¡Good News! The new method of calculating the Capital Gains Tax in Spain
On October 26, the Constitutional Court of Spain made the calculation applied to the Capital Gains Tax or the “Impuesto de la Plusvalía unconstitutional. Many were happy with the measure, especially those for whom the calculation of the tax payment when selling or inheriting their home did not present them with any benefit.
The Court issued its ruling indicating that the annulment would take effect on October 26 and not within a year as expected. It also closed the doors to some claims about the payment of the tax for some people, but the Council of Ministers has already approved the decree of the law that modifies the method of calculating this tax.
From November 10, whoever sells a house at a loss will be exempt from payment, only those cases in which a house is sold or transferred when it has generated profits will be paid.
Two options, two calculation methods.
Now you have two alternatives when calculating and paying this tax. Get to know them:
- The Objective method: The cadastral value of the property will be multiplied and it will have new coefficients to make the change. Now, each year new coefficients will be approved. These will be contemplated, for example, in the General State Budget Law and will evolve according to the real estate market. It is an optional method, which allows you to pay taxes based on the real capital gain obtained at the time of transfer of the property.
- The Real Method: It will be a calculation of the difference between the sale or transfer price and the purchase or acquisition price of the property. If the taxpayer demonstrates that the real capital gain is lower than that resulting from the objective estimation method, he may apply the real one..
To understand and know the reason for these changes, join us to learn a little more about this tax.
Let’s review: What is the Plusvalía tax, similar to Capital Gains Tax?
Technically it is known as Tax on the increase in the value of urban land or Impuesto sobre el incremento del valor de los terrenos de naturaleza urbana (IIVTNU) in spanish, very similar to Capital Gains Tax. It is the tax that taxes the profits generated by selling or inheriting some type of property.
Those who must assume this tax are the sellers, the heirs in case of death, or the beneficiaries, in the case of a donation of this transmission.
Why was polemic?
The calculation of the tax took into account the cadastral value of the land, the date of purchase and sale of the home, the increase coefficients and the tax rate of the autonomous community. The Constitutional Court of Spain considered that this calculation was unconstitutional, because it determined that there would always be an increase in value when land is transferred, regardless of whether such an increase exists. In other words, the calculation method ignores whether or not there have been losses in the process, nor does it determine what the actual profit obtained was. What caused many real estate procedures to go to claims for the losses generated from the payment of the tax.
Can I claim a tax refund?
Many owners hoped to get a refund after having paid this tax that was declared unconstitutional, but the Constitutional Court of Spain has already closed that door. The ruling indicates that cases already judged, with administrative resolution or provisional or final settlements that have not been challenged as of October 26, 2021, may not be reviewed. Only taxpayers who at the time appealed, or requested rectification, and are still awaiting resolution.
What were the improvements?
The new rule guarantees that taxpayers who do not obtain a profit from the sale of their home will be exempt from paying the tax.
In addition to the objective formula and the real formula, another novelty is that capital gains generated in less than one year, calculated between the date of acquisition and the date of sale, will be taxed. The taxpayer now has the possibility to choose which method is more favorable to him. He will be able to pay taxes based on the real capital gain obtained when transferring the property, which is the difference between the sale and purchase price—or by the cadastral value and the new coefficients adapted to the realities of the market.
And you, what do you think of the new way of calculating the Municipal Plusvalía?