The local capital gains tax (‘plusvalía municipal’)

There is hardly a term in Spanish legal language that is so misunderstood as the “plusvalía”. It starts with the fact that the term plusvalía is not found in the Spanish legal texts.

The correct term is as follows: Tax on the increase in value of developed building land (“Impuesto sobre el incremento de valor de los terrenos de naturaleza urbana”).

This is a municipal tax on the increase in value of land (but not of structures) since the last transfer. The plusvalía is often confused with the seller’s income tax (“IRPF”). The state income tax is used to tax the profit made on the sale, i.e. the difference between the purchase price and the sale price according to the notarial deed of sale. The basis for calculating the plusvalía, on the other hand, is the value of the land and the tax rates laid down in the municipal statutes.

The plusvalía is due on every transfer of ownership of a property that is subject to property tax ( IBI) and the maximum assessment period is 20 years. The plusvalía also applies to inheritances and gifts, although most municipal by-laws in Ibiza provide for a tax reduction (“bonificación”) of 95% in the case of inheritance from 1st order heirs (parents, children).

The starting point for calculating the plusvalía is the cadastral value (“valor catastral”), which can easily be read from the last property tax assessment. The cadastral value is divided into the value of the land (“valor del suelo”) and the value of the superstructures (“valor de construcción”), both values together make up the cadastral value. In Ibiza City, the cadastral value was last increased significantly in 2012. In order to prevent property owners from being surprised by this drastic increase from one year to the next, the tax is calculated on a base liquidable, which increases each year. In the tenth year of the increase, the cadastral value is then used in full for taxation (in Ibiza City in 2021).

In simple terms, the value of the land is multiplied by a factor to be defined by the municipality, depending on the number of years since the last change of ownership of the property. This results in a corresponding tax base, which in turn, by applying a municipal tax rate, results in the tax liability. An example from the municipality of San Josep will illustrate the principle: The value of the land is 13.642,79 €, 20 years have passed since the last transfer, the coefficient of the municipality of San Josep is 2,2 %, the tax rate is 20 This results in the following calculation examples: 2.2% of 13,642.79 € = 300.14 € X 20 years = 6,002.83 €, of which 20% = 1,200.57 € plusvalía must therefore be paid.

The plusvalía is by law to be paid by the seller. Occasionally the seller tries to charge it to the buyer, although Spanish case law has ruled that it is not permitted to transfer the plusvalía to the buyer. It therefore makes sense to explicitly impose payment of the plusvalía on the seller’s side in the contract. All notaries are obliged to inform the municipal administration of the recorded deeds which could be subject to the plusvalía. According to a decision of the General Directorate (BOE 26 January 2018), it is necessary for the municipality to confirm receipt of the notarial deed to the notary. As the municipality does not normally carry out any transactions, it is now all the more important that the parties in turn notify the municipality of the transfer process within 30 days of the notarisation. For some years now, land registries have only been allowed to make entries of changes in the law if at least the application for settlement of the plusvalia has been submitted to the relevant municipality.