Selling a home does not only involve expenses for the buyer or for someone who receives the property (for example, through inheritance), but also for the seller. One of these expenses is the Tax on the Increase in Value of Urban Land (IIVTNU), commonly known as municipal capital gains tax or property sale capital gains tax, which taxes the increase in the value of urban land from the moment it was acquired until it is transferred.
How to Calculate the Municipal Capital Gains Tax When Selling a Property
There are two different methods for calculating this tax:
- Based on the actual increase in value
- Based on the “objective” increase in land value
Taxpayers can choose whichever method is more favorable.
Calculation based on actual value increase
Transmission value of the land – Acquisition value of the land = Taxable base
Calculation based on objective value increase
Cadastral value of the land × Coefficient established by the municipality = Taxable base
In both cases, the taxable base is multiplied by the municipal tax rate.
Key Concepts
Cadastral value of the land
This value appears in the property tax receipt (IBI) and in the property’s cadastral records.
Revaluation rate
This rate is set by the local municipality where the property is located, although the maximum limits are established by the Ministry of Finance.
Tax rate (tax percentage)
This also depends on each municipality, but cannot exceed 30%.
Possible tax reductions
Municipalities may apply bonuses or reductions depending on their local regulations.
How Much Is the Municipal Capital Gains Tax When Selling a Property?
The exact amount depends on the factors mentioned above, so each transaction will have a different cost.
An example helps illustrate the calculation:
You purchase a property in 2015 and sell it in 2025. The cadastral value of the land is €100,000.
Suppose the municipality sets a revaluation rate of 3.5% per year. After 10 years, a 35% increase is applied to the cadastral land value.
This results in a revaluation of €35,000.
This amount becomes the taxable base. If the municipality applies a 30% tax rate, the municipal capital gains tax would be €10,500 (before applying any potential reductions).
When Is the Municipal Capital Gains Tax Paid?
As with any tax procedure, it is important to comply with the established deadlines.
The tax must be paid after the property sale deed has been formalized. The seller has 30 working days from that moment to make the payment.
Who Pays the Municipal Capital Gains Tax?
Municipal capital gains tax applies when you sell a property, receive a property as a donation, or inherit a property. The person responsible for paying the tax depends on the situation:
- Property sale: the seller pays the tax.
- Property donation: the recipient of the property pays the tax.
- Property inheritance: the heirs who receive the property are responsible for paying the tax.
Exemptions From Paying Municipal Capital Gains Tax
Municipal capital gains tax has been controversial because the objective calculation method does not always consider whether the seller actually made a profit.
As a result, laws have been introduced allowing tax exemptions in certain situations.
Exemption for mortgage payment in kind (dación en pago)
Article 105.1.c of Legislative Decree 2/2004 establishes that capital gains tax is exempt when a primary residence is transferred through mortgage payment in kind, as well as in judicial or notarial mortgage foreclosures.
Is there an exemption when selling one home to buy another?
In Spain, there is no automatic exemption from municipal capital gains tax when selling a home to purchase another. However, there are two situations where exemptions or reductions may apply:
- Since the approval of Royal Decree-Law 26/2021, it is possible to request exemption if no profit was obtained from the transfer, whether through sale, inheritance, or donation.
- Also since 2021, if you sell your primary residence to purchase another primary residence within two years, you may request a reduction in the tax amount.
Other situations where exemptions may apply include property transfers between spouses, or cases involving historical-cultural heritage or specific state entities.