Following the ruling of the High Court of Castilla La Mancha dated April 17, 2012, it has become clear that the majority of Spanish municipalities have been incorrectly liquidating the Municipal Tax on the Increase in the Value of Urban Land, known as municipal capital gains, for years.
The taxable event of this tax is the increase in value experienced by urban land and which is made evident as a result of the transfer of ownership by any title or the constitution or transfer of any real right of enjoyment, limiting ownership, over the aforementioned land, for a maximum of twenty years.
The calculation of said increase is calculated in accordance with the law regulating this tax (Local Tax Law) as follows:
1.- The cadastral value of the land is taken as a starting point (in all tax receipts a distinction is made between the value of the land and the construction) that exists at the time of accrual.
2. The annual percentage determined by each municipality will be applied to the value of the land at the time of accrual, without it being able to exceed certain maximums.
For example, in the case of the Lleida City Council, the percentages for 2013 are as follows:
a) For increases in value generated in a period between one and five years: 3.7.
b) For increases in value generated over a period of up to ten years: 3.5.
c) For increases in value generated over a period of up to fifteen years: 3.2.
d) For increases in value generated over a period of up to twenty years: 3.0.
3.- The tax rate set by each municipality will be applied to the resulting amount, without said rate being able to exceed 30 %.
For example, for the City Council of Lleida the tax rates for 2013 are as follows:
Up to 5 years 30%. From 6 to 10 years 29%. From 11 to 15 years 26%. From 16 to 20 years 21%
We will give an example to better explain the subject, based on the tax ordinance of the Lleida city council.
Transfer of a property with a cadastral land value of 176,000 euros and a holding period of 18 years. Therefore, the annual percentage to be applied will be 3 and the tax rate will be 21%.
With such data, the “municipal capital gain” would be calculated as follows:
TAX BASE:
176,000 euros (land value) x 3 (annual percentage) x 18 (years of generation)
————————————————————————————————–
100
That is to say:
9.504.000
———— = 95,040 euros
100
TAX RATE AND TAX RATE:
The tax rate is 21%. The amount to be paid to the town hall would be:
95.040 x 21
—————— = 19,958.40 euros
100
Well, according to the ruling to which we refer, the possible correction of the method of calculating the tax base is overturned, since it is said that the mathematical calculations carried out by the Town Councils in the capital gains liquidations are incorrect and do not comply with the provisions of articles 104 to 107 of the Local Tax Law, since by taking as initial value the cadastral value of the land at the time of the transfer, what is being taxed is the increase in value of the land in successive years, not in past years.
Furthermore, the aforementioned ruling admits that the formula that should be applied is the following:
* euros (land value) x * (annual percentage) x * (years of generation)
——————————————————————————–
100 + ( * (annual percentage) x * (generation years))
Adjusting this formula to the example given, the capital gain calculation would be as follows:
TAX BASE:
76,000 euros (land value) x 3 (annual percentage) x 18 (years of generation)
—————————————————————————————————-
100 + (3 (annual percentage) x 18 (generation years))
That is to say:
9.504.000
———— = 61,714.29 euros
154
TAX RATE AND TAX RATE:
The tax rate is 21%. The amount to be paid to the town hall would be:
61,714.29 euros x 21
—————————– = 12,960 euros
100
As we can see, there is a difference of 6,998.40 euros in favour of the city council and against the taxpayer.
Given this situation, our advice is that if you have paid capital gains tax in the last four years, and the calculation does not meet the criteria we have set out, you should request a refund of undue income from the difference between what you paid and the result of applying the tax rate to the formula we have indicated.
You must bear in mind that until you exhaust the administrative route, you will not have to pay any court fees, lawyer or solicitor, expenses that you will have to pay if you have to appeal through the administrative litigation route. We do not believe that the town councils will agree with you directly; resorting to the administrative litigation route will have to be assessed based on the costs that this may entail. But what we are sure of is that we will be prepared for any legislative modification or a possible ruling unifying doctrine, which will mean that the town councils cannot simply refuse any possible claims without incurring liability, and that all of this is also an exercise of responsibility as citizens.