The so-called municipal capital gain is a tax of our tax system called Tax on the Increase in Value of Urban Lands (IIVTNU), with more than a century of tradition in our system.
This is a local tribute, which corresponds to the municipalities to collect and which is applied to the increase in value experienced by an urban land that is detected at the time of transmission.
The taxpayer of the tax is the transferor of the land, the one who has owned the property for a time in which the value of said property has supposedly increased.
Only in the case in which the transfer of the land is made free of charge, will the purchaser of the same fall under the obligation to pay the amount.
Taxable event and characteristics of the municipal capital gains tax
In order for the tax liability of this tax to be generated, the following circumstances must occur. It is what is known as a taxable event in legal language:
a) There is a transfer by any title of an urban property
b) There has been an increase in the value of the property
c) It is established that increase in time concrete
Regarding the main characteristics of the tax, it must be mentioned that it is a direct, real and objective tax , since it does not take into account the personal circumstances of the subject and the obligation arises at the same moment of transmission.
It is an instantaneous tax since it generates the obligation only for the act of transmission, it does not have to be paid periodically.
Only when an urban property is sold, and only at that time. Finally, it should be noted that local administrations are competent to regulate the legal framework of the tax through an ordinance.
How is the municipal capital gains tax calculated?
A first approximation to the amount of the debt can be calculated by multiplying the cadastral value of the property by the number of years it has remained in your property.
An annual percentage that is between 2.5-3.7% is applied to that figure, and which varies depending on the years that you have owned the property.
To the amount resulting from said calculation, the tax rate set by the City Council where the land is located must be applied, with a maximum limit of 30%.
For an apartment bought in 2000 from any real estate company like blue world city Islamabad with a cadastral value of € 100,000 that is sold in 2020. It would be 20 years in which we have enjoyed ownership of the property, in which it is estimated that its value has increased.
Depending on the municipality where the property is located, the annual percentage of this increase in value will be looked at. And to that result the tax rate is applied.
If the annual percentage for a period of 15-20 years in my council is 2.8% and the tax rate is 30%. We have to perform the following calculation:
20 years of ownership at 2.8% per annum of a € 100,000 flat = an estimated current property value of € 150,400. So, the profit would be € 50,400. To this amount we apply a 30% tax rate = € 16,800 of installment to pay as capital gain.
Controversy in the calculation and revision of the definition of capital increase
Sometimes an increase in valuation or sales price does not directly translate into a profit. That is why it is important to note that there is the possibility of updating property values with the CPI reference.
This means that, although there has been a real gain with the sale of the land, if the corresponding value were updated according to the IPC mark, it could be a lower profit or even a loss. The courts are allowing sellers to prove said loss and thus be exempted from paying the tax since it would not have made it taxable.
In this sense, a very popular judgment of the Superior Court of Justice of Catalonia in 2016 established that ” when the increase in value is not real, nor is it true, its application may entail consequences contrary to the principle of economic capacity enshrined in article 31 of the Constitution.
With the same criteria in 2019, the Constitutional Court itself included it in a ruling that declares the unconstitutionality of the precept that establishes the rule for calculating the increase in the value of urban land in those cases in which the fee to be paid is higher than the capital increase actually obtained by the taxpayer.
The controversy surrounding the calculation of capital gains and the determination of whether there was a gain or an increase in equity accompanies this tax, so in the event of the sale of urban land it is essential to consult an advisory or lawyer specialized in the real estate field.
IBI: everything you need to know about real estate tax
The real estate tax popularly known as IBI is a tax that levies the value of rustic, urban and special characteristics real estate belonging to a municipal term.
Therefore, the first note of this tax is that it is a local tax, the management and collection of which corresponds to the municipalities, becoming one of their main income.
Its regulation appears in the revised text of the Local Finance Regulatory Law, approved by Royal Legislative Decree 2/2004 of March 5.
It is a tax of a direct nature that is applied on the patrimonial wealth of the citizens: a house, a garage, a rustic property, a place.
It is direct by taxing an asset that is our property, as opposed to indirect taxes that penalize spending, such as VAT. It is an annual tax that must be paid periodically as we will see later.
The main doubts surrounding this tax are the determination of the value of a property , the deadlines for voluntary payment , who is obliged to pay in the case of a sale and the bonuses or tax benefits that surround it.
What is the value of the property and how much does IBI have to pay?
The cadastral value of the houses is determined by the Territorial Management of the Cadastre of each municipality. Therefore, it can be consulted in the electronic headquarters of the cadastre, or in a previous receipt of the IBI.
The cadastral value of a property includes the value of the land plus the value of the building . And it cannot exceed 50% of the market value of a property. Several factors determine the calculation of the cadastral value of a property.
In addition to the value of the land and the cost of construction, the location of the property, its dimensions, the rustic or urban nature, the value of the square meter in the area, etc. are taken into account.
The amount to be paid for IBI is a percentage of the property’s cadastral value. That percentage is set by the municipalities, in the same way they usually review the cadastral value of the properties every 10 years .
To avoid very steep increases, as a result of the length of time in which the cadastral value is reviewed, what some consistories do is apply reducing coefficients in the IBI receipt , and thus distribute the value of the increase over the following 10 years of proportional way.
When and who has to pay the IBI?
The tax is accrued on January 1 of each year , and the owner is the one obligated to pay on that date , regardless of whether the property was sold the next day.
Another thing is the private contract between the parties that can sometimes contain an agreement to share the payment proportionally.
It will be necessary to be attentive to the publicity of the city council since the collection and payment of the IBI must be made within the deadlines that are set each year by the same .
As it is a local tax, there is no single regulation that sets the deadlines and terms for the tax settlement .
There are exceptional and temporary situations that allow installments and payments outside the voluntary and mandatory term.
That is why it is advisable to consult the website of the town hall each year for the particular conditions .
Common property tax rebates
There are two types of bonuses in the Real Estate Tax. The mandatory ones that are applied by all municipalities such as:
- Discount between 50-90% of the IBI fee for 3 years before the start of the works of the urbanization, construction and real estate development companies like Tajarat properties.
- Discount of 50% of the IBI fee for the first three years for Official Protection Housing (VPO) dwellings.
- Discount of 95% of the IBI fee for rural goods of agricultural cooperatives .
The optional bonuses are part of the operative capacity of the municipalities. Despite being optional, they must always be regulated according to the Local Finance Law and not exceed the limits that are set there:
- Bonus for large families of up to 90% of the fee.
- Discount of up to 50% of the fee for the installation of systems for thermal or electrical use of solar energy .
- Discount of up to 95% in favor of properties in which economic activities are carried out that are declared of special interest or municipal utility .
- Discount of up to 50% for Officially Protected Housing (VPO) after the first three years.
- 90% discount for certain properties with special characteristics .
IBI – Exemptions
The law regulating local Treasuries also includes properties exempt from IBI in its articles:
- Real estate owned by the State, the Autonomous Communities or local entities.
- Communal property and neighboring mountains in common hands.
- Those of the Catholic Church and those of legally recognized non-Catholic confessional associations .
- Those of the Red Cross .
- Embassies, consulates and international offices if there is reciprocity.
- Mountains populated with slow-growing species.
- Land occupied by railway lines, stations, warehouses or essential services for the operation of the lines.