The Tax on the Increase in Value of Urban Land (IIVTNU), commonly known as municipal capital gains tax, is one of the local taxes that has generated the most controversy in recent years in Spain. If you are reading this article, you are probably about to sell a property, have received an inheritance, or simply want to be informed about this tax that affects all Spaniards and foreigners with properties in Spanish territory.
What is Municipal Capital Gains Tax Exactly?
The municipal capital gains tax is a tax that levies the increase in value experienced by urban lands during the period of time between the acquisition and the transfer of a property. This tax is based on the idea that the owner of land benefits from an increase in value that, in part, comes from the urban development actions of the municipality, and not only from their own economic activity.
It is important to highlight that this tax only levies the increase in value of the land, not of the construction. For example, if you sell an apartment, you will only pay capital gains tax for the part corresponding to the value of the land, not for the value of the building.
Current Legal Framework After the 2021-2022 Reforms
The legal framework of the municipal capital gains tax has experienced profound transformations in recent years. The turning point came with the Constitutional Court Ruling (STC 182/2021) of October 26, 2021, which declared the method of calculating the tax base unconstitutional. This led to an urgent reform that crystallized in Royal Decree-Law 26/2021, of November 8.
Currently, the tax is regulated by:
- Articles 104 to 110 of Royal Legislative Decree 2/2004, of March 5, which approves the Consolidated Text of the Law Regulating Local Treasuries (TRLRHL).
- The fiscal ordinances of each municipality, which may establish additional allowances.
- The jurisprudence of the Constitutional Court and the Supreme Court, which have shaped its application.
Functioning of the Tax
When is the IIVTNU Applied?
The IIVTNU applies in the following cases of property transfer:
- Sale of real estate
- Donations
- Inheritances
- Exchanges
- Expropriations
- Dation in payment
- Constitution or transfer of limited real rights of enjoyment of property (such as usufruct)
It is important to note that, after the 2021 reform, the tax is finally only paid when there is actually an increase in value. If you sell your property for less than you paid for it, you will not be subject to the tax.
Current Calculation of Capital Gains Tax After the Constitutional Court Ruling
Following the Constitutional Court ruling, the taxpayer can choose between two methods to calculate the tax base:
Objective Calculation Method
It is based on coefficients that vary according to the period of generation of the increase (years elapsed between acquisition and transfer). These coefficients are approved annually. In 2025, the coefficients range between 0.04 for periods of less than one year and 0.45 for periods of 20 years.
The formula would be: Tax base = Cadastral value of the land × Coefficient according to years of tenure.
Real Calculation Method
The taxpayer may choose to be taxed on the real increase in value, calculated as the difference between the transfer value and the acquisition value. This method is especially advantageous when the real increase is less than what would result from applying the objective method.
Once the tax base is determined, the tax rate established by each municipality is applied.
Subjects of the Tax
Who is Obligated to Pay?
The taxable person of the municipal capital gains tax, that is, who must pay the tax, varies according to the type of transfer:
- In onerous transfers (sales): the seller.
- In gratuitous transfers (donations or inheritances): the acquirer.
- In expropriations: the expropriated person.
It is relevant to note that in sales, although by law the obligated party is the seller, it is common practice to agree in the contract that the tax is assumed by the buyer. However, before the Administration, the ultimate responsible party remains the seller.
Exemptions and Allowances
The regulations establish various cases of exemption and allowance:
Exemptions for Family Reasons
- Transfers of the habitual residence by dation in payment or mortgage foreclosure to cancel debts guaranteed by mortgage are exempt, provided that the debtor does not have other assets to satisfy the debt.
- Mortis causa transfers (inheritances) in favor of the spouse, ascendants, or descendants may be allowed up to 95%, depending on the municipal ordinance.
Municipal Allowances
Each municipality may establish additional allowances in its fiscal ordinance for cases such as:
- Transfers of habitual residence
- Transfers due to death in favor of direct family members
- Transfers of real estate affected by economic activities
It is crucial to consult the specific ordinance of your municipality, as these allowances are optional and vary significantly from one municipality to another.
Municipal Capital Gains Tax for Non-Residents
Specific Obligations for Foreigners
Non-residents in Spain who transfer real estate located in Spanish territory are equally subject to the IIVTNU. However, they present certain particularities:
- They must designate a tax representative in Spain who acts as an interlocutor with the Administration.
- The buyer must withhold and pay 3% of the sale price as a guarantee of the payment of the IRNR (Non-Resident Income Tax).
- The payment and presentation of the municipal capital gains tax, in case the foreigner is the seller, falls on the buyer.
Differences in Taxation
The main difference lies in the way of filing the declaration and the applicable tax regime:
Double Taxation Agreements
Spain has signed numerous agreements to avoid double taxation with countries such as Germany, the United Kingdom, France, among others. These agreements can affect the taxation of real estate capital gains, although they generally establish that real estate is taxed in the country where it is located.
