Everything You Need to Know About the Plusvalía Tax on Property Sales in Spain

Perhaps one of the most contraversial taxes in Spain right now is the Plusvalia tax on property sales. This is a municipal tax that is levied on property sales in Spain. In recent years this tax has attracted contraversy, and there have been many calls for it to be abolished altogether.

So what exactly in the plusvalia tax in Spain? How is it calculated? And why does this tax attract so much contraversy? Here’s everything you need to know:

What is Plusvalia Tax in Spain?

In the simplest possible terms, plusvalia is a land value tax. For UK readers, this is very similar to capital gains tax in the UK. However, unlike in the UK this tax isn’t charged by the central government, it is charged by local town halls.

The plusvalia tax applies to all properties that are sold, inherited or donated. In real terms, plusvalia tax sees municipalities increase in value of urban land on which the property is located, from when it’s bought until it’s sold.

This tax is usually paid by the person selling or donating the property. In a standard property sale situation, it is possible for the buyer and seller to share the burden of the tax: this is something that should be negotiated before the property sale is completed. In the situation where a property is inherited, the plusvalia tax should be paid by the person inheriting the property.

Why Do Municipalities Charge Plusvalia Tax?

Plusvalia tax is paid directly to the town hall in the region where the property being sold is based. The region that municipalities justify charging this tax is so that the funds raised can be used to making public improvements locally.

Whilst the tax is most commonly referred to as plusvalia across Spain, its official name is Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU) - Tax on the Increase in the Value of Urban Lands.

How And When Is Plusvalia Tax Paid?

It is a legal requirement that plusvalia tax be paid within 30 days of a property title transferring from one owner to another. You should pay it directly to your local town hall: you can either walk to your town hall and pay it in person, or you can pay your plusvalia tax online.

It doesn’t matter how you pay your plusvalia tax, but it is important that you do pay it. If you don’t then you could be subjected to legal trouble and huge fines. If you don’t pay your plusvalia tax then your local town hall will chase you robustly. This tax brings in an estimated €2.5 billion across Spain every year, and town halls are keen to ensure not a penny owed slips through the net.

How Is Plusvalia Tax Calculated?

If you haven’t bought or sold property in Spain recently then plusvalia may look slightly different to what you’re used to. The Spanish government made some changes to the tax in November 2021. The law was changed to give property sellers more flexibility in determining how their plusvalia tax amount is calculated. Sellers have the right to choose the calculation that is most favourable to them, usually the one that will see them pay the smallest amount of tax.

You can choose to calculate the amount by applying the new calculations on the 'valor catastral' (Spain’s rateable value of a property used to calculate property taxes), which you get by multiplying this cadastral value by the number of years that have elapsed since the operation. Or, alternatively, they can estimate the value increase by calculating the difference between the purchase price and the sales price.If you purchased your property after the property market crash of 2008 then this change is likely to benefit you the most.

Another change that it is important for potential property investors to know about is that it is no longer be possible to buy and sell a property in the same year and avoid paying plusvalía tax as was previously possible.

Cadastral coefficients are updated annually according to the evolution of the real estate market as will the calculation used to calculate the taxable base of the plusvalía, which is no longer be determined by the IBI (yearly property tax).

Why Is The Plusvalia Tax So Contraversial?

Plusvalia tax is incredibly unpopular in Spain. It has been brought to court on more than one occaision, with the constitutionality of some of the clauses within the tax being called into question.

In March 2023, an ammendment to plusvalia was made by the courts. This allowed those who wish to rectify the self-assessment submitted by the taxpayer, normally the person who sells the property, to recover this value of the plusvalía.

The specific terms of this ammendment state that: "the person obliged to pay the tax on the increase in value of urban land (better known as municipal capital gains tax) by virtue of an agreement or contract with the taxpayer is entitled to request the rectification of the tax self-assessment and the refund of any undue payment derived from it, as the lack of administrative standing is incompatible with the judicial standing, necessarily linked to the previous one, recognised by our jurisprudence".

Are you thinking of selling your Spanish property? Or perhaps you are in the process of moving to Spain or looking to make the right move to Spain for you? If you’re looking for estate agents in Southern Spain then why not get in touch ? Our locally based property experts are a font of local knowledge, and are perfectly placed to help you find the home of your dreams.