The New Law for Calculating the Capital Gains Tax
By Armin Gutschick & Anja Sämann-Gutschick
As we reported in the last issue, the Spanish Constitutional Court declared that the plusvalía tax (capital gains tax) was unconstitutional in its current form. In response to that ruling the government published a legislative decree on 8 November 2021, which defines the new ways to determine the tax basis for the plusvalía tax. According to this law, a taxpayer can now choose between an objective or a subjective calculation method for determining their tax base.
For the objective assessment method, one takes the cadastral value of the land and multiplies it by a coefficient that is based on how many years have passed since the property was acquired.
The coefficient ranges from 0.14 (less than a year) to 0.45 for over 20 years. What is new is that capital gains that were made in less than one year are now subject to the plusvalía tax (previously this was not the case). The annual percentages for the value of the property have been replaced by coefficients that depend on how many years have passed since the last change of ownership. The coefficients are updated annually according to the fluctuations in the real estate market
On the other hand, the subjective calculation gives taxpayers the option of being taxed on the actual increase in value of the property
(the difference between the sales price and the purchase price), if this is lower than the assessment calculated by the objective system. They must provide proof of the purchase and sale deeds, and the municipality is empowered to verify this value based on the prevailing minimum market prices.
The tax rate set by the respective town halls is used for both the subjective and objective calculation methods. Here are two examples of how the different calculation options work. We will use a tax rate of 30% in these examples.
First example: A natural person acquires the property for € 150,000 in 2013 and sells it for € 225,000 in 2021. At the time of sale the cadastral value of the property is € 30,000, of which € 15,000 is attributable to the value of the land (50%) and € 15,000 to the value of the house or other buildings. The result using the objective method: cadastral value of the property x coefficient to be applied after 8 years: € 15,000 x 0.10 = € 1,500. Tax: € 1,500 x 30% (tax rate) = € 450.
This is how the new subjective calculation works for the same sale:
The IBI notification shows what percentage the total cadastral value is attributable to the land (here 50%).The profit is to be determined by taking the current sales price (€ 225,000) minus the purchase price (€ 150,000), equals € 75,000. The calculation then becomes: 50% (proportional cadastral value of the land) of € 75,000 = € 37,500. Tax: 30% of € 37,500 = € 11,250. Obviously the seller should choose the objective method in this example.
Second Example: A private individual buys a property in 2013 for €380,000 and sells it for € 390,000 in 2021. At the time of sale the cadastral value of the property is € 130,000, of which € 65,000 is attributable to the value of the land (50%), and € 65,000 to the value of the building. The result using the objective method is as follows: cadastral value of the property x coefficient to be applied for 8 years: € 65,000 x 0.10 = € 6,500. Tax: € 6,500 x 30% = € 1,950.
The subjective calculation method results in the following: 50% (proportional cadastral value of the land) of the € 10,000 profit (€ 390,000 - € 380,000) = € 5,000. Tax of 30% on € 5,000 = € 1,500. Clearly in this example the subjective method is better for the seller.
These examples show that taxpayers should calculate both the objective and subjective methods for determining the basis of the plusvalía tax.
They can then see which calculation of the assessment basis is better for them.