Lately, there has been a lot of talk about the municipal capital gains and the recent decision of the Constitutional Court that repealed this tax through a ruling issued on October 26. This change has raised many questions among property owners and heirs, as this tax has been a crucial part of real estate transactions in Spain for many years. In this article, we will try to clarify all the doubts surrounding this tax, especially in the context of the sale, inheritance or donation of a home.
What is municipal capital gains?
The municipal capital gains, also known as the Tax on the Increase in the Value of Urban Land (IIVTNU), is a tax that taxes the increase in the value of urban land over time. This tax is mandatory and is paid when a person sells, inherits or donates a property. Its objective is to reflect the revaluation of urban land from the moment of acquisition until its transfer, using the cadastral value of the land for this purpose.
Recent changes in municipal capital gains
The recent ruling of the Constitutional Court has repealed the previous regulations on the municipal capital gains, because it required paying this tax even in cases where there had been no increase in the value of the property. This ruling has forced a reform in the regulations governing this tax, with the aim of taxing only the capital gain when it actually happens.
How will municipal capital gains be calculated from now on?
The reform introduced allows two calculation methods for the municipal capital gains, and it will be the taxpayer who chooses the one that best suits him:
- Target system: In this method, the cadastral value of the land is multiplied by coefficients that each town council will approve annually. These coefficients cannot exceed the maximum values established by the government, which vary depending on the age of the property, up to a maximum of 20 years. This system adapts to the evolution of the real estate market, offering a standard and simplified formula.
- Real system: This method allows the tax to be calculated based on the real capital gains generated. That is, the difference between the transfer value of the land (sale price) and the acquisition value (purchase price) is calculated. If the result shows an increase in value, then tax is paid on that increase.
What if the property does not appreciate in value?
One of the most significant novelties of the reform is that, if there is no increase in value in the property, the owner will not be obliged to pay the municipal capital gainsFor example, if a property was purchased in 2004 for 310,000 euros and is sold in 2021 for 285,000 euros, this tax will not have to be paid, since there has not been a revaluation, but rather a decrease in its real value.
This change is fundamental, since under the previous regulations, the simple fact of selling a property required the payment of the capital gains tax, regardless of whether the value of the land had increased or not. This led to unfair situations where taxpayers had to pay taxes on a profit that did not exist.
Final considerations on municipal capital gains
It is important to note that the municipal capital gains The new legislation has been a controversial topic for many years, due to its application in contexts where there was no real increase in the value of the land. The new legislation seeks to correct these injustices and offer a more equitable system, where tax is only paid when a profit is actually generated. However, as with any legal change, it is crucial to be well informed and, if necessary, seek professional advice to fully understand the implications in your particular situation.
If you have any questions about this topic or any other related topic, municipal capital gains Or if you are thinking of selling your home, discover our real estate services through from our website either by filling out the contact form from our website.
