How the new Municipal Capital Gains Tax works

The Tax on the Increase in Value of Urban Land (IIVTNU), better known as the Municipal Capital Gains Tax ('plusvalía municipal'), is a tax levied on the increase in value of urban land, which we must pay when we transfer a property, whether by sale, gift, or inheritance.

Because the management of this tax has been assigned to the municipalities, its regulation will depend on the rules of the city council where the property in question is located.

However, there is a general framework in the Local Finance Law (Ley de Haciendas Locales), with which all municipal rules must comply. It is this law that was challenged before the Constitutional Court, specifically Article 107 on the calculation of the tax base. As you will already know, Constitutional Court judgment 182/2021 has declared the IIVTNU unconstitutional.

Nevertheless, in order to fill the legal vacuum created by the judgment, the Ministry of Finance published a law (Royal Decree-Law 26/2021) amending the provision declared unconstitutional.

Situations in which taxpayers may find themselves

The first concerns transfers made before October 26 for which the self-assessment return has not yet been filed or for which the taxpayer is still waiting for the city council to issue the Municipal Capital Gains Tax assessment. In the first case, it is recommended that the return be filed applying a tax base and a tax liability of zero. Where the taxpayer is waiting for the city council to issue the corresponding tax assessment, we recommend appealing it once it is received. In any event, if the self-assessment return or the tax assessment has become final, no claim may be brought, since the judgment provides that it has no retroactive effect in this regard.

As for transfers made between October 26 (the date on which the judgment was published) and November 9 (the date on which the new Municipal Capital Gains Tax rules were published), these will be exempt from payment of the tax, since it had been declared unconstitutional.

Finally, as regards transfers carried out from November 10 onward, taxpayers must pay the tax and file the corresponding self-assessment return or tax return in accordance with the new rules.

What the Royal Decree amending the method for calculating the Municipal Capital Gains Tax entails

The new rules adapt the tax with the aim of ensuring that the Municipal Capital Gains Tax is payable only where a home is sold or inherited and there has been a gain. Anyone who sells a home at a loss will be exempt from payment from November 10, following publication in the Official State Gazette (BOE). The rules do not have retroactive effect.

The Royal Decree-Law provides two alternative methods for calculating the tax:

• The objective method: in this case, the cadastral value of the property will be multiplied by new coefficients. New coefficients will be approved each year and set out, for example, in the General State Budget Law, and they will evolve in line with the real estate market. This method is optional, since taxpayers may choose to be taxed on the actual gain obtained at the time the property is transferred.

• The actual-gain method: this is calculated as the difference between the sale or transfer price and the purchase or acquisition price of the property. If the taxpayer proves that the actual gain is lower than the gain resulting from the objective estimation method, the actual-gain method may be applied.

Taxpayers may choose whichever of these two methods is more advantageous to them. We would point out that this tax is levied on the cadastral value of the land on which the property stands, not on that of the building. Another new feature is that gains generated over periods of less than one year, calculated between the date of acquisition and the date of disposal, will be taxed.