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Municipal Capital Gains: Unconstitutionality and new regulations.

Recently, the Constitutional Court has declared unconstitutional and null articles 107.1 second paragraph, 107.2.a) and 107.4 of the Consolidated Text of the “Regulatory Law of Local Finance”. This implies the cancellation of the form of calculation of the tax commonly known as “Municipal Capital Gain” or IIVTNU (Tax on the Increase in the Value of Urban Land).
This tax is a local tax, that is, it is the municipalities that are in charge of collecting and deciding the conditions for its calculation within the limits offered by the "Local Finance Regulatory Law"; and this is one of the reasons why the "Municipal Capital Gains Tax" is not a homogeneous tax in all towns and there are differences, in some considerable cases, in the amount to be settled in different municipalities for properties with similar characteristics . It is important to note that the "Municipal Capital Gains Tax" has not been declared Unconstitutional, but only the rule that determines the Taxable Base of this tax has been annulled because it is considered to be contrary to the principles of economic capacity and not confiscatory.
Until now, the calculation of the IIVTNU was carried out based on pre-established parameters and that forced to settle this tax without taking into account the profit or loss of the real estate transaction, that is, the same amount was paid having profits or losses.
This last sentence is preceded by numerous previous sentences and notices from the European Union for the application of an unfair and confiscatory tax, since it again taxes real estate transactions that are already taxed by Transmission Tax and Personal Income Tax. Faced with this situation, the City Councils of all Spain see a good part of their income in danger, since it is expected that from the moment of publication of this sentence they will stop issuing settlements based on this form of calculation.

Can I claim the Taxes already paid?
This is the big question that many people who have had to pay this tax in recent years are asking. The ruling of the Constitutional Court, which has the status of law, closes the possibility of claiming the settlements made in the last 4 years; We understand that this is a decision of the Court to the City Council not to put them in a financial situation compromised by the retroactive return of this tribute. What if it can be claimed and must be canceled if the effect that causes the capital gain has already occurred (sale, inheritance, donation ...) and being the voluntary deadline for submission, we have not yet received settlement from the City Council or the agency in charge of its management, such as SUMA in the case of the province of Alicante. 

And now that?

Faced with this situation, which can cause the budgetary collapse of many municipalities, the Spanish Government has rushed to issue a new Municipal Capital Gain tax. 

New Municipal Capital Gains Tax (IIVTNU) 

The Royal Decree-Law, 26/2021, of November 8, has been published, by which the revised text of the Local Tax Regulatory Law is adapted, based on the recent jurisprudence of the Constitutional Court regarding the annulment of the IIVTNU o "Municipal Capital Gain". The IIVTNU taxes the increase in the value of the land that is revealed at the time of accrual (sale, donation, inheritance) and experienced over 20 years. 2 new methods of calculating the tax base are established and that the taxpayer may choose between these 2 systems:

 - TARGET SYSTEM: This method to calculate the tax base is optional, since you can choose to pay the following method, which is the Real Capital Gain. The annual percentages applicable on the value of the land are replaced by maximum coefficients, depending on the number of years that have elapsed since the operation. These coefficients will be updated annually based on the evolution of the real estate market. In this system, the Taxable Base will be the result of multiplying the Cadastral Value by a coefficient, depending on the years of ownership of the asset in real estate owned. And on this basis, each City Council will apply a percentage as established in its municipal ordinances.

- REAL GOODWILL:  The taxpayer has the possibility of paying taxes based on the real capital gain obtained at the time of the transfer of a property and which is determined by the difference between the transfer value of the land and the acquisition value. If the taxpayer demonstrates that the real capital gain is lower than that resulting from the objective estimation method, he may apply the real one. In the transmissions of a property in which there is land and construction, the real capital gain of the land will be equal to the difference between the sale price and the acquisition price after applying the proportion that represents the cadastral value of the land over the total cadastral value. These calculations may be subject to verification by the City Councils, in accordance with a novelty introduced by the standard. To conclude, the objective of this new regulation is that the operations in which there is no profit, said tax is not paid; This will entail in practice a great activity of verifications by the City Councils of all those operations that have not generated profits or choose the Real Capital Gain system. Given the novelty of this regulation, from ENNUMERA we recommend reviewing the recent Plusvalía settlements or those that will be issued soon, as well as carrying out a detailed study before carrying out any operation that generates an obligation to settle the Municipal Capital Gain.


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