The so-known Plusvalía Municipal or Tax on the Increase in Value of Urban Land is a tax payable to the municipalities when selling a property in Spain that taxes the increase in value over time of the land on which the property is built. Until October 26, 2021 this tax was calculated based on coefficients set by each municipality, the cadastral value of the land on which the property is built and the number of years of ownership. On that date the Spanish Constitutional Court declared illegal this tax, which in many cases had to be paid without having had capital gains on the sale of the property, and the Spanish Government, in record time due to the implications it has on the financing of the municipalities, approved a Royal Decree establishing two alternatives for the calculation of the tax.
These two alternatives are as follows:
Objective formula: the tax base will be obtained by multiplying the cadastral value of the land on which the property is built by new coefficients which will evolve according to the real estate market and which will be approved by the local councils without ever being able to exceed certain maximums set according to the number of years elapsed since the purchase. This formula is similar to the one used previously.
Real formula: the taxable base is calculated as the difference between the acquisition price and the sale price of the land. If the result of this calculation is lower than that of the objective formula, the seller can use this value. If a loss is incurred when selling, the taxable base is negative and, therefore, lower than what can be obtained with the objective formula, so that no tax would be payable.
In general, the selling taxpayer has the right to choose the modality that is most favorable to him, so he will not pay the tax in the case of selling at a loss.
** Given that each case is different and being this text just a simple touch on the issue, we recommend consulting your lawyer regarding the contents of this article.