Indeed, the Spanish municipal capital gains tax has long been considered a "fiscal injustice," far removed from the principles of equitable distribution of the tax burden and the non-confiscatory nature of taxation.

Criticisms already voiced in 2017 and 2019

In rulings in 2017 and 2019, the Spanish Constitutional Court had already expressed support for reforming this legislation, in order to prevent some taxpayers from having to pay tax exceeding the profit obtained from the sale of their real estate.

The ruling of October 26, 2021: unconstitutionality of the tax base

Ruling 182/2021 of October 26, 2021, puts an end to the controversies and declares the formula for determining the tax base of this tax unconstitutional and the nullity of articles 107.1 paragraph 2, 107.2.a) and 107.4 of the revised text of the Law on the Regulation of Local Finances (LRHL), approved by Royal Legislative Decree 2/2004, of March 5;

Swift Response from the Spanish Government

On Monday, November 9, 2021, the government swiftly approved a royal decree amending the articles of the law on municipal capital gains tax.

On Thursday, November 25, 2021, the decree was published in the Official State Gazette of Spain (BOE) and entered into force the following day. Municipalities have six months to adapt to this new decree.

Application of the decree: two calculation methods

The decree establishes two options for determining tax liability, with taxpayers choosing the more advantageous method:

  • Calculate their taxable base by multiplying the cadastral value of urban land by coefficients approved by local councils; or
  • Opt for calculation based on actual gain, by subtracting the purchase price from the sale price.

New rule : capital gains generated in less than one year, between the date of acquisition and transfer, will be taxed.

It is also important to note that this decree has no retroactive effects!

A reform still under debate

This decision has sparked considerable debate, particularly given that this tax is the second largest source of revenue for Spanish municipalities after property tax (IBI).

The controversy surrounding the municipal capital gains tax is therefore far from over!

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