THE NEW MUNICIPAL CAPITAL GAIN TAX

The Tax on the Increase in the Value of Urban Land (IIVTNU), better known as Municipal Capital Gain Tax (in Spanish, “Plusvalia Municipal”), taxes the profit obtained in the transmission of a property as a result of the revaluation of public land.

In October 2021, the Constitutional Court considered the system to calculate the tax base of the aforementioned Municipal Capital Gain Tax unconstitutional and null, preventing in practice its collection and creating a situation of confusion. For this reason, and under pressure from the Spanish municipalities, the Government hastened to create a new system for calculating the tax.

The new formula designed by the Ministry of Finance aims to reflect the evolution of the real estate market, offering two options for its calculation: i) use the cadastral value of the land at the time of the transfer, with the application of new coefficients that will be updated annually, or ii) use the real capital gain obtained as the tax base, which is, the difference between the purchase value and the sale value of the property. Each municipality will determine the rate set, which can never exceed the 30%, that will be applied to this result.

In this way, taxpayers will have the opportunity to choose the formula that is most advantageous to them, which, in most cases, will be the second. Being another important novelty that those operations that suppose a loss for the taxpayer will not be taxed, something that was not foreseen in the previous calculation formula.

Finally, it should also be noted that the ruling of the Constitutional Court determines the impossibility of claiming the tax in those cases of firm administrative resolution, unless it had been appealed before the ruling dated October 26th.