THE TAX ON THE INCREASE IN VALUE OF URBAN LAND: CHARACTERISTICS, NATURE AND TAXABLE EVENT.
The IIVTNU or Plusvalía Municipal is a tax that arises in the context of real estate transfers. The definition of this tax is simple: it is a tax on the revaluation of real estate over the years.
Although the components of the tax will be analysed in detail later on, there are two main ones.
Taxable events that generate the tax liability:
- Purchase and sale of real estate (in this case, the taxpayer is the seller).
- Acquisition of real estate for profit (in this case, it is the heir / donee who must pay the tax).
It is a municipal tax, and progressive in nature (each municipality establishes the table of rates it considers appropriate, respecting pre-established limits). Two main facts must concur (in the context of Madrid, which should serve as a model for the rest of the local authorities in order to set in motion a unified reform of a tax that had certain shortcomings when it came to collection that cast a confiscatory shadow over it):
a) The sale price is higher than the purchase price.
(b) there is an actual benefit associated with the transaction.
Herein lies one of the main problems with the municipal capital gains tax: the fact that a transaction that generates losses for the taxpayer is taxed, which has been gradually polished by events ranging from the ruling on the matter by the TC, through modification via ordinances and other complementary solutions.
The main elements to be taken into account for the calculation of the quota are the following:
- Date of acquisition of the property and date of sale of the property.
- Cadastral value (reflected in the IBI receipt or in the Cadastre itself).
- Quantification of the revaluation of the real estate.
- Rate set by the local authority responsible for collection.
- Allowances to which the taxpayer is entitled.
The total amount of the revaluation is set at an annual rate. The fee payable may not exceed 30% of the total value of the revaluation, which should be taken into account.
THE CONTEXT OF IIVTNU AT NATIONAL LEVEL: EXPLAINING THE NEED FOR MODIFICATION OF THE MADRID TAX ORDINANCE
The context of the birth of this ordinance is a succession of events that led to the need at the national level to modify the tax ordinances regulating the municipal capital gains tax:
– Firstly, a climate of legal uncertainty is created which arises mainly because of the taxable person’s obligation to pay when the taxable event from which the obligation to pay arises incurs losses from the transaction.
– In the “falling of the dominoes” in this domino effect, the next consequence is the legal vacuum caused by this declaration of unconstitutionality: the regulation on the liquidation of the tax is eliminated and, therefore, the payment of the tax liability cannot be demanded, as there is no way of calculating it. Articles 107.1 (2nd paragraph), 107.2 and 107.4 included this regulation, and are repealed. There is a need to fill this legal vacuum.
– The penultimate step is the approval of Royal Decree Law 26/2021, of 8 November, which adapts the TRLRHL to the jurisprudence of the TC, modifying articles 4 and 10, eliminating the obligation to pay if there are quantifiable losses and altering the taxable base, respectively. From this moment on, the panorama of the settlement of the Plusvalía Municipal (Municipal Capital Gains Tax) changes completely.
The last step has deadlines: from the approval of the aforementioned RDL, a maximum period of 6 months is stipulated for municipal ordinances to be modified in order to adapt the local regulatory body to the state one.
The purpose of the amendment is clear: on the one hand, it seeks to maximise the efficiency of the management of this tax. On the other hand, the aim is to cancel the factual cases in which, without there being any desire to collect the tax, the taxpayer was bearing an excessive burden, paying for a transaction that was already burdensome in itself.
MAIN MODIFICATIONS OF THE NEW ORDINANCE 8/2022, OF 31 MAY, MODIFYING THE TAX ORDINANCE REGULATING THE IIVTNU (IIVTNU)
Madrid has complied with the established deadlines for the approval of the new tax ordinance. In a succinct but effective body of legislation, the preamble itself explains the need to draw up the ordinance, as well as compliance with the principles governing legislative activity. The main modifications have been:
– Change of name of Chapter II of the amended ordinance from ”Hechos Imponibles” to ”Hechos Imponibles y supuestos de no sujeción”.
– Amendment of the body of Article 4, which establishes new exemptions in commercial and urban planning matters.
– New paragraph 4 in Article 4, which translates into a tax exemption in cases of transfers mortis causa when the deceased has been a victim of Gender Violence and the successors in title are minors or people with functional diversity who have support.
– New article, 4a.1, which establishes that, if there is no real increase in the value of the land, there will be no tax liability.
– New procedure for calculating the amount of the increase (which will be the Taxable Base) by means of a calculation table with coefficients. The coefficients will be increased when a full year has passed.
CONCLUSIONS ON THE NEW TAX MODIFICATION ORDINANCE IN MADRID: BENEFITS OF THE NEW MUNICIPAL CAPITAL GAINS REGULATION.
Firstly, it fills the legal vacuum that prevented the collection of this tax.
Although it cannot be considered the only problem, it was the one that needed to be solved most quickly, in order to eliminate the legal limbo caused by the Constitutional Court’s ruling (necessary because certain legal precepts of the Ley Reguladora de las Haciendas Locales (Law Regulating Local Treasuries) were unconstitutional).
Secondly, it increases the legal certainty of the regulation, among other reasons, by eliminating a tax regulation that was excessively harmful to certain taxpayers. In addition, the fact that not only have the previously introduced rebates (which were as high as 95%) not been eliminated, but some new ones have been introduced, generates greater guarantees and a more favourable situation for taxpayers.
Helping a more disadvantaged social group (the family unit that has lost one of its members to gender-based violence) is another particularly positive point. It facilitates the economic management of a family that has lost one of its most important members, and provides security in the transition to a new form of cohabitation that can be excessively difficult.
If you have any doubts about the liquidation of the Plusvalia Municipal, please contact us.