It is advisable to analyze the specific agreement applicable in each case to determine if there is any particularity that may favor the non-resident taxpayer.
Tax Representation
Non-residents must appoint a tax representative in Spain if:
- They do not reside in a country of the European Union or the European Economic Area.
- Even residing in those countries, they carry out economic activities through a permanent establishment in Spain.
The representative will be jointly and severally liable for the tax obligations and must file the corresponding declarations on behalf of the non-resident.
Declaration and Payment Procedure
Deadlines for Filing the Declaration
The deadlines for liquidating the municipal capital gains tax are:
- Inter vivos transfers (sales, donations…): 30 working days from the date of transfer.
- Mortis causa transfers (inheritances): 6 months from the death, extendable for another 6 months at the request of the taxpayer.
It is crucial to respect these deadlines, as failure to comply can lead to surcharges and late payment interest.
Claims and Appeals
How to Claim if There is Disagreement?
If you consider that the assessment is incorrect, you can file:
- An appeal for reconsideration before the municipality itself
- An economic-administrative claim before the Municipal (in large municipalities) or Regional Economic-Administrative Court.
- A contentious-administrative appeal before the courts
It is advisable to have professional advice to evaluate the viability of the claim and determine the most appropriate strategy.
Special Cases
Inheritances and Donations
In transfers by inheritance or donation, in addition to the municipal capital gains tax, the following must be considered:
- The Inheritance and Gift Tax (ISD), managed by the autonomous communities.
- Possible autonomous and municipal allowances.
- The special valuation of the deceased’s habitual residence.
For non-residents, it is important to verify if there is an agreement to avoid international double taxation in inheritance matters.
Dation in Payment and Mortgage Foreclosures
Since 2014, transfers made by natural persons on the occasion of the following are exempt from capital gains tax:
- The dation in payment of the habitual residence.
- Judicial or notarial mortgage foreclosure.
To qualify for this exemption, it is necessary that:
- The owner does not have other sufficient assets to satisfy the debt.
- It is the habitual residence
- The debt is with a credit institution.
This measure, introduced to protect mortgage debtors, has meant significant tax relief for many families affected by the real estate crisis.
Conclusion
The municipal capital gains tax in Spain has undergone a profound transformation following the 2021 Constitutional Court ruling, adapting to constitutional principles such as economic capacity. Currently, it is only taxed when there is a real increase in value, with the taxpayer being able to choose the most beneficial calculation method.
For non-residents, although they are subject to the same basic rules, there are important particularities such as the need to designate a tax representative and the possible application of double taxation agreements and the shifting of the tax to the buyer.
The complexity of this tax, together with the diversity of municipal ordinances and recent legislative reforms, makes it advisable to have specialized professional advice to optimize taxation and avoid penalties for formal or material non-compliance.
Frequently Asked Questions about Municipal Capital Gains Tax
1. What happens if I sell my house for less than I paid?
If you sell your property for a price lower than the acquisition price (considering the part corresponding to the land), you will not have to pay municipal capital gains tax. The law contemplates that there is no taxable event when there is no increase in value. You must present documentation that accredits this situation, such as the deeds of purchase and sale.
2. Can non-residents qualify for the same allowances as residents?
Yes, non-residents are entitled to the same allowances in the municipal capital gains tax as residents, provided they meet the requirements established in the corresponding municipal ordinance. The principle of non-discrimination on grounds of residence is protected by European regulations. However, there may be practical differences in terms of management and tax representation.
3. How does the municipal capital gains tax affect inheritances?
In inheritances, the taxable person is the heir or legatee who receives the property. The deadline for liquidating the tax is 6 months from the death, extendable for another 6 at the request of the taxpayer. Many municipalities establish allowances of up to 95% when the transfer is in favor of the spouse, ascendants, or descendants, but it is necessary to consult the specific ordinance of each municipality.
4. Can the payment of the municipal capital gains tax be deferred or paid in installments?
Yes, most municipalities allow the deferment or installment payment, especially when the quota is high. To request it, it is usually necessary to present a guarantee (such as a bank guarantee) and accredit temporary treasury difficulties. The request must be made before the voluntary payment period ends. Each municipality establishes its own conditions for these installments.
5. What happens if I do not file the capital gains declaration on time?
Failure to file on time can lead to:
- 5% surcharge if filed before notification of the start of a verification procedure.
- Surcharges of 10%, 15%, or 20% if filed within 3, 6, or 12 months following the end of the deadline, respectively.
- Late payment interest, which is calculated on the resulting quota.
- Possible penalties for tax infraction if the Administration initiates a penalty procedure.
It is important to highlight that voluntary late filing (before administrative requirement) avoids penalties, although not surcharges and interest.