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New municipal capital gain. Entry into force: November 10, 2021

08/11/2021

It is a tax collected by municipalities. It records the increase in value experienced by the land that becomes evident as a result of the transfer of ownership of the land by any type or of any limiting right of the domain. Until now it was calculated by multiplying the value of the land on the accrual date (cadastral value of the land) by the number of years of its permanence in the property of the transmitters and by the percentage set by the City Council, but now it has changed.

Jurisprudential and legislative developments:

1) Judgment of the Constitutional Court of October 26, 2021
2) Royal Decree Law 26/2021, of November 8, which adapts the text rejecting the law regulating local estates, approved by Legislative Royal Decree 2/2004, of March 5, to the recent jurisprudence of the Constitutional Court regarding the tax on the increase in value of urban land.

What does the Constitutional Court argue in this ruling?

1) that the way to calculate the tax base is null, since it considers that, as provided by law, an objective and mandatory system was being configured that was alien to the real estate market, the economic crisis and outside the capacity financial statement shown by the taxpayer, and it could not be.
2) that it is necessary to maintain the criteria of several previous judgments issued by the TC itself, which already prevented the liquidation of the tax in cases in which there was no real capital gain (increase in value) in a transfer or when the calculated amount of the Tax exceeds this capital gain (value increase) (ex stc
59/2017 and 126/2019).
3) leaves a legal vacuum for a few days (until the new Royal Decree is issued by the Government, considering that there is an urgent and extraordinary situation to be resolved) based on article 86 of the EC).
4) The declaration of nullity of the articles that regulate the determination of the tax base does not affect the rest of the elements of the tax.

What happens to the capital gains generated before 10-26-2021 on which the judgment is issued?

• If the settlement has not yet been submitted and we are within the voluntary deadline, it is advisable to present with a fee to pay ZERO (0).
• If the city council sends it to pay, it is advisable to go around citing that the law on the basis of which the City Council has made the calculation is null.
• If it is already settled and paid and it is signed because it was not appealed, nothing can be done, as mentioned in the judgment of the TC itself.

What happens to the Capital Gains generated from the 26-10 to the 10-11-2021 when the new RD is issued?

It is advisable to present it expressly indicating that it cannot be calculated because the law is null and void.

NEW REGULATORY FRAMEWORK

OBJECTIVE OF THE STANDARD
With this REFORM, the enforceability of the tax that had been suspended as a result of the stc of the TC is restored due to the regulatory gap left in the determination of its tax base. Records the increase in value experienced by a property at the time of a transfer of full ownership or ownership
part of the domain. The tax base determination technique is improved to reflect the reality of the real estate market. Adjust the tax base to the effective economic capacity of the taxpayer.

TAX BASE
Now two options are given for the calculation; a) multiply the cadastral value of the land by the coefficients approved by the municipalities based on the generation period (similar to the traditional one) b) or pay taxes based on the increase in real value (new).

CALCULATION METHODS OF THE NEW TAX BASE

1- TARGET SYSTEM
Result of multiplying maximum coefficients that vary according to the number of years in which the property has been owned by the seller, to the cadastral value of the land.

2- PLUSVALUA REAL
NOVELTY: the taxpayer will be given the option to pay taxes on the real capital gain of the land (difference between the sale price and the acquisition price) if the result is lower than the target system. As the transmission and acquisition value, the greater of what appears in the title documenting the operation or the checked, if it is the case, by the administration.

EXAMPLE 1: SALE WITHOUT PROFIT

A family buys a property in 2005, in the middle of the real estate bubble, for € 450,000 and they sell it in 2021 for € 380,000. Disability is generated by the taxpayer. If you prove the purchase and sale price (presenting the 2005 and current deed of sale) you will not be subject to tax.

EXAMPLE 2: REAL HIGHER VALUE IN THE TARGET

A house is bought in 2011 for € 500,000 and sold in December 2021 for € 600,000. The cadastral value of the house is € 100,000, with € 60,000 for land and € 40,000 for construction. Therefore, of the property's cadastral value, 60% of the value is land and the remaining 40% is construction.

• REAL PLUSVALUA: the increase in value of the property is € 100,000, to determine the proportion of the value the increase in value is multiplied by the% that the land represents: € 100,000 increase * 60% proportion of the land over the cadastral value = € 60,000 is the tax base to be paid using the real capital gain method.
• TARGET SYSTEM: it is calculated by taking the cadastral value of the land and multiplying it by the corresponding coefficient: € 60,000 of cadastral value of the land * 0.08 of coefficient = € 4,800 is the taxable base by the objective method.

SHARE:
REAL GOODWILL: € 60,000 * 0.30 = € 18,000 amount of capital gains using the real capital gains method
TARGET METHOD: € 4,800 * 0.30 = € 1,440 capital gain from the target method

EXAMPLE 3: LOWER REAL VALUE IN THE TARGET

An apartment is bought in 2017 for € 250,000 and sold in December 2021 for € 260,000. The cadastral value of the apartment is € 100,000, with € 20,000 for land and € 80,000 for construction. Therefore, the value of the land is 20% of the property's cadastral value.

REAL PLUSVALUA: the increase in value of the property is € 10,000, to determine the proportion of the value the increase in value is multiplied by the% it represents in the land: € 10,000 increase * 20% proportion of the land over the value cadastral = € 2,000 is the tax base by the real capital gain method.
TARGET SYSTEM: it is calculated by taking the cadastral value of the land and multiplying it by the corresponding coefficient: € 20,000 of cadastral value of the land * 0.17 of coefficient = € 3,400 is the taxable base by the objective method.
SHARE:
REAL GOODWILL: € 2,000 * 0.30 = € 600 amount of capital gains using the real capital gains method
TARGET METHOD: € 3,400 * 0.30 = € 1,020 capital gain if the target method is chosen

We hope to have solved your doubts; however, if you have any further questions, please contact us.

Thanks to the Girona API College for having provided the information.