Municipal capital gains tax: what is it, when is it paid and how to calculate it?

The municipal capital gains tax is a tax that property owners must pay when they sell, inherit or donate a property. It is a tax that has always been accompanied by some confusion, given the complexity of its calculation and how opaque it is sometimes to know if the land of the property has really been revalued.

Below, we explain what the capital gains tax is, when it must be paid, how it is calculated, whether there are exemptions in the municipal capital gains tax and how to claim it if you believe it has not been applied correctly.

What is the municipal capital gain?

The municipal capital gains tax, also known as the Tax on the Increase in Value of Urban Land, is a tax that is applied when a person sells, inherits or donates a property. It is based on the assumption that the land on which the property is located has increased in value over time, and such increase is taxed when the ownership of the property is transferred.

This tax focuses exclusively on the increase in the value of the urban land, not on that of the construction or the building itself. The taxable base of the tax is, therefore, the revaluation that the land has undergone from the time the current owner acquired it until the time it is sold or transferred. The calculation of the value is not based on the market, but on the cadastral values that the Town Hall has registered.

In which cases is the municipal capital gains tax paid?

The capital gains tax is paid in several cases: in a sale, in an inheritance or in a donation.

Sale of a property

When you sell a property, you are obliged to pay the plusvalia municipal. The seller is the one who has the obligation to pay this tax, although in some cases, buyer and seller can agree on who will pay it, as long as both parties agree.

Inheritance of a property

If you inherit a property, you are also subject to the payment of the capital gains tax, since it is considered a transfer of the property. In this case, the heir is the one who must assume the payment.

Donation of a property

When you donate a property to another person, the municipal capital gains tax must also be paid. Again, in this case the donee (the person receiving the donation) is usually responsible for paying the municipal capital gains tax.

It is important to note that this tax is not payable if you simply own a property for a long period of time, only when there is a transfer of ownership.

How do I know if I am exempt from capital gains tax?

There are certain cases in which it is possible to be exempt from the payment of capital gains tax. The main exemptions are:

Loss of value of the property

If the land or property has not increased in value from the time you acquired it until the time of sale or transfer, you will be exempt from paying the tax. This exemption has been especially relevant since a ruling by the Constitutional Court in 2021, which declared that it is not legal to charge capital gains tax in cases where there has been no real increase in the value of the land.

Transfers between spouses or close relatives

In some cases, transfers of real estate between spouses, or between parents and children, may be exempt from payment of municipal capital gains tax. This varies depending on the municipality and it is advisable to check with the Town Hall to confirm if this exemption can be applied.

Transactions subject to compulsory expropriation

In the event that a property has been expropriated by the Town Hall or the government, the owner may be exempt from paying the capital gains tax, although the conditions for applying this exemption depend on local legislation.

How is the capital gains tax calculated?

The calculation of the municipal capital gains tax is not simple, as several factors are involved. The amount you will have to pay depends mainly on the cadastral value of the land and the number of years you have owned it.

But, what steps are followed to calculate the plusvalia municipal, first of all, the cadastral value of the land is taken into account. The first thing you need is the cadastral value of the land of your property. This value is registered in the Cadastre and can be consulted in the receipt of the Real Estate Tax (IBI) that you receive annually. You must take into account that only the value of the land is used, not the value of the construction.

The coefficient of increase is also calculated. The Town Hall will apply a coefficient on the cadastral value to estimate how much the value of the land has increased during the years that it has been in your possession. This coefficient varies by municipality and is based on the number of years you have owned the property. The coefficients are updated periodically, so it is advisable to check with your Town Hall to find out the coefficients in force at the time of the transfer.

Finally, the tax percentage is obtained. At the end, a tax rate is applied, which is also set by the Town Hall. This rate varies from one municipality to another, but it is usually between 20% and 30% of the calculated increase. Once you have the value of the increase of the land and the percentage of application, you only have to multiply both to obtain the quota to pay.

For example: let's imagine that you have a house in Barcelona and that the cadastral value of the land of your house is 50,000 euros, and that you have owned it for 10 years. If the coefficient of increase applied by the City Council is 2% per year, the increase would be 20% in those 10 years. This means that the increase in the value of the land would be 10,000 euros (50,000 euros x 20%). If the tax rate in your municipality is 25%, you should pay 2,500 euros (10,000 euros x 25%) as municipal capital gain in Barcelona, if that were the case.

Is it possible to claim the municipal capital gain?

Yes, it is possible to claim the payment of the plusvalia municipal in certain cases, especially when you consider that the tax has been applied incorrectly or when the value of the property has not increased, as established by the Constitutional Court.

To claim the municipal capital gains tax, there are several steps to follow. The first is to formally request a rectification. If you believe that the calculation of the capital gain is incorrect or that you should not have paid the tax, the first step is to file a rectification letter with the Town Hall that has charged you.

You must provide evidence to justify your claim, such as documents showing that there has been no increase in value or errors in the calculations made by the municipality.

In the probable case that the City Council does not accept your request in the first instance, or alleges some reason to reject your rectification, you can file a contentious-administrative appeal before a court of law. This appeal must be filed within two months of the unfavorable resolution of the City Hall.

In some cases, the Constitutional Court has ruled in favor if it has been demonstrated that, in reality, there has not been a real increase in the value of the land, which has opened the door for many taxpayers who have paid the capital gains tax to initiate claims.