When you sell, inherit or receive a Spanish property as a gift, a tax tends to appear that few foreign owners have heard of until they are in the middle of the transaction: plusvalía municipal. It is a local tax, entirely separate from the state capital gains tax, calculated in its own peculiar way and, in some cases, not payable at all. This article explains how it works in practice, who pays it and how to check that the town hall is not charging you more than it is entitled to.
What is plusvalía municipal?
Its official name is Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (IIVTNU). It is levied by the municipality where the property is located and taxes the increase in value that the land (not the building) is deemed to have experienced while you owned it. It is triggered by every transfer: sale, inheritance, gift or division of co-ownership.
Keep the two taxes apart: plusvalía municipal is one thing, the state capital gains tax (for non-residents, 19% of the gain under the IRNR) is another. On a sale you may end up paying both.
Who pays?
- Sale: the seller.
- Inheritance and gift: the person receiving the property, i.e. the heir or donee.
There is one special rule that non-resident sellers should know about. If the seller is not tax resident in Spain, the buyer becomes formally liable to the town hall as a substitute taxpayer (sustituto del contribuyente). In practice this means the buyer’s lawyer will almost always retain an amount equal to the tax from the purchase price at the notary and pay it to the municipality. Expect that sum to be deducted from what you receive at completion.
How the tax is calculated: two methods
Since the reform of late 2021, which followed the Constitutional Court striking down the old system, there are two ways of calculating the tax. You are entitled to choose whichever gives the lower figure.
1. The objective method
The town hall takes the cadastral value of the land (valor catastral del suelo, shown on your IBI bill) and multiplies it by a coefficient that depends on how many years you have owned the property. The coefficients are fixed by the State each year; municipalities may lower them but not raise them. The municipal tax rate, capped by law at 30%, is then applied to the result.
Example (illustrative): You sell an apartment in Alfaz del Pi after 10 years of ownership. The cadastral land value is €40,000. With an assumed coefficient of 0.10, the taxable base is €4,000. At a municipal rate of 25%, the tax is €1,000. The value of the building plays no part.
2. The real gain method
Here you compare the price in your purchase deed with the price you are now selling for, and take the share of the difference that corresponds to the land’s proportion of the total cadastral value.
Same example: Bought for €180,000, sold for €200,000, a gain of €20,000. If the land represents 30% of the cadastral value, the base is €6,000 and the tax (25%) is €1,500. In this case the objective method is more favourable and you should ask for it to be applied.
No gain, no tax
The most important change of 2021 is that no tax is due if you sell at a loss or with no gain. Many foreign owners who bought in 2006–2008 and are selling now fall into this category. You must prove it yourself, however, by filing the purchase and sale deeds with the town hall. The municipality will not work it out for you.
Deadlines, where things often go wrong
- Sale and gift: 30 working days from the date of the notarial deed.
- Inheritance: 6 months from the date of death, extendable to 12 months if the extension is requested within the first six months.
Missing the deadline brings surcharges and interest. With inheritances this is a common trap, because families often spend the first months dealing with the estate at home and forget the Spanish town hall altogether.
Legal basis
The tax is governed by articles 104 to 110 of the Spanish Local Finance Act (Ley Reguladora de las Haciendas Locales, RDL 2/2004), as amended by RDL 26/2021. That reform followed Constitutional Court judgment 182/2021, which annulled the previous method of calculation. Each municipality then sets its own rate and any reductions (for example, for the inheritance of a main home) in its local tax ordinance.
Work it out yourself
Want an estimate before you sell or accept an inheritance? Use our free tool: Plusvalía municipal calculator. If you are selling, it is also worth running the numbers on the state capital gains tax at the same time: Capital gains tax calculator.
Contact us
We calculate, file and, where appropriate, appeal plusvalía municipal assessments throughout the Costa Blanca, in English, Swedish, Norwegian and Danish.
Email: [email protected]
Phone: +34 629 549 430
Web: www.colas-abogados.com