Are you about to sell your property? Then keep reading, because you need to pay land value tax. And in this article you will find all the information that you need about the plusvalía property tax in Spain. We will explore what exactly this tax is about and how it originated, when and how should you pay it, how much will it actually cost you, and the most important: how to avoid paying it.
What is the plusvalía tax?
The plusvalía or land value tax is the tax applied to the increase of the value of the urban land once a property is transferred, sold, inherited, or received after a donation; paid by the seller in the vast majority of cases.
Hence, this tax does not apply to the property itself, but to the value of the ground it occupies as we will now explore.
Analyzing its name provides more clues. Plus (which means extra or more), and valía (which in Spanish means value). Hence this tax refers to the added or plus value of the property’s land.
Why does it even exist? The rationale behind it is really simple.
When you acquired the property you are planning to sell, the land in which it was located had a value X. After years have passed (until now that you want to sell it), this value has increased (X + increase of value). And that increase is in part due to all the improvements the town hall has made to the area and its surroundings.
There are more supermarkets nearby, better infrastructures, perhaps more public transport connections, etc.
So the plusvalía tax is the way the town hall has to capture that increase in value that is correlated to their public investments and improvements. As we will see below, this obviously poses the problem of properties or lands that decrease in value (and can’t be sold at a price higher than the initial purchasing one).
It is important to stress that it just captures the increase in urban land value. That means that if the property is located in the countryside, this tax won’t exist.
Along with the capital gains tax, the land value tax is one of the two taxes you need to pay once you sell a property in Spain.
How do you pay the land value tax?
The obligation to pay this percentage (below we will explore how to compute it) appears at the very moment in which the transfer of the property is made.
If any changes were made, you will need to understand whether the property is urban or not at that moment (there are some cases in which over the years that status differs).
Then, you will have 30 days after selling the property to pay it to the local town hall. And it is very important to meet this deadline in order to avoid penalties and legal trouble.
How much is Plusvalía tax in Spain?
The exact amount will vary according to the particular case. Let’s see how it is computed.
In the council tax receipt, you will see a difference between land value and construction value. For this tax, you just want to look at the land value.
In order to define this value, you can go to your local town hall and ask for it, you can check on your IBI receipt, or you can ask a tax specialist.
That land value on the receipt increases every year, and you need to multiply it by the rate specified by your local town hall, which takes into account the years you’ve been the owner.
But, more specifically, the exact percentage to be applied depends on the following factors:
- How long you have you been the owner of the property (the more years, the higher the price, up to a maximum of 20 years). This is the factor that affects the most the final amount.
- Its location, meaning where exactly the property is located within the municipality (different areas have different prices).
- The square meters it occupies: how big it is.
As an example, for municipalities with over 100,000 inhabitants, the minimum tax rate is 20 percent and the maximum 30 percent.
It is important to mention that, two properties with really similar conditions (let’s say equal square meters) may enjoy a difference of plusvalía tax if they are located within different municipalities. And that is because this tax is based on the retable value of the property (called “valor catastral”), and different municipalities approve different values for their land (they price it higher or lower).
Who has to pay for it?
The plusvalía tax is typically paid by the seller (that who transfers the property) or owner of the property, and he will pay at the same moment the property is sold.
Nevertheless, there is also the possibility to negotiate between buyer and seller and decided which one of the two will end up paying it, but this can pose different problems as we will now see.
As always, there is an exception. If you inherit the property or receive it as a donation, then you’ll have to pay it as a receiver.
Why? In the first case, because the theoretical responsible of the payment is deceased, and in the second one there is no selling price, hence no “source” to get the money from by the donator.
Also, it is important to mention that when the seller is a non-tax resident in Spain, usually the purchaser will be liable for this tax (or the one agreed to pay).
Why? Because if the vendor is in charge of paying it but fails to do so (because he is not in Spain) the Spanish tax authorities will go after the new owner.
That’s is why usually the purchaser of the property will retain the money of property price to pay it on behalf of the seller, to guarantee this tax will be actually paid.
Is there any way to avoid this tax?
There is a possibility to avoid paying this tax.
As we mentioned, the reason the town hall’s ability to collect this tax lies behind the fact the land has increased in value.
But what if it actually hasn’t? Then this tax can be non-payable: you can request a refund or avoid paying.
That is, if you can demonstrate that the market hasn’t grown during the years you have been the owner, that the value of the land has gone down, or that you made a loss when selling the property, you can avoid paying this tax.
So if the justification to charge this tax has to do with the income and profit you generate once selling as the way the administration captures part of that profit, but you end up not making any profit, and in fact lost money, how can you have the monetary capacity to pay this tax?
Nevertheless, each particular case must be analyzed carefully, and that is why we suggest you contact our team of property and tax lawyers so we can help you out along the way.
Book a consultation with one of our lawyers and solve all your doubts:
At Balcells Group, we have over 11 years of experience helping individuals and businesses with all their legal needs when moving to Spain. We specialize in immigration law, tax advisory, business consultancy, and real estate, providing a personalized approach for each client. Our multilingual team understands the importance of adapting to the cultural and legal specificities of our international clients. We offer a comprehensive service that combines the expertise of several generations of lawyers with the innovation needed to address today’s legal challenges, always with the goal of simplifying processes and ensuring reliable, effective results.
