Monday 12/6/21
PROPERTY IN SPAIN

Changes to municipal Plusvalia tax approved by the Spanish government

The Ministry of Finance presents the reform of the method for calculating capital gains tax on sales and property transfers. The new regulation establishes two calculation methods and taxpayers will be able to choose the one that is most favorable to them
Facades of buildings seen from the Plaza Mayor in Madrid. Photo: Unsplash.
Facades of buildings seen from the Plaza Mayor in Madrid. Photo: Unsplash.

The Spanish Council of Ministers approved on Monday a Real Decree-Law that reforms the articles that were declared unconstitutional of the Tax on the Increase in the Value of Urban Land, commonly known as the Plusvalia Tax or Capital Gains Tax on property purchases.

The Government says that this legal reform "guarantees" the constitutionality of the tax and offers legal certainty to the taxpayers and certainty to the municipalities, whose income comes largely from this tax. Spanish city councils collected 2,500 million euros in 2019 through this tax, whose calculation method was annulled in October by the Constitutional Court.

The nature of the tax, which was not questioned by the Constitutional Court, remains. In other words, the tax will continue to exist. And it will also continue to tax the increase in the value of the properties at the time of a sale or inheritance.

But the decree approved on Monday changes the calculation method: according to the Constitutional Court in its ruling, the previous method sometimes resulted in a value very far from the real value of the property.

Quite a few times the owners had to pay the Plusvalia tax even in the cases in which the property was sold for a price lower than the purchase price, that is, it was even necessary to pay for selling at a loss.

What changes now

According to the Ministry of Finance, from now on taxpayers will have two options to pay the Plusvalia tax. They will be able to choose the one that is most favorable to them.

CALCULATION METHOD 1

The Decree establishes that the taxable base of the tax will be the result of multiplying the cadastral value of the land by the coefficients approved by the City Councils.

These These coefficients may not exceed those indicated in the table below depending on the number of years that have elapsed since the acquisition of the property:

Generation Period Coefficient
Less than 1 year 0.14
1 year 0.13
2 years 0.15
3 years 0.16
4 years  0.17
5 years 0.17
6 years 0.16
7 years 0.12
8 years 0.10
9 years 0.09
10 years 0.08
11 years 0.08
12 years 0.08
13 years 0.08
14 years 0.10
15 years 0.12
16 years 0.16
17 years 0.20
18 years 0.26
19 years 0.36
20 years or more 0.45

 

These coefficients will be updated annually, for example within the framework of the state budget law, taking into account the evolution of the real estate market.

In addition, the decree gives city councils the possibility of correcting down a maximum of 15% the cadastral values of the land. According to the Ministry of Finance, this guarantees that the tax is adapted to the reality of the real estate market in each municipality.

CALCULATION METHOD 2

The decree also offers the taxpayer the possibility of paying taxes based on the real gain obtained at the time of the sale or transfer of a property. This is calculated as the difference between the transmission value of the property and the acquisition value.

"If the taxpayer shows that the real capital gain is lower than that resulting from the objective estimation method, he can apply the real one," says the Ministry of Finance.

No one will pay if there is no profit

The Real Decree-Law also fulfills the Constitutional Court's mandate of not subjecting to taxation those situations where there is no increase in the value of the property.

To do this, a new assumption of not being subject to the tax is introduced into the operation of the tax when it is verified, at the request of the taxpayer, that an increase in value has not been obtained.

The person interested in proving the non-existence of an increase in value must declare the transfer, as well as provide the titles that document the transfer and the acquisition.

Earnings generated in less than a year

Another novelty is that from now on the plusvalia generated in less than a year will be taxed, that is, those operations that occur when less than a year has elapsed between the acquisition and transmission date. 

These are, according to the government, operations that "may be more speculative."

The municipalities will have a period of six months to adapt their rules to the new regulation of the Plusvalia Tax.

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