How to calculate municipal capital gains tax when buying or selling a house
Municipal Capital Gains Tax is a tax that affects those who buy or sell properties in Spain. In this article, we will break down how to calculate this tax and what factors influence it, focusing on areas like Torrevieja and Orihuela, where our real estate agency has a wide range of properties.
What is municipal capital gains tax?
The municipal capital gains tax is a tax levied on the increase in the value of urban land when it is sold, inherited, or donated. This tax is not applied to the total value of the property but specifically to the increase in the value of the land from the time of purchase to the time of sale. This tax is managed by the municipalities and varies depending on the locality.
In areas like Torrevieja and Orihuela, the increase in land value has been significant in recent years, directly affecting the calculation of municipal capital gains tax.
The importance of accurately calculating municipal capital gains tax
It is essential to understand how this tax is calculated to avoid unpleasant surprises when closing the sale or purchase of a property. An accurate calculation will allow us to anticipate the cost and better manage the transaction.
How is municipal capital gains tax calculated?
Several factors must be considered to calculate the municipal capital gains tax: the cadastral value of the land, the number of years the property has been owned, and the revaluation percentage set by the corresponding municipality.
Cadastral value of the land
The cadastral value of the land is the starting point for the calculation. This value can be found on property tax (IBI) receipts. It is important to note that only the value of the land is considered, not the value of the building.
Period of ownership of the property
The period of time the property has been owned also influences the calculation. The municipal capital gains tax only considers full years from the date of purchase to the sale, with a maximum of 20 years. The longer the period of ownership, the higher the percentage applied.
Revaluation coefficient
This coefficient is a percentage set by each municipality and reflects the theoretical increase in the value of the land. In Torrevieja and Orihuela, these coefficients can vary according to local regulations, so it is important to check with the relevant municipality to obtain the most up-to-date figures.
Formula for calculating municipal capital gains tax
The formula to calculate the municipal capital gains tax is as follows:
Municipal Capital Gains Tax = Cadastral Value of the Land × Years of Ownership × Revaluation Coefficient × Tax Rate
The tax rate is another percentage set by the municipality and is applied to the result of the previous calculation. This rate may vary but typically ranges between 19% and 30%.
Variations in the calculation of capital gains in different localities
The municipalities of Torrevieja and Orihuela may have significant differences in the coefficients and tax rates they apply, so it is vital to be well informed about local regulations. Below, we detail the peculiarities of these two areas.
Capital Gains in Torrevieja
In Torrevieja, land values have steadily increased due to the high demand for homes near the coast. As a result, the revaluation coefficients may be higher than in other areas. Additionally, the municipality has adjusted the tax rate in recent years to adapt to market conditions.
Capital Gains in Orihuela
On the other hand, Orihuela presents a different situation. While it is also a high-demand area, especially in coastal zones, the revaluation coefficients can be somewhat more moderate. This is because Orihuela encompasses a greater diversity of land, including both rural and urban areas.
Strategies to reduce the impact of municipal capital gains tax
There are several ways to mitigate the impact of this tax, especially if we have seen a significant revaluation of the land in recent years.
Checking the cadastral value
It is advisable to verify whether the cadastral value of the land is up to date. In some cases, cadastral values may be overestimated, leading to a higher payment of the capital gains tax. If we believe the value is incorrect, we can request a review from the cadastre.
Negotiating the payment distribution
Although the seller is usually responsible for paying the municipal capital gains tax, it is possible to negotiate with the buyer to share the cost of the tax. This can be especially relevant in competitive markets where buyers are willing to take on part of these expenses to close the deal.
Requesting an exemption or reduction
In certain cases, it is possible to request exemptions or reductions from the municipal capital gains tax. For example, if the sale of the property has resulted in a loss, we may be exempt from paying this tax. Similarly, some municipalities apply reductions in cases of inheritances or donations between direct family members.
Correctly calculating the municipal capital gains tax when buying or selling a house is crucial to avoid unexpected costs and efficiently manage the transaction. As we have seen, factors such as the cadastral value, the period of ownership, and local regulations in Torrevieja and Orihuela are key to determining this tax.
If you are thinking of buying or selling a property in these areas, we recommend that you contact our expert advisors. They will guide you not only in the purchase or sale but also in managing all associated taxes, ensuring you achieve the best possible financial outcome.