capital gain tax

A change in the capital gains tax: “la plusvalia”

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On October 26, 2021, the Constitutional Court decided to override the method used for the plusvalia tax calculation and collected by the town halls and the government immediately offered an alternative method.

What is the plusvalia tax?

It is a tax based on the increase in the value of urban land (IIVTNU). It is a tax managed by the town halls and taxes on the urban land revaluation on which a property is built from the time of its acquisition until the date of its transfer, either by sale, inheritance, or donation.

Who has to pay this tax?

This will depend on the type of transmission of the property:

In the case of a sale and purchase, it is the seller who has to pay the tax, as he is the one who revives the money from the sale. There is a small exception and this happens when If the person selling the property is a natural person who is not a tax resident in Spain, the law places the buyer as a substitute taxpayer, which means that if the non-resident does not pay, it can be claimed from the buyer. For this reason, in this type of transaction it is usually agreed that the seller leaves the amount of the capital gain tax with the notary so that it can be paid.

In the case of donations, the tax is paid by the person who receives the donation, the same thing happens in the case of inheritances, since it is the heirs who have the obligation to pay.

When it has to be payed?

The time limits for payment of the municipal capital gains tax are determined by the nature of the transfer as follows:

  • In cases of donation or sale of the property, the period shall be 30 working days from the date of transfer. 
  • In the case of inheritance, the deadline for payment is 6 months from the date of death of the owner, with an extension period of one year.

What has the Constitutional Court decided?

The Court has decided that the previous method of calculating the taxable amount of this tax was unconstitutional.

They declared that the formula for calculating the tax was null and void, on the grounds that the calculation was based on a percentage that depended on the years elapsed from the acquisition of the property until its transfer and not on its price, so it always came out to pay and they demanded the payment, even when losses were recorded.

Will the resolution have any retroactive effects?

The Constitutional Court pointed out that the resolution does not have retroactive effects, therefore, claims that already have final judgements from Court will not be able to benefit, only those who are currently being processed will be eligible.

What is the new method for calculating this tax?

From November 10th of 2021, the new capital gains tax calculation rule will come into force, offering two scenarios for calculating the amount on which the tax will be levied. The new capital gains tax gives citizens two options for calculating the taxable value or amount on which it applies, allowing them to choose whichever is more favourable.

The two available ways for the taxpayer to calculate the capital gains tax are: the calculation according to the cadastral value (objective method) and the calculation according to the capital gain (real or direct method).

The first scenario is based on multiplying the cadastral value of the property at the time of applying the tax by the coefficient approved by the Town Halls, which will be in accordance with the elapsed years of the increase in the value of the land. This coefficient will depend on each Town Hall, but may not be higher than 0.14% for sales of properties less than 12 months old, nor higher than 0.45% for sales of properties more than 20 years old. The tax payable is calculated at a rate set by the relevant local council, which may not exceed 30%.

The second scenario will allow taxation depending on the increase in the real value acquired in the transfer of the property. To calculate it, the sale price of the land is subtracted from the purchase price. If the result is positive, it is multiplied by the percentage of the cadastral value of the land at the time of the transfer.

It should also be noted that all transactions in which less than one year has elapsed between the acquisition and transfer of the property will now have to pay this tax.

What happens if there is no increase in the value of the property?

In these cases, you will not have to pay the tax, but it is very important to file the tax even if the result is not positive and you will have to prove it and provide the necessary documentation of the transfer and acquisition of the property, demonstrating that there has been no actual gain.

If the property is sold for a price equal to or less than the purchase price, the seller will not have to pay capital gains tax.

Also, the purchaser will have to update the period in which he/she has been the owner of the property to calculate the future transfer.

In case you need more information do not hesitate to contact us at Pellicer & Heredia. We have a professional and dedicated team that has many years of experience in legal and tax advice.

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