Updated on the 8/3/2017 to take into account the changes introduced by sentence of 16 of February of 2017 the “Tribunal Consititucional ” which considers that the town halls should not charge plusvalía tax when the property is sold at a loss.
QUESTION:
I understand that if I sell my property I need to think about the following expenses: solicitors fee, capital gains tax and plusvalía tax. What is plusvalía tax , and how is it calculated?
A.
Up to recently this was a small tax when you sold or inherited , but now it can be a high amount and needs to be considered before the transaction.
It is charged on the transfer of ownership of a property by sale, inheritance etc. . This tax is a local tax charged by each municipality on the increase in value of Urban land in its own district land and is distinct from Capital Gains Tax.
It is important to realise that the tax is charged on land alone, not on the buildings that may stand on the land.
The rates of tax are set by each municipality and can vary widely between neighbouring municipalities . The tax is based on the increase in the official, that is to say the “Catastral”, value of the land which a property occupies. This is the same value that is used to set your local property tax or “IBI” and can be found on the bill for your “IBI” issued by your local ayuntamiento each year and is shown as the “valor del suelo”.
The actual price at which a property changes hands, or the value attributed to it by deed if is the subject of a gift or inheritance is irrelevant.
The only possible theoretical exception is if the price you are selling for actually is lower than the price of purchase. A sentence by our supreme court has said that a particular person that had sold for less than he had purchased for could not charge plusvalía tax by the town hall regardless of the theoretical gain according to their records. This opens a possibility but please read my post referred to this sentence by our supreme court on plusvalía tax.
How is plusvalía tax calculated ?
The Plusvalia is calculated as a function of the catastral value of the land and the number of years of ownership (up to a maximum of 20 years). The higher the catastral value and the number of years of ownership, the higher the tax.
Plusvalia tax = Catastral value of the land x Yearly percentage of value’s increase x Number of years of ownership x Tax rate
The yearly percentage of value’s increase and the tax rate are fixed by the Town Halls. They are established locally.
Up to now, when a Town Hall had updated the catastral values, usually with really high increases of the values compared to the existing ones, article 107.3 of the Law had established that on the following five years after the revision of the values, the Town Halls had to apply a deduction of 40 to 60 % to the catastral value. If a Town Hall made not contemplation of this rule the law established an automatic deduction of 60%. However new Law passed in 2012 has changed that situation allowing the Town Halls to eliminate those deductions, which is why a loto of people are suddenly paying much higher rates and find themselves with an unfairly high Plusvalía tax when they sell.
On a sale of a property it is the responsibility of the seller to pay the tax, but if the seller is a non resident and fails to pay this responsibility may be passed to the buyer, who would then have to recuperate the money form this seller.
If the property is being inherited or is the subject of a gift it is the beneficiary or recipient of the property who is liable to pay the tax.
Certain transactions are exempt from the Plusvalia Tax, the main ones which are likely to affect the general public are the transfer of property between spouses who are divorcing, or to children to comply with Court judgments, and “aportaciones” or transfers to companies in which spouses are the only shareholders which may be used for tax planning.
The amount of the tax that will be charged on a transaction will depend firstly on the Catastral value of the land which the property occupies, and secondly on the length of time since it last changed hands.
If you are selling an individual house which stands on a large plot which you have owned for a considerable length of time the amount of the Plusvalia Tax could be many thousands of Euros. On the other hand, as the tax is charged on the value of land alone, the amount of Plusvalia Tax charged on a flat in a block which you have not owned for very long the tax may be quite modest.
For those of you who are considering rearranging your financial affairs to take advantage of tax planning schemes, the amount of Plusvalia tax that may be due is one of a number of elements, which include the Notary and other fees that may be payable, which you need to consider when balancing the costs and benefits of these schemes.
How long do I have to pay plusvalía tax?
Depending on the amount of Plusvalia, it may be cheaper to make a gift of the property rather than enter into more complex arrangements with higher Notary and other fees.
The time for paying the Plusvalia Tax is within 30 days of a sale or gift between living people, or 6 months of the date of death on an inheritance.
Your town hall can advise you of the amount of Plusvalia that may be payable on a transaction involving your property, or in many cases it is possible to obtain the calculation “on line”, but as I always write in concluding these articles, if in doubt take professional advice.
