Changes in the Spanish plusvalia tax
The Constitutional Court ruling on October 26, 2021, changed the way the plusvalía tax is calculated, providing an alternative method that may further reduce tax burdens on property sellers. Understanding these rules is essential for minimizing tax liabilities when selling assets.
What is the plusvalia tax?
Capital gains tax in Spain applies to the increase in value of an asset when it is sold or transferred. This tax is primarily focused on the revaluation of urban land (known as the “Plusvalía tax”), but it can also apply to other assets like stocks, securities, and investments. The tax is levied on the difference between the purchase price and the sale price of the asset, capturing the gain accrued over time.
Do I need to pay plusvalia tax?
Whether you pay plusvalia tax on a property sale in Spain depends on the type of transfer involved.
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 plusvalia 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 do you have to pay plusvalia tax?
The time limits for payment of the plusvalia 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.
It’s important to keep in mind that failing to pay plusvalia tax on time can result in significant penalties and interest charges. Therefore, seeking legal advice from professionals, such as the experts at Pellicer&Heredia, can ensure that all deadlines are met, and tax strategies are optimized. This is particularly critical in inheritance cases, where the legal complexities of managing an estate can be overwhelming without proper guidance.
A change for calculating plusvalia tax in Spain
In 2021, the Constitutional Court ruled the old plusvalía tax calculation method unconstitutional because it taxed based on the property’s time-held rather than actual gains, often charging even when losses were made.
A new system introduced in November 2021 now offers two calculation options: one based on cadastral value and another on real property gains, allowing sellers to choose the most favorable method. This reform ensures a fairer reflection of the property’s value in determining capital gains tax liability.
What has the Constitutional Court decided in 2021?
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.
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.
New method to calculate Spanish plusvalia
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 plusvalia 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 plusvalia 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 plusvalia 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.
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