The unconstitutionality of the Municipal Capital Gains Tax and its new regulation

The Constitutional Court (TC) in its Judgment of 31 October 2021 annuls the Tax on the Increase in Value of Urban Land (Plusvalía Municipal) by declaring the unconstitutionality and corresponding nullity of the rules for determining the taxable base.

The new ruling of the TC has dealt a new blow to the tax and has declared the unconstitutionality and nullity of the system for calculating the tax base, indicating that its final objective is to achieve a result that is substantially different from the real value of the property on the real estate market.

Consequently, it declares unconstitutional and null and void Articles 107.1, second paragraph, 107.2.a) and 107.4 of the revised text of the Ley Reguladora de las Haciendas Locales.

With regard to the scope of the declaration of nullity, the judgment establishes that those tax obligations accrued for the capital gains tax that are final at the time the judgment is handed down will not be subject to review, nor will appeals be allowed in respect of those provisional or final settlements that have not been challenged at the date the judgment is handed down, or those self-assessments whose rectification has not been requested at that date.

To fill the legal vacuum caused by the ruling, the Council of Ministers has approved Royal Decree-Law 26/2021, of 8 November, which modifies the way in which the municipal capital gains tax is calculated.

This regulation stipulates that the tax will not be levied when there is no increase in value in the transfer of land, provided that the non-existence of such increase is accredited.

In order to prove that there is no increase in value, the higher of the following values will be taken:

• The amount stated in the title documenting the transaction or, where applicable, the amount verified by the Administration.
• In the case of transfer of a property with both land and building, the value of the land will be taken as the value of the land that results from applying the proportion that the cadastral value of the land represents on the date of accrual of the tax with respect to the total cadastral value, and this proportion will be applied both to the transfer value and, where applicable, to the acquisition value.
• In the case of acquisitions or transfers for profit, the two previous rules shall be applied, taking as the acquisition value to be compared the value declared in the Inheritance and Gift Tax.
• In the case of subsequent transfers, for the calculation of the number of years over which the increase in value of the land has been declared, the period prior to its acquisition shall not be taken into account.

The Royal Decree-Law also regulates the basis for calculating the tax, establishing that it will be constituted by the increase in the value of the land made manifest at the time of accrual and suffered over a maximum period of twenty years. The value of the land at the time of accrual is calculated in accordance with the following rules:

• In transfers of land, the value will be that used for the purposes of IBI, with some specificities.
• When, at the request of the taxpayer, it is clear that the amount of the increase in value is less than the amount of the taxable base, the amount of the increase in value will be taken as the taxable base.

Local Councils may also establish a reduction when they modify cadastral values as a result of a general collective valuation procedure. The value to be taken into consideration will be that of the new cadastral value, and the characteristics of the reductions that may be applied are set out below:

• The reduction shall be applied, as a maximum, in respect of each of the first five years of effectiveness of the new cadastral values.
• The reduction will be a maximum of 60%, although Local Councils may set a different reduction rate.

With regard to the period of generation of the increase in value, the years in which the increase in value becomes apparent will be taken into consideration, which will be computed by full years and, in the event that the period is less than one year, full months will be taken into consideration. The coefficients to be applied will be those approved by the Town Council at the time of accrual, but may not exceed the following limits:

Generation period	Coefficient		Generation period	Coefficient
<1 year	0,14		11 years	0,08
1 year	0,13		12 years	0,08
2 years	0,15		13 years	0,08
3 years	0,16		14 years	0,1
4 years	0,17		15 years	0,12
5 years	0,17		16 years	0,16
6 years	0,16		17 years	0,2
7 years old	0,12		18 years old	0,26
8 years old	0,1		19 years old	0,36
9 years old	0,09		>20 years	0,45
10 years	0,08

These coefficients will be updated on an annual basis, and may be updated by means of the General State Budget Laws.

The local councils that have established the tax have a period of six months to modify their respective tax ordinances, starting on 10 November 2021.

It is important to point out that the situations produced by both the ruling and the new regulation must be analysed in order to determine the possibility of requesting a refund of tax assessments, whether appealed or not, the non-existence of tax assessments in transfers that have not yet been settled and the possible effects on future transfers.