The plusvalía tax or land value tax, technically known as the tax on the increase in value of urban land, is a local tax paid to the local council when a property is transferred.
This tax has become a crucial part of the municipal tax system in Spain, affecting both buyers and sellers of real estate.
What is the Plusvalía tax?
The Plusvalia tax is levied on the increase in value of a plot of land from its acquisition to its transfer, which becomes apparent at the time of accrual and is experienced over a period of 20 years. This increase in value is generally due to urban development and the improvement of infrastructure in the area where the property is located.
History and Evolution of the Tax
The origin of the Plusvalia municipal goes back several years, reflecting the need of local authorities to finance urban development. Over the decades, the method of calculation and the legal bases have evolved to adapt to changes in the property market and fiscal policies.
Since the approval of the Royal Decree (Royal Decree-Law 26/2021, of 8 November, adapting the revised text of the Law Regulating Local Treasuries, approved by Royal Legislative Decree 2/2004, of 5 March, to the recent case law of the Constitutional Court regarding the Tax on the Increase in Value of Urban Land) modifying the capital gains tax, new methods for its calculation have emerged, offering taxpayers more flexibility and options for determining their tax.
Methods of calculating the Plusvalia
The amendment aims to improve the calculation of the taxable base to ensure that taxpayers who do not make a gain on the sale of the property are exempt from paying the tax, establishing two options for determining the tax liability, allowing taxpayers to choose the one they consider most beneficial:
Objective method
The objective method is based on multiplying the cadastral value of the land by the coefficients established annually by the local councils.
This method is simple and standardised, facilitating the calculation and predictability of the tax. It is particularly useful in areas where the cadastral value adequately reflects the market value of the land.
Real Method
The Real method, on the other hand, is based on the difference between the sale price and the purchase price of the property. This method allows for a calculation that is more in line with the economic reality of the taxpayer, especially in volatile property markets.
The current regulation allows taxpayers to opt for the method that is most favourable to them.
Factors Influencing the Calculation
Several factors can influence the calculation of the municipal capital gains tax:
- Cadastral value: It is the taxable base of the tax and can vary depending on the location and characteristics of the property. If you want to know more about the importance of the cadastral value of a property in Spain, click here.
- Number of years of possession: The time elapsed between acquisition and transfer directly affects the amount of tax.
- Municipality: Local tax policies and applicable coefficients may differ from one municipality to another.
- Transfer and acquisition value: The purchase and sale price influences the Real method, reflecting the actual increase in value.
Practical Cases and Calculation Examples
Here are some practical examples to illustrate how the municipal capital gains tax is calculated using both methods:
- Example Objective Method: A property purchased in Mijas 3 years ago with a land value of 80.000 euros, with a coefficient of 0,14 and a tax rate of 30%. The calculation would be: 80.000 x 0,14 x 30% = 3.360 euros.
- Example Real Method: A property bought in the same municipality for 200.000 euros and sold for 250.000 euros. The real increase would be 50.000 euros. We calculate the cadastral value of the land on the cadastral value of the property which we imagine is 50% (50.000 x 0,50= 25.000 euros). If we apply the tax rate of Mijas which is 30% (25.000 € x 0,30) we would get a tax rate of 7.500 €.
Conclusions
The Plusvalia municipal is a complex but crucial tax in the Spanish tax system. Understanding the methods of calculation and the factors that influence the tax is essential to minimise its impact.
Recent regulation offers taxpayers the flexibility to choose the most favourable method, although it is advisable to consult with tax experts to ensure proper compliance and take advantage of the options available.