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Changes to the Municipal Capital Gain Tax: How It Affects Home Sellers

Cambios en el impuesto de plusvalia municipal como afecta a los vendedores de viviendas - Changes to the Municipal Capital Gain Tax: How It Affects Home Sellers

In Spain, the municipal capital gains tax (CGT) is one of the largest sources of financing for city councils. But it is also a concern for home sellers, as it sometimes involves a considerable outlay. This tax levy the increase in value of the property from the time of acquisition to the sale.

Always a controversial tax, last October 26th, the Constitutional Court annulled some of the articles of the Local Tax Law. Specifically, it classified as unconstitutional the articles related to the calculation of the taxable base of this tax, considering that it infringed the principle of economic capacity.

The High Court based its decision on the fact that the method used to date considered valid a revaluation of the land even though this hadn't occurred, neither considering its actual value. And despite this, this previously established value got into the estimation of the tax the seller had to pay.

The decision of the Constitutional Court generated a small earthquake both among the municipalities, fearful of losing that source of income, and the property sellers, confused by the situation. Given this, the Government had no alternative but to approve a new regulation for the municipal CGT through an urgent process.

What is the new municipal capital gains tax?

The regulatory change has two significant consequences for home sellers. The first one is there are two methods to calculate the tax:

Objective mechanism: the calculation gets made considering the cadastral value of the land in the year of acquisition and its value in the year of sale.

Real mechanism: the calculation consider the difference between the purchase amount and the sale amount.

What does it all mean? First, that the seller can choose the calculation system that most benefits him financially. And, secondly, that it will no longer be necessary to pay capital gains when there are losses, as it could happen until now despite some judgments against it.

On the other hand, whatever the mechanism, coefficients will always apply to the cadastral value of the land. These coefficients are percentages that municipalities must approve and vary according to the years passed between the purchasing and the sale. However, although each city council is free to establish them, they may not exceed limits set by the Public Treasury.

Another consequence of this new municipal CGT is that the capital gains generated in less than a year will also get levied. That is, if a home is acquired or inherited and sold in less than twelve months, we'll have to pay the tax, something that did not happen before. The goal of this measure is none other than to stop speculation.

Finally, other aspects must also get assessed. The application of these new regulations is not retroactive. Additionally, municipalities have a period of six months to adapt their tax ordinances to it.

If you are thinking of selling a home, consider these changes in the municipal CGT, especially in the possibility of choosing the calculation mechanism. Besides, by advertising your property on, you'll reach many more potential buyers. Thus, your benefit will be double.

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