What is capital gain, how is capital gain calculated and when is it paid?

What is capital gain?

Capital gains is the increase in the value of a property, generally for reasons beyond the control of the owners. The revaluation materialises over time and is affected by factors such as the number of years that have elapsed since the purchase of the property, the cadastral value of the land or the tax framework in place at the time of the sale.

The payment of capital gains is known as Capital Gains Tax, although it can also be referred to as Capital Gains Tax (Impuesto de Incremento de Valor de los Terrenos de Naturaleza Urbana, IIVTNU). It is a municipal tax and does not affect rural land and other non-urban properties.

A tax with little uniformity
One of the characteristics of the Capital Gains Tax in Spain is that it is subject to a profound regional heterogeneity. Thus, owners wishing to sell their property will face a higher or lower tax depending on the locality in which it is located. The maximum IIVTNU that can be applied by a municipality is 30% of the increase in the value of the property.

Calculate capital gains tax: what you need to take into account

To understand what IIVTNU is and how to calculate capital gainsit is useful to know what is the increase in cadastral value that has been applied in the municipality where the property is located. Spanish legislation allows a maximum annual revaluation of 3.5%, a percentage which, as we have already seen, can vary significantly between municipalities.

For calculating IIVTNU the date of acquisition of the property and the distance from the date of sale, the cadastral value at the time of sale, the revaluation of the land accumulated during that period and any other levy that may be set by the corresponding Town Hall are taken into account.

how can you find out the cadastral value of your property? This is always included in the IBI receipts, although you can go directly to the most recent land registry. It should be noted that some local councils may have special allowances or exemptions that should be consulted individually.

how much capital gains tax is paid on inheritance?

The transfer of a property by inheritance is also subject to the payment of this tax. This does not affect how much capital gains tax is payable on inheritance other than the fact that those responsible for payment are, logically, the heirs, and that the deadline for payment is extended to 6 months (with the possibility of extending it up to one year).

when is the capital gains tax paid?

The person responsible for the payment of the Capital Gains Tax is always the seller, unless otherwise specified in the contract of sale. But, when exactly is the capital gains tax paid? Sellers have one month from the date of sale to comply with this tax obligation.

Exemptions

are there any exceptions to the general rule on what is IIVTNU? There are not too many but, for example, transfers between spouses or from spouses to their descendants (not counting inheritances) and operations carried out with Assets of Cultural Interest (BIC) or belonging to a recognised historic-artistic site are exempt from paying this tax.

Up-to-date information, key to avoiding surprises

Find out what is capital gains or how to calculate IIVTNU is necessary to correctly plan a sale transaction or to receive an inheritance. Engel & Völkers offers its legal and fiscal advice services so that both sellers and buyers always make the best decision.