the Italian tax authorities). It is general practice to adopt a mean value but the condition of the property (new, old, renovated), as well as its specific features, may lead to it moving closer to the minimum or maximum price. As regards registration fees, taxes on gifts, inheritance taxes and local taxes, the situation is different as taxation is not established on the basis of the market value but of the cadastral value, with the latter value being determined by capitalising a theoretical income over a certain number of years.

In Spain, it is generally necessary to refer to the market value, which is usually determined by an expert. Nevertheless, certain local taxes on the transfer of land are determined on the basis of the the cadastral value and the period of ownership. In addition, for registration fees, the tax authorities in the different autonomous regions publish property valuations. However, if the parties are able to justify a different market value, this last value is generally accepted.

Finally, in Germany, reference is also made to the market value for income tax. As regards registration fees, a specific fiscal value equal to 12.5 times the net annual rent (minus reductions depending on the age of the property) is used in the absence of the payment of a price. A standard value based on valuations from 1964 is also used for real estate tax.

Real Estate Newsletter - Option Finance, 1st june 2015

We would like to thank Richard Croker (CMS Cameron McKenna, United Kingdom), Giovanni Cali (CMS Adonnino Ascoli & Cavasola Scamoni, Italy), Victor Hernán (CMS Albiñana & Suárez de Lezo, Spain) and Thomas Link (CMS Hasche Sigle, Germany) for their contribution to this article