What is the municipal capital gains tax?
The municipal capital gains tax whose official name is Tax on the Increase in the Value of Urban Land is a tax that citizens pay to municipalities. This tax is levied on the revaluation of a property, specifically the increase in the value of the property from its purchase until it changes ownership after a sale, inheritance or donation.
Why have they eliminated the municipal capital gains tax?
The Constitutional Court has declared the municipal capital gains tax null and unconstitutional because it has considered that the calculation method used to calculate the tax base of the tax is unconstitutional, since it is charged regardless of whether the value of the property has increased or decreased. since it was bought. This tax has always been controversial for the courts since in reality it assumed that, although an owner sold his property at a loss, he had the obligation to pay the tax.
What will happen after the suspension of the tax?
Following the decision of the Constitutional Court, the municipalities will no longer apply this tax. This translates into great savings and multiple advantages for all owners who are going to sell their house in the short term, who will have to act quickly, since this situation will surely have a fairly close end date.
The next steps will be taken by the Government, which will have to adapt the rule to the decision of the Constitutional Court or to annul the references to municipal capital gains from the Local Tax Law (articles 107.1, second paragraph, 107.2.a and 107.4).
The elimination of the tax will not be final, but only its method of calculation, so the municipal capital gains tax will be annulled until the law is amended and the municipalities can collect it again.
It is estimated that this situation will take about three months, although it is possible that decisions will be made earlier because the municipalities will exert great pressure, since the average annual collection of this tax is 2,500 million euros.
Do people who have already paid the municipal capital gains tax have the right to claim?
The Constitutional Court has decided that the people who can claim will only be those who had an open legal process before the decision to eliminate the tax.
Even so, if you find yourself in any of the following three situations, you will not be able to claim:
- In the event that a rectification has been submitted and it has been rejected.
- In the case in which it has been filed administratively, it has been dismissed and the courts have not been resorted to.
- In the case in which it has been reached in court but has been dismissed by final judgment.
How and when was the municipal capital gains tax paid?
Being a municipal tax, it depended on each city council, but usually it used to be through self-assessment:
- In the case of inter-vivo transmissions, 30 business days had to be paid from the purchase-sale date (transmission).
- In the case of death cause, 6 months had to be paid from the owner’s death.
Who was required to pay the municipal capital gains tax?
The people who had the obligation to pay this tax were the following three:
- The owner of a property when carrying out the sale of the property.
- A person who received a property as an inheritance.
- A person who received a property as a donation.
What data did you need and how could you calculate the municipal capital gains tax in Madrid?
Data required to perform the calculation:
- Cadastral value of the land that appears in our IBI receipt.
- Years elapsed between the purchase and sale (date of purchase and sale of the home).
- Coefficient of increase in the cadastral value of the land, which is the difference between the value of the land when you bought it and when you are going to sell it. The Madrid tax ordinance establishes an increase percentage for each of the years of ownership of the property that is counted up to 20 years. From the age of 20 the quota is maximum and the last coefficient is always used. In Madrid, the percentages were:
- Up to 5 years 2%
- Up to 10 years 2.5%
- Up to 15 years 2.8%
- Up to 20 years 3%
Depending on your municipality, this tax rate could vary between 2% and 60%.
- Tax rate of the impost (which was 29% in Madrid).
In order to calculate the municipal capital gains tax and know how much we had to pay, we had to perform the following calculation:
Tax base = Cadastral value of the land x Coefficient of increase in the cadastral value of the land based on the number of years of ownership.
Capital gains = Tax base x 29%
Example: If we had bought our home 15 years ago and the cadastral value that appeared on our IBI receipt was € 2,500,000, the coefficient of increase for this period of ownership in Madrid was 2.8%.
Tax base = 15 (years) x 2.8% x 2,500,000 (€) = € 1,050,000
Capital gain = 1,050,000 x 29% = € 304,500
€ 243,600 is the amount that we had to pay for municipal capital gains tax if we sold our home in Madrid before the ruling of the Constitutional Court.
Why is it the best time to sell your home and in what case are you interested in doing so?
In the case in which you want to sell your home and its current price is higher than the price for which you bought it, we recommend that you sell it before the Treasury approves the changes in the municipal capital gains tax. In this way you will be able to save the considerable amount that this tax supposes.
From Ketier, as real estate experts, we are available to all owners who wish to expedite the sale of their property, verify what the current value of their home is or what amount they will have to pay once the municipal capital gains tax is back in in force.
If you want to sell your home quickly, contact us, we will be happy to advise you without any commitment.