Revised Capital Gains Tax in Spain 

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Photo by Tierra Mallorca on Unsplash

If you´re thinking of selling your property in Spain, we have good news! On 26 October, the Spanish Constitutional Court released a decree revising capital gains tax (plusvalía) rules that allow tax payers to choose between the two calculations to best suit their situation. This decree was approved by the Council of Ministers on 8 November, taking effect on 10 November 2021, and giving local councils 6 months to implement the changes.

The Plusvalía tax is applicable whenever a property title is transferred in Spain, usually within 30 days of settlement. It is also known ‘Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU)‘ – tax for the increase of land value. The tax is paid by the seller of the property, or the heir when a property is inherited. It is a key source of revenue for municipal councils and is always applicable, although there are some exceptions when residents sell a property that was their primary place of residence for the specified period and they purchase a new primary residence afterwards.

The changed rules are welcome news for property owners in Spain, after the previously defined tax was considered unfair, and ruled unconstitutional by the same court. The previous tax was calculated based on the change in municipality defined cadastral value since the property was purchased, which always showed an increase, with the result that sometimes the tax was paid even when the taxpayer had made a loss on the property. This led the court to the conclusion that the tax was biased towards municipal councils and unconstitutional.

The new decree provides that sellers will choose between two options of tax rates. One is calculated as a function of the cadastral value at the time of sale, specific to it´s size and location. The other option is a calculation based on actual capital gains, that is, the difference between the original price that was paid for the property and the price that they sell it for. By choosing which calculation is more favourable to them, the taxpayer no longer risks paying the tax in the case of loss, or the tax being more than the profit that was made from the sale.

Although it is still unclear exactly when the changes will become active in specific municipal areas, and there are still some legal details that are being debated with lawyers and courts, it is clear that the tax will be more fairly applied across Spain in the future- thereby providing better security for property owners and their prospective counterparts.

If you are considering buying or selling property in Spain, our sister company Promas Estates have a specialised team ready to provide you bespoke property services throughout the Costa del Sol. While if you are building or renovating your home in the area, we would be delighted to work with you to transform your ideas to reality.

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