Do you know what the municipal land gains tax (plusvàlua municipal) is and in which cases an exemption may be applicable? We explain it all in today’s post:
What is the municipal land gains tax?
The Tax on the Increase in Urban Land Value (IIVTNU), commonly referred to as the municipal land gains tax (plusvàlua municipal), is a tax applicable to any property that is sold, received as a donation or inherited. It taxes the gain in the value of the land on which the property is built from the moment it is sold, donated or inherited.
When a property is sold, the seller is liable to pay the municipal land gains tax, while in the case of a donation or inheritance, the new owner of the property is liable to pay the tax.
The Tax on the Increase in Urban Land Value is regulated in Royal Decree 2/2004, of 5 March, which approves the Revised Text of the Law Regulating Local Tax Authorities, from article 104 to article 110. In accordance with article 104 of the aforementioned decree, it is a direct tax on the increase in the value of urban land, payable upon the transfer of the property.
The municipal land gains tax has a validity period of four years, like all other taxes, in accordance with General Taxation Law 58/2013, of 17 December, both in respect of the right of the competent public authority to determine the applicable amount and its right to demand payment of tax dues. The term of validity is calculated from the day after the regulatory deadline for determining the applicable amount, or from the day after the deadline for voluntary payment, as applicable.
In which cases is the municipal land gains tax not payable?
Problems have arisen in the application of this tax. In order to regulate it, local councils used an automatic formula that in practice distorted its spirit. This led to paradoxical situations in which payment of the tax was demanded regardless of whether gains were really generated and even in cases where there were losses. On 11 May 2017, this abusive practice was stopped. Through ruling 59/2017 of the Spanish Constitutional Court, articles 107.1, 107.2a) and 110.4 of Royal Decree 2/2004, of 5 March, were declared unconstitutional and null and void, insofar as they led to cases of taxation when no gain in value had occurred.
Meanwhile, ruling 1163/2018, of 9 July 2018, of the Spanish Supreme Court, interpreted and delimited the scope and effects of the declaration of unconstitutionality contained in the aforementioned ruling 59/2017 of the Spanish Constitutional Court on the Tax on the Increase in Urban Land Value.
Although these rulings have not yet been incorporated in legislation, they have generated jurisprudence and can be directly invoked in order to assert one’s right to exemption of payment of this municipal tax. To do so, it is necessary to justify before the competent local council that no increase in the value of the land has occurred by accrediting the loss in equity that has occurred in the transfer of the property.
Real estate consultancy services
At Gènion Immobles, and in all the real estate operations carried out through us in relation to this matter, we offer advice and walk you through the administrative procedures that must be completed in respect of the competent local public authority in order to request an exemption.