Municipal Added Value Tax
By Armin Gutschick & Anja Sämann-Gutschick
There are few concepts in the Spanish legal jargon that can lead to as much misinterpretation as the term “plusvalía”, which can be translated as “added value” or “capital gains”. To begin with, the term itself does not appear in legal texts. A correct description is the following: “a tax on the increase of the value of urban land”. It is a municipal tax that must be paid on the increase in the value of urban land when ownership is being transferred (not however on the value of the buildings that are built on that land). Often it is mistaken for the IRPF (Personal Income Tax) of the seller, which is a state tax that must be paid on the total profit obtained (which is the difference between the price of its acquisition and the price of its sale, as they appear on the deed or bill of sale). The calculation of this municipal Added Value Tax, however, is based on the value of the land itself and the tax rates established in the municipal regulations.
This tax called “plusvalía” is applied when a property that is subjected to the local property tax (IBI) is being transferred to a new owner. The amount to be taxed is the increase of the value that the land has experienced from the moment when it was acquired by the seller to the moment it is being sold on, to a maximum of 20 years. Transfers due to inheritance or donation are also subjected to this tax. Most of the municipalities in Ibiza then apply a 95% rebate to first-degree heirs (children and parents).
In order to calculate the “plusvalía”, you need to know the cadastral value, which can be found on the last IBI invoice and is divided between the value of the land and of the building. In the city of Ibiza, the cadastral value suffered a huge increase in 2012. In order not to surprise owners with such a raise from one year to the next, the net base that the tax is calculated upon is being increased in stages, year by year. After the 10th year from the initial increase, the total of the new cadastral value will be applied in the calculation. In Ibiza town, that will happen from 2021.
To explain it simply, we could say that the value of the land increases with a coefficient established by the town hall, bearing in mind the years gone by between the present purchase and the previous one. In this way you get the net base, onto which the municipal tax rate is applied in order to calculate the amount due. An example from the municipality of Sant Josep will illustrate this procedure: the value of the land is 13,642.79 €; 20 years have gone by since the previous sale, the town hall has set a coefficient of 2.2% and the tax rate is 20%. So we calculate as follows: 2.2% of 13,642.79 € = 300.14 € x 20 years = 6,002.83 €, and 20% of this = 1,200.57 €. This amount is the accrued municipal added value tax or “plusvalía”.
According to the law, it is the seller who must pay this tax. Sometimes, s/he tries to saddle the buyer with this tax, although Spanish jurisprudence establishes that passing the payment of this tax onto the buyer is unacceptable. Therefore, it is convenient to state in the contract that the payment of the “plusvalía” corresponds to the seller. Notaries are obliged to inform town halls of the sales deeds that could be liable to pay this tax. According to a resolution by the Directorate-General (BOE of 26/01/2018), it is required for the town hall to confirm to the Notary that they have received the deed. Since generally town halls do not take action on their own initiative, it is important for the parties to communicate the property transfer within 30 days to the corresponding municipality. For a few years now, Property Registries can only inscribe changes of ownership once at least the request for settlement of the “plusvalía” has been presented to the relevant town hall. •