Municipal capital gains tax on inheritance or donation

When a person inherits or receives a donation, they may be subject to this tax which is used to generate revenue for municipal governments.

This article provides an overview of the "Impuesto de Plusvalía Municipal sobre Sucesiones o Donaciones en España", and aims to inform about the most important aspects to take into account in relation to the municipal capital gains tax.

What is municipal capital gains tax

Municipal capital gains tax is a tax levied on the increase in value of urban land and property when it is transferred, whether by purchase, sale, inheritance or donation.

It is a local tax and is managed by the local councils of each municipality in Spain.

Type of inherited property for which capital gains tax is payable

Municipal capital gains tax applies to urban real estate; this includes dwellings, business premises, urban land, parking spaces, among others. It does not apply to rural land or movable property such as cash or vehicles.

Who is responsible for paying the municipal capital gains tax?

The person liable to pay the municipal capital gains tax is the beneficiary of the transfer of the property:

•    In an inheritance, it is the heirs or legatees who must pay this tax.
•    In the case of a donation, it is the donee who is liable to pay the tax.

Where is the municipal capital gains tax paid?

The municipal capital gains tax is paid at the Town Hall where the property is located.

Each Town Hall has its own procedure for the management of this tax, so it is advisable to consult the corresponding municipal tax department for details.

Municipal capital gains tax self-assessment process

The process of self-assessment of the municipal capital gains tax involves the submission of a series of documents and payment of the tax at the relevant town hall.
The documents required usually include:

•    The deed of acceptance of inheritance or donation
•    The latest Property Tax (IBI) receipt
•    ID card of the beneficiary

Once the documentation has been submitted, the City Council calculates the amount to be paid and proceeds to pay it.

Calculation of the amount payable

The calculation of the amount of the municipal capital gains tax is based on the cadastral value of the land of the property, the number of years that have elapsed since the last transfer and a coefficient of increase in value established by each Town Hall.

The general formula for calculating the amount to be paid would be: Cadastral value of the land x number of years x coefficient of increase. The result is multiplied by the tax rate, which is also determined by each Town Hall and cannot be higher than 30%.

Example of calculation of municipal capital gains on an inheritance in Madrid:

Suppose your mother bought a flat in Madrid in 2000 and you inherited it in 2023. In the IBI bill for the year 2023, the land value of the flat is 50,000 euros.

1.    Calculation data:

•    Value of the land (IBI): 50.000 euros.
•    Full years elapsed: 23 years (but only the first 20 years are considered for the calculation).
•    Percentage increase in Madrid in 2023 up to 20 years: 3.7% (according to the tax ordinance of Madrid City Council).
•    Tax rate in Madrid in 2023: 29% (according to the tax ordinance of the Madrid City Council).

2.    Calculation of the capital gain:

•    Increase in value: 3.7% x 20 years = 74% Taxable income: 50.000 euros x 74% = 37.000 euros
•    Tax rate: 29%.
•    Tax payable: 37.000 x 29% = 10.730 euros

Therefore, in this example, the municipal capital gains tax you would have to pay would be "in principle" 10,730 euros; but, if the flat was your mother's habitual residence, you could benefit from a rebate; for example, if the cadastral value of the flat is less than 60,000 euros, the rebate would be 95%, which would significantly reduce the amount payable. (Note: List of capital gains rebates in Madrid City Council).

Remember that these calculations are only an example and the percentages of increase and the tax rate may vary depending on the municipality.

If there is no increase in the value of the property, what should I do?

In 2017, the Constitutional Court declared unconstitutional the payment of municipal capital gains tax in situations where there has been no increase in the value of the property. Therefore, if it can be demonstrated that the value of the property has not increased or even decreased since the last transfer, this tax should not be paid. In these cases, it is advisable to submit a self-assessment of the tax by ticking the "not subject" box and attaching evidence that there has been no increase in value.

If you have any queries regarding the municipal capital gains tax, its management or any other issue related to housing, you can contact one of our real estate lawyers at the firm.