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Do Not Make this Mistake when Calculating the Municipal Capital Gains Tax in Spain

Cómo calcular la Plusvalía Municipal - Portada (1)

[vc_row][vc_column][vc_column_text]In another article we have analyzed  the 3 taxes to pay when buying a property in Spain. Now we will deal with a point that concerns the selling party, the Tax on the Increase in Value of Urban Land.

In general, real estate legislation in Spain deals with the jurisdiction of each Autonomous Community. The Tax on the Increase in Value of Urban Land (IIVTNU), commonly known as the “Municipal Capital Gains” also depends on each Autonomous Community. Next we will see all its aspects and how to calculate it with a simple example.

If you do not have time to read the entire article, we have created the illustration that you can download at the end so that you do not forget the 3 factors with which the Municipal Capital Gains tax is calculated.

What is the legal basis of the Tax on the Increase in Value of Urban Land?

There are two legal foundations of the IIVTNU:

The first applies to the entire Spanish territory and is the Regulatory Law of Local Treasury.

The second will depend on each City Council, therefore, depending on where the property that has been transferred is located. It is important to inform ourselves in a timely manner about this legal basis, such as a municipal ordinance. For example, in the case of Madrid, it is the Fiscal Ordinance Regulating the Tax on the Increase in Value of Urban Land. Current wording approved by Full Agreement of December 19, 2014. BOCM number 310 of December 30, 2014.

 What is the “Plusvalía Municipal” or the Municipal Capital Gains tax?

As indicated in article 104 of the Local Treasury Law, “The Tax on the Increase in Value of Urban Land is a direct tax that is levied on the increase in value experienced by said land and is revealed as a result of the transfer of ownership of the land by any title or of the constitution or transfer of any real right of enjoyment, limiting ownership, over the aforementioned land”.

In short, it is a tax that is paid by the taxpayer himself (always the seller) when a property is transferred..

What properties are subject to this tax?

As the name suggests, only properties of Urban Nature are subject to it, those Rustic are not subject.

What cases are also not subject to this tax?

There are several cases in which there is no subjection to this tax. For example, when there is a transfer of assets between spouses or to their children as a result of compliance with judgments in cases of annulment, separation, or divorce.

What is the tax base?

The taxable base of this tax is constituted by the increase in the value of the land at the time of accrual and experienced over a maximum period of 20 years. The value of the land at the time of accrual will be the value determined at that time for the purposes of the Real Estate Tax (IBI).

How is the IIVTNU calculated?

All you need is the following three pieces of information:

1) Cadastral value of the land at the time of transmission (appears in the IBI).

2) Number of years elapsed since the last transmission (full years)

3) Annual percentage determined by each municipality.

The annual percentage determined by each city council has limits established by the Law of Local Treasury:

  • Period of one to five years: 3.7.
  • Period of up to 10 years:    3.5.
  • Period of up to 15 years:    3.2.
  • Period of up to 20 years:    3.

To determine the percentage to apply to the value of the land at the time of accrual, the Law tells us that we must multiply the annual percentage applicable to each specific case by the number of years.

 In addition, the same Law states that only full years will be considered, without fractions of years of said period being considered for such purposes.

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Property located in Pontevedra Capital 36001.

High-rise home purchased on February 15, 2006 and sold on January 31, 2018.

Written in………………………………………………….. 120.000€

Notary fees and others approx………………….. 14.000€

Total Purchase…………………………………………………… 134.000€

Sold in…………………………………………………………………164.000€ 

Cadastral value at the time of accrual (determined by the IBI): €46,810.36.

Number of “complete” years elapsed since the previous transmission: 11 years.

The annual percentage for Pontevedra will be 2.9% (tranche of up to 15 years).

Tax base: €46,810.36 x 11 years x 2.9%/year

Tax Base: €14,932.5

For Pontevedra, the full amount to be paid is 21% of the tax base.

Full fee: 0.21 x €14,932.5

Full fee: €3,135.82

In this example, the vendors must pay the City Council of Pontevedra €3,135.82 as payment of the IIVTNU (“municipal surplus value”). As you can see, we have intentionally placed the deeded value in the year 2006 and the value sold in the year 2018, so that you realize that they have nothing to do with the calculation of this tax. Do not make the mistake of thinking that the “Municipal Added Value” depends on the sale value.

If you want to know how much you will have to pay for this tax when selling your property, we invite you to write to us through our contact form. We will gladly give you a free first consultation.

If this article has been helpful to you and you are looking to sell your house, you may be interested in reading about how to sell your house after the Coronavirus.

Now tell me.

Do you know the amount to pay for your Municipal Capital Gains? Do you use the regulations applicable to your Autonomous Community?

I wait for you in the comments.


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