What is Municipal Capital Gains Tax and how is it Calculated?
June 6, 2024
The municipal capital gains tax is a tax that affects many property owners when they decide to sell, inherit, or donate a property. This tax is levied on the increase in the value of urban land from the moment it was acquired until the moment it is transferred. In this post, we will explain what the municipal capital gains tax is, when it must be paid, and how it is calculated, with a practical example to facilitate understanding.
What is Municipal Capital Gains Tax?
The municipal capital gains tax, also known as the Tax on the Increase in Value of Urban Land (IIVTNU), is a local tax that city councils charge property owners when these are transferred. This means that, if you sell, inherit, or receive a property as a donation, you will have to pay this tax. What is taxed is the increase in value that the land has experienced from when you acquired it until the moment of transfer. To determine the taxable base of the tax, the cadastral value of the land and the time that it has been in the owner’s possession are taken into account.
When is Municipal Capital Gains Tax Paid?
If you are wondering when municipal capital gains tax is paid, you should know that, mainly, this tax must be paid in three cases:
- Sale of a property: If you decide to sell your property, you will be responsible for paying the municipal capital gains tax.
- Inheritance of a property: If you inherit a property, the heirs must pay the municipal capital gains tax.
- Donation of a property: If you receive a property as a donation, you will be the one who must pay this tax.
It is important to remember that this tax is not paid if the value of the property has not increased from the moment of acquisition to the moment of transfer.
Deadline to Pay Municipal Capital Gains Tax
The deadline to pay the municipal capital gains tax varies depending on the situation:
- In case of sale: You have 30 business days from the date of sale to make the payment.
- In case of inheritance: The deadline is 6 months from the date of death of the owner, with the possibility of requesting an extension of 6 more months.
- In case of donation: The deadline is 30 business days from the date of the donation.
If you do not pay the municipal capital gains tax within the established deadline, surcharges and late payment interest may be applied. In addition, the city council may initiate a collection procedure, which may include foreclosures on the debtor’s assets.
How to Calculate the Municipal Capital Gains Tax?
The calculation of the municipal capital gains tax is done with this formula:
Taxable base = Cadastral value of the land × Percentage of increase
The percentage of increase is determined according to the years that the land has been in the owner’s possession. Then, the tax rate established by the city council is applied to obtain the tax amount.
Below is an example to understand the calculation:
Imagine you have a property that you bought 10 years ago and now you want to sell it. The cadastral value of the land is €100,000. The city council establishes a percentage increase of 3% per year. Here’s how to calculate the capital gains:
Calculation of the percentage increase:
Percentage increase = 3% × 10 = 30%
Calculation of the taxable base:
Taxable base = €100,000 × 30% = €30,000
Calculation of the tax amount:
If the city council’s tax rate is 20%
Tax amount = €30,000 × 20% = €6,000
Thus, you should pay €6,000 of municipal capital gains tax.
Remember that, if you are thinking of selling your property, at Espígul we help you with all the procedures. With more than 36 years of experience leading the sector, we are your trusted real estate agency. Do not hesitate to contact us without any commitment!
