How is the new municipal capital gain calculated?

With effect from 10-11-2021, the date on which Royal Decree-Law 26/2021 came into force, the municipal capital gains tax regulations provide for a new formula for calculating the tax.

It should be remembered that, to date, the tax contemplated is only an objective calculation formula, whichdoes not take into account the increase in value actually obtained by the taxpayer but, only, the catastral value and the years of permanence of the property in its patrimony. This led to the unconstitutionality of the calculation formula. And for this reason, the new regulations approved intend, precisely, to give an alternative calculation of the tax, according to the increase in value actually experienced by the land.

However, we must be very careful, because it is the taxpayer who has to opt for this formula. And if they don’t, they could lose the ability to pay taxes under the actual method.

General rule and special rule of the new municipal capital gain

Thus, the general rule remains the objective system. Therefore, if the taxpayer does not say anything, it is appropriate to apply the new approved coefficients, on the catastral value of the land. These coefficients vary according to the number of years that the land has been on the property of the transferor.

In addition, taxpayers have the possibility of paying taxes according to the increase in value of the land actually obtained (real method of calculation). In this case, the tax base is calculated by going to the comparison of values of acquisition or transfer of the land, reflected in the deeds. Or resulting from the administrative verification of these values.

We are, however, in the latter case, faced with a tax option. Therefore, if it is not exercised by the taxpayer within the period of declaration or self-assessment of the tax, it could be lost.

The tax option included in the new regulation of the municipal capital gains tax

The general rule for calculating the tax is the objective system. And this is provided for in article 107 of the Consolidated Text of the Law Regulating Local Finances (TRLRHHLL). Thus, if a taxpayer wants the tax base to be calculated according to the actual method, he must expressly request it. If you do not, the objective calculation method will be applied.

On this point, Article 107(5) of the aforementioned Consolidated Text is clear in providing that "When, at the request of the taxable person, in accordance with the procedure established in Article 104.5, it is found that the amount of the increase in value is lower than the amount of the taxable amount determined in accordance with the provisions of the preceding paragraphs of this article,  The taxable amount shall be taken as the amount of such increase in value."

Note that this possibility of calculating the tax base according to the "real" method is only activated "at the request of the taxable person". Therefore, if the taxpayer does nothing, the tax will be calculated according to the objective formula. That is, multiplying the catastral value of the land by the coefficient provided for in the law.

For all the above, it is worth asking what consequences it has for the taxpayer not to exercise this option. That is, not to request that the "real" system of calculation of the tax base be applied. And the possibilities he would have to rectify, to back down, and ask for the actual calculation method to be applied to him.

When should the option be exercised for the actual calculation

The capital gains tax is a tax that can be declared, or self-assessment. This, as provided for in the municipal ordinance. The general rule will, however, be that of declaration with liquidation. And the self-assessment method will only be applied if provided for in the tax ordinance approved by the City Council.

Therefore, it is normal for the taxpayer to comply by declaring the transmission, and informing the City Council of the operation. And, from there, wait for it to be the one that makes the calculations and notifies you of the settlement. Therefore, if the taxpayer wants this tax to be calculated according to the actual method, it will be when filing the return when he must indicate it. In this way, the taxpayer must exercise this option by the actual calculation method within the period of 30 working days (inter vivos transmissions), or 6 months (transmissions mortis causa), which he has to declare the tax, providing the deeds of acquisition and transmission. Thus, it is provided for in article 110.2 of the TRLRHHLL

The same term will have the taxpayer who wants to opt for the real calculation method but who, according to the municipal ordinance, is obliged to self-assess the tax. In this case, and within the indicated deadlines, the taxpayer must self-assess the tax, calculating the tax base, directly, by application of said method of actual calculation.

The question is what happens if the taxpayer does not exercise the option for the actual calculation, and intends to do so later, rectifying the declaration or self-assessment filed, or even on appeal, opposing the settlement issued by the City Council, according to the objective method.

The impossibility of rectifying tax options

At this point, it is necessary to refer to article 119.3 of the LGT. And it is that, this precept provides that "The options that according to the tax regulations must be exercised, requested or renounced with the presentation of a declaration may not be rectified after that moment, unless the rectification is presented in the regulatory period of declaration."

Therefore, it is possible to rectify and exercise the option before the end of the declaration period. In this case, and even if the taxpayer has already filed his return or self-assessment, he may modify it and request the application of the actual calculation method.

However, things change if the rectification is requested once the declaration or self-assessment period has already ended. Therefore, if a taxpayer declared the municipal capital gain, and when they notify him of the liquidation, he discovers that it would have been better to apply the real tax calculation system, it will be difficult to go back.

Thus, if you request the rectification of the self-assessment presented, it can be rejected taking into account the impossibility of rectifying the tax options included in the self-assessment, once the regulatory deadline for submission has ended. In the same way, the rectification of the declaration filed at the time will be rejected, if it is requested after the deadline.

For the same reasons, the appeal that may be filed against the settlement issued by the City Council, in application of the objective calculation method, may also run into the wall of article 119.3 of the LGT, the City Council dismissing the appeal for the impossibility of rectifying the taxation option, once the deadline for filing the tax has expired.

Finally, all those who declare or self-assess the tax after the deadline, could also see how the City Council denies them the possibility of resorting to the real method of calculating the tax base. And thus, we would also be facing a tax option exercised after the deadline.

How taxpayers should act in the face of the new municipal capital gain

This is an issue that must be taken into account by taxpayers. And, although it is possible that some municipalities facilitate the option for the actual calculation, informing taxpayers if it is the most favorable for them, it is advisable to be prepared, before the possibility that other municipalities prevent the exercise of the option by calculating the real method, beyond the deadline for filing the tax.

For this reason, it is recommended that, before filing any tax return or self-assessment, taxpayers make the necessary calculations to determine which method is most beneficial for them. For these purposes, it may be useful to go to this calculator prepared by Idealista, to determine the tax base of the municipal capital gain.

In addition, it is also advisable to declare the tax on time, whether it is up to the taxpayer to file a return, or a self-assessment. In this way, the risk of preventing the taxpayer from opting for the actual calculation method will be avoided, if having filed his return or self-assessment outside the period provided for,  inside the tax regulations requirements.

In short, we are facing basic precautions in the event that it is finally considered that the new municipal capital gain hides a tax option, which must be included in the declaration or self-assessment of the tax presented on time, and can no longer be rectified.