The unconstitutionality of the previous system for calculating the municipal capital gains tax and the entry into force of a new one, which you can see below, have given rise to doubts about the taxation of transfers made before that date. Doubts for those taxpayers who carried out a transfer before 10 November and who have not yet settled or self-assessed the tax, and also for those who have already paid it and are wondering whether they can recover it.
How to act?
Without liquidation or self-assessment. Following the aforementioned ruling, we understand that transfers prior to November 10, 2021 that have not yet been settled by the City Council (or that have not been self-assessed by the taxpayer) are not taxable: the calculation method in force until then is unconstitutional and the new one is not applicable as it does not have retroactive effects.
Let us recommend!
- Submit a self-assessment with a zero result or, where appropriate, a declaration of the taxable event stating that the tax cannot be self-assessed because there is no applicable legislation at the time of the chargeable event.
- If the municipality demands the tax from you, appeal: neither the rule declared unconstitutional nor the new rule can be applied retroactively.
Liquidated. If it was the City Council who liquidated the capital gains tax and the one month period to appeal has already elapsed, the liquidation will already be final, so that, in principle, it will no longer be possible to recover the tax paid.
Self-assessed. If the capital gain was paid by self-assessment and the statute of limitations period has not yet elapsed (four years and one month in sales and donations; four years and six months in inheritances), it should be possible to request the rectification and refund of undue income.
Please note!
However, the Constitutional Court has limited this possibility only for self-assessments and liquidations that have been appealed before 26 October 2021 and are pending resolution. For those appealed after that date, the court considers that it is no longer possible to recover the tax paid.
We advise you to appeal, with the following remarks
- Denying the right to rectify in these cases, in addition to violating a right recognised by law, is discriminatory, as it puts those who were diligent and fulfilled their obligation on time in a worse position than those who did not.
- Judgments of unconstitutionality take effect as soon as they are published. It can therefore be argued that at least requests for rectification submitted between 26 October 2021 and the day before the publication of the judgment should not be limited.
- In cases where the capital gains tax has been appealed on the grounds that it is unconstitutional and the courts have ruled against it, it is now possible to file a claim for state liability (even in the case of time-barred transfers); although it is an arduous path, in some cases it maybe worth it.
Transfers of real estate that took place before 10 November 2021 and that have not been settled or self-assessed should no longer be subject to capital gains tax, as a rule that has been declared unconstitutional cannot be applied to them.
Do you need tax advice? Visit our tax advice page to get all the information.
The new methods for calculating municipal capital gains tax
The Council of Ministers has approved the Royal Decree-Law that modifies the way municipal capital gains tax is calculated in order to adapt it to the Constitutional Court ruling that declared this tax illegal on 26 October.
From now on it will be paid only in the case of the sale or transfer of a property at a profit.
A new calculation method based on the actual capital gain generated is introduced. The new regulation comes into force on the day after its publication, i.e. 10 November 2021, and is not retroactive.
Two methods of calculation are established:
Objective method: It consists of multiplying the cadastral value of the property with new maximum coefficients that will be updated annually by means of a regulation with legal rank, and this update may be carried out by means of the general State budget laws.
Actual method: It is calculated by the difference between the sale or transfer price and the purchase or acquisition price of the property. If the taxpayer proves that the
real capital gain is lower than the one resulting from the objective estimation method, the real one can be applied.
The taxpayer may choose between these two models, whichever is more convenient for him.
No tax is payable if no gain is made. From now on, capital gains generated in less than one year, calculated between the date of acquisition and the date of disposal, will be taxed.
In addition, the possibility is recognised for local councils, for the sole purpose of this tax, to correct land registry values downwards by up to 15% depending on their degree of updating. This ensures that the tax is adapted to the real estate situation in each municipality.
The city councils that have established the Tax on the Increase in Value of Urban Land must modify, within six months
from the entry into force of Royal Decree-Law 26/2021, of November 8, their respective tax ordinances to adapt them to the provisions of the same.
It should also be remembered that the High Court ruling does not allow taxpayers to claim self-assessments that are already final or that have not been appealed at the date of the ruling, so this decree does not have retroactive effects.
The technicians of the Ministry of Finance (Gestha) have issued a statement warning of the risk of unconstitutionality that the new regulation of the taxable base
of the municipal capital gains tax has been articulated by means of a Royal Decree Law, regardless of an ordinary law.
At Confialia we remain attentive to the evolution of this issue, always thinking of the defense of the best interests of our clients.