When selling a property in Spain, one of the key taxes involved is the Municipal Capital Gains Tax, commonly known as Plusvalía Municipal. This tax is issued by the local Town Hall and is calculated on the increase in value of the land over the period of ownership.
What many foreign sellers do not realise is that the Town Hall will automatically calculate the tax based on the method that produces the highest amount, unless someone formally requests the application of the most favourable calculation. This is why it is essential to contact your tax adviser immediately after completion. A professional will make sure the notification is filed correctly and that the Town Hall issues the Plusvalía using the lowest legal taxable value, avoiding unnecessary overpayments, penalties or surcharges.
The seller has a legal deadline of 30 days from the date of signing the sale deed at the Notary to submit the Plusvalía forms. Missing this deadline may result in fines or late-payment charges.
Below you will find a clear explanation of the current law and the two calculation systems in force, followed by a practical example using invented but realistic figures for the municipality of Garrucha.
The Legal Background: Why There Are Two Calculation Systems
In October 2021, the Spanish Constitutional Court issued a crucial ruling that declared the previous Plusvalía calculation system unconstitutional in cases where the tax was disproportionate to the real gain or where no gain existed.
As a result, the national legislation was amended. The reform introduced two alternative systems of calculation, and taxpayers can apply whichever method results in the lower tax liability.
The Town Hall, however, defaults to the method that is most profitable for them unless instructed otherwise. This makes correct legal filing essential.
The two methods now in force are:
- The Cadastral-Based System (traditional method, with adjusted coefficients)
- The Real Gain System (based on the actual profit obtained from the sale)
Method 1: Cadastral-Based System
This system uses:
- The cadastral value of the land only (not the construction)
- A coefficient set by law, depending on the years of ownership
- The municipal tax rate
Example of typical data used:
- Land cadastral value
- Years owned
- Coefficient applied according to national tables
- Municipal tax percentage
This system often results in a higher tax if the cadastral land value is high or if the coefficient is unfavourable.
Method 2: Real Gain System (Actual Profit Calculation)
This method calculates the taxable base by comparing:
- The acquisition price, and
- The sale price.
The taxable amount is the real gain attributable to the land. If the actual profit is low, or if the property is sold at a loss, this method usually results in a much lower tax.
It is crucial to present all supporting documentation to the Town Hall to ensure this calculation is accepted.
Example: Plusvalía Calculation in Garrucha (Fictional Data for Illustration)
Below is an example showing how different the tax can be depending on the method used.
Assume the following fictional values for a property in Garrucha:
- Purchase price in 2010: 150,000 EUR
- Sale price in 2025: 170,000 EUR
- Years owned: 15
- Cadastral land value: 40,000 EUR
- Coefficient for 15 years (example): 0.12
- Municipal tax rate in Garrucha (example): 27%
Calculation Using Method 1: Cadastral-Based System
- Cadastral land value: 40,000 EUR
- Apply coefficient (0.12):
40,000 × 0.12 = 4,800 EUR taxable base - Apply Garrucha municipal tax rate (27%):
4,800 × 0.27 = 1,296 EUR Plusvalía Municipal
Tax due under Method 1: 1,296 EUR
Calculation Using Method 2: Real Gain System
- Real gain between purchase and sale:
170,000 − 150,000 = 20,000 EUR - Proportion of gain attributable to land (example 40%):
20,000 × 40% = 8,000 EUR taxable base - Apply tax rate (27%):
8,000 × 0.27 = 2,160 EUR Plusvalía Municipal
Tax due under Method 2: 2,160 EUR
In this example, Method 1 is more favourable.
In many real cases, however, the Real Gain System produces a much lower tax—especially where the property was sold at a modest profit or even a loss.
Only a detailed review of each case by a specialist will determine the correct method.
Why Using a Professional Is Essential
Because the Town Hall always chooses the higher amount unless instructed otherwise, a failure to act within the 30-day deadline can result in:
- Paying the higher tax calculation
- Losing the right to apply the favourable method
- Late-payment penalties
- Interest charges
- Enforcement proceedings
A professional conveyancing and tax adviser will:
- Notify the sale correctly
- Determine the most advantageous calculation
- Ensure all documents are filed on time
- Prevent surcharges and penalties
- Reduce your tax burden legally and safely
Conclusion
If you have sold or are planning to sell your property in Spain, it is crucial to understand how Plusvalía Municipal works and to act quickly. The dual calculation system can result in significant tax differences, and correct filing is the only way to ensure the Town Hall applies the most favourable method.
If you would like assistance with your conveyance process or with the tax submission, I can take care of the entire procedure on your behalf, ensuring that your Plusvalía is calculated correctly, efficiently and at the lowest legal cost.