Law News – Tax Law Department – November 2021

The controversy surrounding the Tax on the Increase in Value of Urban Land (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana, IIVTNU), commonly known as the Municipal Capital Gains (Plusvalía) Tax, is not new, but arose even before its approval, in 1988, when its illegality had already been denounced, since it relied on the absolute presumption that all urban land transmissions gave rise to an increase in value subject to taxation.

On 11 May 2017, almost thirty years after its approval, the Constitutional Court finally declared that those precepts of the Municipal Capital Gains Tax that subjected to taxation situations where there was no increase in land value, were unconstitutional and null and void, and entrusted the Legislature with the task of amending the regulations to adapt them to its pronouncement.

Subsequently, on 31 October 2019, and without the Legislature having done its homework, the Constitutional Court issued a new ruling in which it again declared the unconstitutionality of the rules of the Municipal Capital Gains Tax, but now in those cases in which the amount to be paid was higher than the increase in the value of the assets obtained by the taxpayer. The Constitutional Court took the opportunity to remind the Legislature that two years had passed since its previous ruling and that the regulations governing this tax had still not been amended.

Be that as it may, more than four years after the 2017 ruling, on 26 October 2021, the Constitutional Court surprises us by publishing an informative note in which it limits itself to asserting that the unconstitutionality and nullity of the articles regulating the calculation method of the subject matter of the tax base of the Municipal Capital Gains Tax had already been declared.

This announcement, once again, causes a commotion. From taxpayers, who are anticipating the possibility of claiming a refund of the amounts unduly paid under a tax whose calculation formula has been declared null and void and, which in the words of the Constitutional Court itself, has meant “its expurgation from the legal system, leaving a regulatory vacuum when it comes to determining its tax base preventing the settlement, verification, collection and review of this tax and, therefore, its enforceability”. And from town councils, who not only see their public coffers under threat, but also fear they will be swamped by the volume of claims from taxpayers seeking the return of what was unduly paid.

However, on 3 November, the text of the Judgment delivered on 26 October 2021 by the Constitutional Court in unconstitutionality query 4433-2020 (hereinafter, the “Judgment”) was issued and, to the surprise of many, the Constitutional Court limits the effects of the declared nullity by exempting the following situations from being reviewed on the grounds of the latter:

  1. Any accrued tax obligations that, as of 26 October 2021, have been finally decided by a judgment or by a final administrative resolution with the force of res judicata.
  2. Provisional or final tax settlements that, as of 26 October 2021, have not been challenged.
  3. Self-assessments where no request for rectification had been presented prior to 26 October 2021.

Where the tax is paid through self-assessment (as happens in most large municipalities), the taxpayer has a period of four years to request the rectification of the self-assessment presented and, where appropriate, the refund of any amounts unduly paid. Be that as it may, and this is most surprising, the Constitutional Court’s ruling has determined that, solely for the purposes of this Judgment, these self-assessments will be considered consolidated cases not susceptible to challenge.

Regarding limiting the effects of the Judgment of the Constitutional Court, there are many of us who would argue that we are facing a case of ordinary and not constitutional illegality and, consequently, it should be the ordinary courts which, where taxpayers present appeals against matters considered consolidated by the Constitutional Court, decide whether or not they are consolidated and whether the effects of the Judgment are applicable to them.

On the other hand, the Judgment also indicates that it is up to the state legislator to carry out the pertinent amendments or adjustments to the regulation, to adapt the Municipal Capital Gains Tax to the constitutional requirements indicated by the Constitutional Court in its most recent Judgment and the two previous ones.

Be that as it may, given that the Judgment has not been published, relying on the principles of necessity and effectiveness and the convenience of avoiding possible immediate distortions in the property market, the Council of Ministers has used a Royal Decree-Law, specifically number 26/2021 (hereinafter, the “Royal decree-law”), to, as it states in its explanatory declaration, “respond to the mandate of the Supreme Court to carry out the pertinent modifications or adaptations to the legal regime of the tax as a result of the most recent of the abovementioned judgments, as well as to incorporate the doctrine contained in the other two judgments, in order to unify the regulations for this tax and comply with the principle of economic capacity”.

Article 86 of the Spanish Constitution empowers the Government to issue decree-laws in cases of extraordinary and urgent need and, according to the explanatory memorandum of the above-mentioned Royal Decree-Law, in the present case the extraordinary and urgent need to approve the legislative reform demanded by the Supreme Court is justified:

“[due to] the need for the immediate restoration of the possibility of collecting this tax in order to preserve the constitutional principle of budgetary stability, in addition to, as a matter of urgency, the desirability of preventing possible immediate distortions to the property market which may aggravate the situation.”

As expected with this tax, the approval of this modification through a Royal Decree-Law is not without controversy, and the Ministry is aware of this, but it seems clear that it has preferred to address this situation, resurrect the tax, and wait and see what happens in the future, if, once again, it is the Constitutional Court which, analysing the legality of the Royal Decree-Law promulgated, will slay it afresh.

In our opinion, the problem posed by the Royal Decree-Law in this case does not reside so much in the “extraordinary and urgent need” for the measure to be agreed (although it is difficult to appreciate the urgency in this case when the Legislature has been dragging its feet since 2017), but rather in the fact that decree-laws are vetoed in certain aspects of tax regulation, as is the duty of citizens to contribute to the maintenance of public expenditure in accordance with their economic capacity, through a fair tax system, inspired by the principles of equality and progressiveness. And it will be the Constitutional Court which, ultimately, will have to decide whether or not the determination of the tax base of the Municipal Capital Gains Tax is an essential component of the latter.

