Municipal Capital Gains: Final Situation

The new Municipal Capital Gains is applied Through the Royal Decree-Law published in the BOE on November 9, 2021.On October 26, 2021, the Constitutional Court -CC- presented its ruling on the municipal surplus value. In this document the calculation of the municipal surplus value was considered unfair and dissatisfied with the law, according to the Constitutional Court the calculation formula was “unrealistic to the ups and downs of the real estate market”.

With this opinion, the Spanish State was forced to modify the law of local finances and adapt it to the criteria of the CC, you can see the article here.

Today we want to talk to you about the current situation and what the Spanish government has done to resolve this legal vacuum.

In this article we want to talk about how the new municipal surplus value works. What is its new calculation formula and who can claim said surplus value and other issues related to municipal surplus value that may be of interest to you.

The Spanish government published a Decree-Law on November 9, 2021 to solve the general fiscal limbo due to the ruling of the CC. This Decree-Law must be validated by Congress. With this new calculation formula, the government intends that the municipalities adapt to the requirements dictated by the CC and that the municipal surplus value is correlated with the ups and downs of the real estate market. A situation that will make it pay only municipal surplus value in the event that the transaction generates profits for the taxpayer as requested by the CC.


Who pays the municipal capital gains ?

This new Decree-Law that entered into force on November 10, 2021 will apply just like the previous law, to anyone who sells a house, receives a donation or an inheritance and generated a profit will pay for it.

On the other hand, in situations that do not generate capital gain at the time of the transaction, they will be exempt from paying said tax to the corresponding city council, which did not happen with the previous regulations.

This new Decree-Law is not retrospective in nature prior to October 26, 2021.


How does the new municipal capital gains work?

Through the Royal Decree-Law published in the BOE on November 9, 2021, the Spanish government wanted to adapt in a speedy way to the decision of the cC that annulled the articles related to the way in which the municipal capital gains tax is calculated.

With the new regulations published on November 9, 2021, two models stand out to calculate the municipal surplus value:

  • Objective formula: the cadastral value of the property will be multiplied with new coefficients (we attach table) more realistic to the market situation. In addition, these coefficients will be reviewed each year, which will be incorporated into the General State Budget Law.
New Municipal Capital Gains 2021/2022
New Municipal Capital Gains 2021/2022

With this formula, it is intended that the taxpayer pays a more real municipal surplus value to the evolution of the market and the profit achieved with said transaction.

  • Real formula: a calculation will be made between the difference in the sale price and the purchase price of the property. If the taxpayer succeeds in demonstrating that the real surplus value is lower than that resulting from the objective estimation method, he may apply the real one.

The taxpayer may opt for either of the two formulas, according to their needs.


What happens while there was a legal vacuum?

After October 26, the Spanish administrative agencies and tax consultancies received a flood of requests. They wanted information after the ruling of the CC on the new payment system, on the situation of legal vacuum that has been generated among taxpayers who paid taxes or were waiting to do so before the issuance of the judgment of the CC or in the interim between its approval and its publication in the BOE.

Given this legal vacuum, certain professionals such as José María Salcedo, partner of the law firm Ático Jurídico considers that these capital gains can be self-liquidated to zero before the existing fiscal limbo, and in case of appeal or claim by the city council. The challenge would be recommended because there are no regulations that apply to said transaction between October 26 and November 9.


So who if to pay municipal capital gains ?

Operations signed as of November 10, those signed before October 26, 2021, with the settlement already presented or already practiced and not contested, or those that have a final judgment.


Current situation.

From Wednesday, November 10, 2021, the regulations present in the decree-law mentioned above apply to calculate the capital gain to any transaction of sale, donation or inheritance. According to the document, there will be two calculation formulas, an objective formula and another called a real formula, see details above.

Transactions that occurred between October 26, 2021 and November 9, 2021 can be self-assessed to zero and in case of claim by the city council, the taxpayer would be recommended to challenge it in the absence of regulations. Currently, municipalities will have up to 6 months to adapt to the new calculation model. It should also be remembered that the taxpayer may opt for one or another calculation formula.