The municipal capital gains tax on a property is a tax that we must pay when certain asset transactions occur. Below, in our post from Gumper, we will explain the details of this tax and how it affects the costs you should consider when fulfilling certain transactions.
The municipal capital gains tax on a property. What does it consist of?
As we mentioned in our introduction, the municipal capital gains tax on a property (IIVTNU) is a tax that we must pay when any of the following situations occur with our assets:
- Sale of a property
- Donation of a property
- Inheriting a property
This tax is municipal in nature, so the calculation of its amount is subject to the regulations of each municipality. Urban land is subject to this tax, and the obligation to pay this tax will depend on the operation performed.
Important to understand the capital gains tax on a property: this tax, also known as the Tax on the Increase in Value of Urban Land (IIVTNU), does not always imply an automatic payment, as since the last jurisprudential update, it is only generated when there is a real increase in the value of the land between the purchase and the transfer of the property.
In other words, the capital gains tax on a property is calculated based on the actual or presumed capital gain, which has led to significant changes in its application in sales, inheritances, and donations.
Additionally, it is key to consider that each municipality may apply different coefficients and tax rates, so the final amount can vary significantly between municipalities, even within the same autonomous community.
How is the municipal capital gains tax calculated and paid?
We have already discussed what types of situations generate this type of tax, and depending on each case, there will be different parties obligated to pay it.
Sale of property: When the transaction we perform is the sale of the property, the obligation to pay the corresponding capital gains tax falls on the seller.
Donation or inheritance of property: In both cases, it is the recipients of the property who must pay the corresponding tax.
When calculating this tax, a simple calculation can be used as a reference:
We must take into account the cadastral value and the time elapsed. (By time elapsed, we refer to the time that passes from when we acquired the asset until its sale or donation occurs).
Once we have accounted for these factors, we must apply the tax rates of the municipality where the property is located, as we have explained, it is a municipal tax. These rates are known as revaluation rates and take into account the difference in value of the property from its purchase until a change of ownership occurs. On this taxable base, the tax base regulated by each municipality is applied, which can be up to 30%. Once we have made these calculations, we can establish the amount to be paid for the capital gains tax.
If you are thinking of carrying out any of these real estate operations, you can consult us and we will advise you on the calculation of the capital gains tax.
What is the deadline for paying the capital gains tax?
Until 2018, all the previously mentioned operations were subject to the payment of this tax. Following a ruling by the Supreme Court in 2018, only those transactions that have a real profit from their purchase to their sale or asset transfer will need to pay the capital gains tax.
The maximum deadline for paying the tax is 30 business days from the date of asset transfer. In the case of a death, this period is extended to 6 months from the date of the asset transfer. In this last case, we can request an extension of the tax up to 12 months (1 year) if a written request is made to the administration within the first 6 months.
Controversy of the tax
It is common when we talk about capital gains to find confusing or at least contradictory information about how its payment obligation is established. Currently, this tax is under review by official bodies.
As we explained earlier, since 2018 there is the possibility of not being subject to the payment of the capital gains tax if we sell our property for a price equal to or lower than the price we paid for the acquisition of that property.
Another scenario we may encounter is that our property is not classified as urban; in such a case, we can avoid its payment. Therefore, all properties classified as rural are exempt from paying the tax.
We have previously discussed how to calculate the tax; next, we will carry out a simple exercise so that we can understand the controversy of the regulation, since, although tax rates of 3.5% may seem untroubling, when we conduct a practical exercise, we see that the tax burden can represent a significant outlay.
Is anyone exempt?
There are some cases in which, even if a property is sold, the self-assessment of the capital gains tax does not have to be carried out.
Exemptions
- The contributions of assets and rights made by spouses to the marital community, the allocations that are verified in their favor and in their payment, and the transfers made by spouses as payment of their common assets.
- The transfers of real estate between spouses or in favor of children as a result of compliance with sentences in cases of annulment or divorce.
- In the subsequent transfer of the lands described in the previous sections, it is considered that the counting of the years has not been interrupted, with respect to the calculation of the capital gains. For example, if spouses buy a property in 1990 and divorce in 1995, and the property is awarded to one of the spouses according to a court ruling. Subsequently (in 2000), this property is sold, and the capital gains that must be paid refer to the period from 1990 to 2000: the transfer of 1995 is not taken into account.
- The transfers of assets when there has been no increase in the value of the land. A written request must be submitted attaching the deeds of acquisition, transfer, and any other means of proof.
Bonuses
- In the case of inheritances, if it concerns the habitual residence of the deceased person, as registered in the Population Register.
- Regarding the transfers of premises affected by business or professional activities, exercised individually, a 95% bonus may apply to the spouse, descendants, or ascendants by nature or adoption.
All exemptions and bonuses can be consulted in detail on the Barcelona City Council website.
Practical case
Let’s assume we want to put our apartment up for sale, for this we will need to carry out the following calculation.
The first thing to calculate will be the years of ownership of the property:
Let’s imagine that we acquired a property in July 2010 and sold it in July 2020:
For a tax period of 10 years, the increase coefficient is 3.5%. We can consult the tables on the Barcelona City Council website.
The years of ownership must be multiplied by the increase percentage. In our case, 10 (years) x 3.5% (multiplier coefficient) = 35% (percentage to apply to the cadastral value).
To find the cadastral value, we need to look at the last IBI receipt or check the cadastral website. For our example, imagine that the cadastral value of the property is 200,000 euros.
The multiplication of the cadastral value of the home by the multiplier coefficient will give us the taxable base.
200,000 euros (cadastral value) x 35% (coefficient) = 70,000 euros (taxable base)
Tax rate: 30%. (Remember that the maximum tax rate is 30% and that each municipality is responsible for setting that tax rate.)
Fee to pay = taxable base x tax rate.
70,000 euros (taxable base) x 30% (tax rate) = 21,000 euros (fee to pay).
As we have seen, it represents a high % of cost in the cost of our property.
The parliamentary processing of this law will be one of the key points to regularize imbalances in property transmissions. Currently, and after the slowdown of all processes due to COVID-19, information is being requested from the different municipalities to initiate a process of equity in the calculation of the maximum tax (currently 30%) that each municipality can impose and that must justify its calculation for its application.
What happens if I do not file the tax or do not make the payment?
If we do not file or make the payment of the tax, we will be incurring the start of a sanctioning process.
In the event that the tax declaration is not made, the municipalities can initiate said sanctioning process, the scope of which can represent a significant economic blow, as we will have to make the corresponding payment plus late interest, and since it is a sanctioning process that can reach a penalty (mandatory payments aside) of up to 150%.
If the tax declaration is made but not the payment, we are faced with a more favorable sanctioning situation that can imply an increase of up to 20% in addition to adding the due payment plus the corresponding late interest.
If you want to avoid overpaying or want to know in depth how the management of the capital gains calculation is carried out, you can contact us without obligation before starting the process of selling a property. As you have seen, having expert advice can be very useful to avoid unpleasant surprises in the different processes of asset transmission.
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