Municipalities do not let go despite court rulings

Capital gains tax (plusvalía) with the sales of real estate

08 / Mar

With the sales of a property in Spain there are several different taxes involved. The most controversial tax is the plusvalía, which has been the subject of a strong legal battle between the municipalities and the owners. Because of all the court rulings of the last couple of years and because the municipalities keep on charging this tax, it can be difficult to get a clear picture of what this tax is about. In this article, we will try to explain it.

What is plusvalía?

The tax that we call “Plusvalía” officially is the tax over the profit, the increase in assets, that the owners receive with the sales of urban land.

This tax is levied over the building land (impuesto sobre el incremento de valor de terrenos de naturaleza urbana). The capital gains tax also exists on a national level and is separate from this local capital gains tax. In other words, this is a second capital gains tax, but this time only over the supposed profit from the land included in the sales of a building.

The land value is determined by the Town Hall and can be found on the IBI invoice (the yearly tax that in Valencia and Alicante is usually called SUMA, after the name of the company that collects the tax).

The calculation of the levy of this tax has been the subject of litigation for years because the formula as established in the law, assumed that a profit was always made from the sale of real estate. This was not realistic in times of the real estate crisis and also in violation of the constitution. For that reason, the Constitutional Court of Spain ultimately annulled the formula in November 2021.

The strange thing about that decision is that this destruction has no retroactive effect. No one who has had an invoice before November and paid on the basis of the illegal formula can therefore claim money back, unless proceedings were initiated during that period that had not yet been finally decided in November 2021.

Payment obligation

Since November 2021 the legislator has stipulated that the plusvalía will only be charged when there is added value at the sales of a property. This means that when there is a loss on the sales, there is no obligation to pay the plusvalía tax – even though it does have to be declared.

For the calculation of the existence of added value the only admittable proof are the values of the purchase and sale of the property. The paid costs at the purchase and sales cannot be deducted. With the national capital gains tax (known as the 3% rule, see this article) these possible invoices can be deducted from the profit, but at the plusvalía this is not accepted. This will cause a new stream of legal cases, of which the outcome we should not expect until 4 or 5 years from now.

  • If there is a loss, the owner will be exempt from payment Plusvalia.
  • If there is a profit, plusvalía will have to be paid.

The new formula is complicated. An average owner probably won’t be able to calculate it or will spend a lot of time doing so. There are two calculation methods that can be applied:

1. Based on the actual value of the land, whereby a coefficient is applied to the difference between the purchase and sale value of the land. This coefficient is determined by each municipality and should not exceed 30%;
2. Based on a formula based on the so-called ‘Valor Catastral’. A coefficient is also applied here depending on the number of years that the owner has owned the property. This calculation seems to be more advantageous if the property has been owned for a long time, but at least for 5 years.

Lex Foris offers clients the possibility to get a calculation of all the estimated costs and payments at the sales of real estate.

Selena Escandell Beutick