Setting to one side the legality of Royal Decree-Law 26/2021, we highlight below the amendments made to it for the purposes of the Municipal Capital Gains Tax, which are as follows:

1. Object taxed 

The Municipal Capital Gains Tax is the second tax, after the Tax on Immovable Property (impuesto sobre los bienes inmuebles, IBI), which currently generates most income for municipalities and continues to tax the increase in value of urban land taking place, among other cases, in transmissions of the latter, whether in exchange or not (legacies, donations), for valuable consideration.


2. System for determining the tax’s tax base

The new rule establishes two systems, at the taxpayer’s choice, for determining its tax base, as follows:

a.   Objective assessment 

This method resembles the previous one. The tax base is still calculated by multiplying the cadastral value of the land at the time of accrual by the coefficients approved by the corresponding city council, in view of the number of years elapsed between the property’s acquisition and its transmission. In no case may the coefficients approved by each municipality exceed those indicated below:

Possession period

From 10/11/2021 Until annulment by the CC

Less than one year



0.13 0.37





0.16 0.111
4 0.17


5 0.17



0.16 0.21
7 0.12



0.10 0.28
9 0.09



0.08 0.35
11 0.08



0.08 0.384
13 0.08



0.10 0.448
15 0.12



0.16 0.48
17 0.20



0.26 0.54
19 0.36


20 0.45



As can be seen in the table above, the new percentages ensure that transmissions of land acquired during the financial crisis (the lowest coefficient applies to acquisitions made between 2008 and 2011, with 0.08) are taxed at a lower rate, and, on the other, short-term transmissions are penalised. The coefficients will be lower than the previous ones for more years of possession.

Likewise, a coefficient has been set for transmissions taking place in under a year, which may be speculative in nature and which, hitherto, were not taxed by the Municipal Capital Gains Tax.

The coefficients will be updated annually by means of legislation, taking into account the evolution of the property market. If, following this update, the coefficients of the tax ordinances are higher than the maximums indicated above, the latter will be applied until the excess in the tax ordinance has been rectified.

Finally, it sets out the possibility of municipalities agreeing, for the sole purpose of ascertaining the tax base, a reduction of up to 15% in the cadastral value of the land, in order to adjust the amount of the tax to each municipality’s actual situation.

b.   Direct assessment

If, at the taxpayer’s request, it is found that the increase in value, determined by the difference between the values of the land on the dates of transmission and that of acquisition, is lower than that determined by the objective approach, that increase shall be taken as the tax base. These values may be subject to verification by the municipality.

To this end, the following rules shall apply:

In the case of property comprised of both land and buildings, the difference between the price of transmission and that of acquisition of the land will be obtained by applying the proportion that represents the cadastral value of the land to the total cadastral value at the time of transmission.

The greater of the two values between the value stated in the title documenting the transaction (or the one declared in the Inheritance and Donations Tax, where it is a consideration-free transmission), and the verified value, where appropriate, will be taken as the transmission or acquisition value by the Tax Administration.

Expenses arising from or taxes levied on said acquisition or transmission transactions may not be taken into account in this calculation process.

The taxpayer must declare the transmission of the property and provide the titles documenting its transmission and prior acquisition.

We illustrate below the modification in the levying of the Municipal Capital Gains Tax introduced by the Royal Decree-Law with the following example in which the maximum rate of 30% is applied.

Factual situation: a dwelling acquired more than 20 years ago for 200,000 euros transmitted in 2021 for 230,000 euros and whose cadastral land value in 2021 is 100,000 euros. The percentage of the cadastral land value over the total is 60%

A.- Applying the regulation in force until the Judgment

Tax base: €60,000 (100,000 * 0.60)

Tax rate: 30%

Tax to be paid: €18,000.

B.- Applying the regulation in force as of 10 November 2021

(i) Objective assessment method

Tax base: €45,000 (100,000 * 0.45)

Tax rate: 30%

Tax to be paid: €13,500.

(ii) Direct assessment method

Tax base: €18,000 (€230,000 – €200,000) *60%

Tax rate: 30%

Tax to be paid: €5,400

As can be seen, in case B, the taxpayer would benefit from opting for the direct assessment system.


3.  New exemption rule for cases in which there is no increase in land value

A new case for exemption is introduced for those transactions in which the taxpayer proves that there has been no increase in value. To do this, the interested parties must declare the transmission, as well as provide the titles documenting the transmission and acquisition.

Calculating the increase in actual value obtained through the transmission will be carried out as indicated in the section above, using the difference between the transmission value and that of acquisition of the land, without taking into account expenses and taxes.

This case envisages those situations in which, for example, a piece of land was acquired for 150,000 euros and transmitted for 100,000 euros.


4.  Entry into force and temporary effects

This new regulation came into force on 10 November 2021.

Those municipalities that have set the Municipal Capital Gains Tax must adapt their legal framework to the provisions of the Royal Decree-Law within six months and, provided the municipal ordinances have not been adapted, the legal framework provided in the Royal Decree-Law will be applicable, and to determine the tax’s tax base, the new maximum coefficients set in it will be used.

The conclusion we can draw is that we are of the opinion that, combining the effects of the Judgment, read literally, and the entry into force of Royal Decree-Law 26/2021, the following situations will benefit from the judgment’s declaration of nullity:

  • Declarations and self-assessments which, for whatever reason, on 26 October 2021, had already been appealed or where a request for rectification had been submitted.
  • Land transmissions made prior to 10 November 2021 for which the Municipal Capital Gains Tax has not been assessed or self-assessed, or for which the settlement or self-assessment of the tax has been made from 27 October 2021 onwards.


Marisa Ramirez Prieto. Tax Law Department Lawyer, Alemany, Escalona & de Fuentes.