Spain’s plusvalía tax on property sales: What you need to know

What is Spain’s plusvalía tax?

Plusvalía is a land value (or sometimes called capital gains) tax charged by town halls on urban properties which are sold, donated or inherited in Spain. In general terms, it sees municipalities tax the increase in value of urban land on which the property is located, from when it’s bought until it’s sold. 

The person who sells or donates the property usually has to pay this tax, which varies between regions and municipalities. It is possible for buyer and seller to negotiate sharing the tax, however.

The justification by town halls to charge plusvalía is that through public improvements carried out in a given area, the municipality has contributed to increasing the value of the property and its location, thus deserving a cut.

This tax is also sometimes called Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU) - Tax on the Increase in the Value of Urban Lands - which no doubt explains why the term plusvalía is more commonly used instead.

How and when do you pay it?

Plusvalía has to be paid within 30 days of the property transferring hands. The obligation to pay up begins at the very moment at which the transfer of the property is made.

You pay it directly to your local town hall, and it can usually be paid online or at the town hall itself.

It is very important to meet this deadline in order to avoid penalties and legal trouble, and as the plusvalía brings in such a large amount of money to the public coffers (it is estimated to bring in €2.5 billion across Spain every year) town halls do tend to chase it up.

EXPLAINED: How to pay less Spanish IBI property tax

What about inheriting property?

When it comes to inherited properties it’s the person who the home is passed onto that has to pay. 

How is it calculated?

The Spanish government approved a new version of the plusvalía in November 2021. The law change meant Spain’s Hacienda tax agency now gives sellers two options to calculate the tax on municipal capital gains, and the taxpayer can choose the one that is most favourable to them.

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.

So far the biggest beneficiaries of this change are thought to be people who bought properties after the real estate bubble burst in 2008. On the other hand, it will no longer be possible to buy and sell a property in the same year and avoid paying plusvalía tax as was previously possible. 

The aim was to amend the clauses of the previous plusvalía law, which the Constitutional Court annulled whilst ensuring local governments don’t all of a sudden lose the €2.5 billion they receive every year through this tax. 

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).

Real vs objective calculation

This new distinction between these two methods of calculating the plusvalía, are described by Spanish property website Foto Casa as using 'real' and 'objective mechanisms':

Real mechanism: the difference between the effective cost of the purchase and sale price.
Objective mechanism: the cadastral value coefficient multiplied by the number of years the house has been owned.

The most advantageous option for the seller depends on the difference between these two calculations and the difference on which the new municipal capital gains tax is calculated. With the same differential, a seller will be better off going for the mechanism that produces the lower figure, so it's worth doing both calculations.

READ ALSO: How does property valuation work in Spain?

Let's look at an example.

Using the newer 'real' mechanism, you subtract the purchase value from the sale value. Then, multiply it by the percentage of the cadastral value of the property. 

If you sold a house that you bought 5 years ago for €200,000 and you sold for €250,000, its total cadastral value is €50,000, of which 60 percent is considered 'land value' and 40 percent 'construction value.'

Taxable base = % land value x Plusvalía

60% of €50,000 = €30,000.

Whereas using the older objective mechanism, we take as a reference the difference in the cadastral value of the land instead of the difference between the purchase and the sale of the property.

Taxable base = cadastral value of the land x coefficient

For properties owned for 5 years, the coefficient is 0.18.

€50,000 x 0.18 = €9,000

As this is the lower result, in this instance, you would pay this mechanism to calculate the Municipal Capital Gains tax. How much should I pay?:

Taxable base x 30% (maximum legal rate) = plusvalía

€9,000€ x 30% = €2,700

And if I sell at a loss, do I have to pay the plusvalía?

No. This is the main problem that was solved by the recent reforms. Anyone who sells a property for less than they bought it (either calculated by its cadastral value or the effective sale price) will not have to pay tax on its sale.

Why is the plusvalía controversial?

Capital gains tax in Spain has long been unpopular, particularly with the political right, who have repeatedly tried to challenge it in Congress. It has been in and out of Spanish courts, with the constitutionality of some of its clauses coming into question.

In October 2019, the Spanish Supreme Court ruled in favour of taxpayers who had paid the plusvalía by virtue of an agreement or contract, despite not being the rightful payer of this tax, to recover what had been unduly paid by challenging the settlement issued by the corresponding town hall.

In March 2023, the court also 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.

Specifically, the ruling stated 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".