Municipal capital gains tax after the latest reform: who pays what

For decades, the municipal capital gains tax was one of the most criticised levies in the Spanish tax system: it forced you to pay even if you sold your property for less than you bought it for. In 2021, the Constitutional Court declared the calculation method unconstitutional and the Government approved a reform that changed the rules entirely. If you are selling or buying a property on the Costa Blanca, you need to understand how the tax works now.

What the municipal capital gains tax is

The official name is the Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (IIVTNU). It is a municipal tax levied on the increase in the value of urban land from the time you acquired it until you transfer it — whether by sale, inheritance or donation.

Two important nuances: it only taxes the land, not the building (the property itself), and it only applies to urban land, not rural. It is managed and collected by the town hall of the municipality where the property is located.

What changed with the 2021 reform

Constitutional Court Ruling 182/2021 declared the old system unconstitutional because it required payment even when there had been no real gain — or when the owner had sold at a loss. Royal Decree-Law 26/2021 reformed the tax from 10 November 2021 with two fundamental changes:

• No payment if there is no gain: if you sell for less than you bought (or if the land value has not increased), you are exempt. You no longer pay tax on a fictitious gain.
• Two calculation methods to choose from: the taxpayer can calculate the tax base using the objective method or the real method, and apply whichever produces the lower amount.

The two calculation methods

Objective method

Multiplies the cadastral value of the land (not the entire property — only the land portion) by a coefficient set by the Government each year based on the number of years since acquisition.

The coefficients are updated annually in the national budget. The more years of ownership, the higher the coefficient, though not linearly. The town hall can adjust these coefficients within legal limits.

Formula: Tax base = cadastral land value x coefficient for years of ownership.

Real method (actual gain)

Calculates the actual gain obtained in the transfer. The difference between the transfer value and the acquisition value is taken, and the percentage that the land represents of the total cadastral value is applied.

Simplified formula: Tax base = (sale price - purchase price) x land percentage of total cadastral value.

This method is usually more favourable when the property has appreciated little or when it has been held for many years and the objective method produces a high base.

Which to choose?

The taxpayer has the right to calculate under both methods and apply whichever results in a lower amount. The town hall is obliged to accept the more favourable one. In practice, it is worth running both calculations — or asking a tax adviser to do so — before filing the self-assessment.

Who pays the capital gains tax

It depends on the type of transfer:

• Sale: the seller pays, since they are transferring the land and presumably obtaining the gain. However, if the seller is a non-resident for tax purposes in Spain, the buyer becomes the substitute taxpayer — meaning they pay and can then recover the amount from the seller.
• Inheritance: the heir who receives the property pays.
• Donation: the recipient of the donation pays.

In a standard sale between residents, the seller pays the tax to the town hall within 30 business days of the deed date.

When you do not pay

Since the reform, there are clear situations in which the tax is not owed:

• Sale at a loss: if the sale price is lower than the purchase price, there is no increase in value and no tax is generated. The taxpayer must prove it with the purchase and sale deeds.
• Transfers between spouses: awards in divorce or separation proceedings are exempt.
• Contributions to the marital estate: do not generate capital gains tax.
• Dación en pago: handing over the property to the bank to cancel the mortgage is exempt under certain conditions (debtor in financial difficulty).

If you believe the transfer is exempt, it is not enough to simply not pay: you must file a declaration with the town hall indicating the exemption, accompanied by supporting documentation.

A practical example

Imagine you bought a flat in Alicante in 2015 for 150 000 euros and sell it in 2026 for 210 000 euros. The total cadastral value of the property is 90 000 euros, of which 36 000 corresponds to the land (40 %).

Real method: the total gain is 210 000 - 150 000 = 60 000 euros. The portion attributable to the land is 60 000 x 40 % = 24 000 euros. The tax base is 24 000 euros.

Objective method: suppose the coefficient for 11 years of ownership is 0.08. The tax base would be 36 000 x 0.08 = 2 880 euros.

In this case, the objective method is far more favourable. The maximum tax rate the town hall can apply is 30 %. On 2 880 euros, the maximum tax would be 864 euros. On 24 000 euros (real method), it would be 7 200 euros. The difference is vast, and the taxpayer has the right to choose the objective method.

Frequently asked questions

Can I reclaim capital gains tax I paid before the reform?

If you paid before 26 October 2021 and sold at a loss, the Supreme Court has established that final assessments (not challenged within the deadline) cannot be reviewed. Reclaiming is only possible if you challenged in time or if the assessment was not final. Consult a tax lawyer to assess your specific case.

How do I prove I sold at a loss?

With the purchase and sale deeds. The difference between the acquisition value (including documented expenses and taxes) and the transfer value shows whether there was a gain or a loss. The town hall may request additional documentation (invoices for improvement works, for example) to justify a higher acquisition value.

Do I pay capital gains tax if I inherit a property and do not sell it?

Yes. Inheritance is a taxable event: the heir must pay the municipal capital gains tax within six months of the death (extendable to one year if requested before the initial deadline expires). The base is calculated from the date the deceased acquired the property to the date of death.

Can the buyer be affected by the seller's capital gains tax?

Not directly, but there is an important exception: if the seller is a non-resident for tax purposes in Spain, the buyer is obliged to withhold and pay the tax as a substitute taxpayer. This is common on the Costa Blanca with foreign sellers returning to their home country. Your notary or lawyer should verify the seller's tax residency before the deed.

How long do I have to pay?

The deadline is 30 business days from the deed date for sales, and 6 months (extendable to 12) for inheritances. Payment is made by self-assessment at the town hall where the property is located. Late payment incurs surcharges and interest.