New PLUSVALIA & Capital Gains Changes

Today we’ll be outlining the recent changes in the municipal capital gain & PLUSVALIA TAXES. There are now two calculation options for those who sell or inherit a house.

Notes on the new Royal-Decree Law for the calculation of Plusvalia tax

A new Royal-Decree Law has been passed by the Spanish Government on the 8^th of November 2021, due to the Sentence by the Constitutional Court on the 26^th of October 2021, with regards to the Tax on the Increase in the Value of Urban Land.

Here at SGM, we consider it necessary to provide some notes on the changes affecting this new rule to our clients either selling or in the process of inheriting a property in here in Spain.

What was the so-called Plusvalia tax?

To shed some light on this complex matter, we would like to firstly offer a definition on the tax: it is a municipal tax levied on the profits generated by the sale, donation, or inheritance of a property. The objective of this charge is to tax the increase in the value of the land that the property is built on.

Why has the Constitutional Court declared it null and void?

The application of this tax has been appealed on numerous occasions by private individuals on the grounds that it was being abused and the payment was not adjusted to market reality. Until now, the tax was applied regardless of whether or not there was a benefit for the owner who sold or inherited a property. With this order, the Constitutional Court makes it very clear that the formula for calculating this tax is not adequate and it has become a grievance for many taxpayers.

What are the changes after the new Royal-Decree Law?

The Royal Decree-Law adjusts the tax base to the effective economic capacity of the taxpayer. To determine the tax base objectively, the ‘difference between the transfer value and the acquisition value’ is taken, when the taxpayer so requests.

As a result of this, currently there are two systems available for the Taxpayer to calculate the amount to pay.

1. It may be calculated using the cadastral value at the time of selling, multiplied by the coefficients approved by the local councils. These coefficients may not exceed those provided by the Law, depending on the number of years that have elapsed since the acquisition of the property, and which will be updated annually by the Town Hall.
2. The second option is to value the difference between the purchase value and the sale value.

If the taxpayer proves that the real capital gain is lower than the one calculated with the cadastral value, the second method can be applied.

The regulation allows local councils to check these calculations to avoid errors or fraud. Local councils will be able to lower the tax by up to 15%.

No taxpayer will have to pay any tax at all if there is no gain with the sale or acquisition.

Another novelty is that Plusvalia tax generated in less than a year, i.e. those that occur when the date of acquisition and transfer occur in the same year, will also be taxed, unlike what happened before when they were exempt.

Finally, we would like to comment on the fact that the Plusvalia tax had been suspended since 26 October 2021, date of the Constitutional Court’s ruling, because there was no rules for determining the tax base. With the publication of the Royal Decree-Law on the 8th November 2021, the legal vacuum created by the ruling has been closed.

All transactions going on between the 26^th of October and the 8^th of November cannot be taxed, as a result of the legal vacuum generated.

We recommend to all our readers to seek the legal advice from SGM Legal Spain to deal with all relevant matters regarding the purchase and sale of properties in Spain.

Post by Maria Angeles