For city councils in Spain it is a tax of vital importance because it is the tool with which they collect the most money. It is known as Tax on the increase in the value of urban land. Or by its acronym: IIVTNU.
You have a capital gain when the difference between the purchase and sale of your home leaves a positive balance. Which means that the land of your home increased in value over time. So you make a profit.
How to Calculate Capital Gain?
Although it is a widely used concept when negotiating a home , calculating the equity in a property varies according to the laws of each place.
In places like Madrid and Barcelona, payment is made through self-assessment.
To know what the amount of capital gain will be, you must collect very simple information. Find out the cadastral value of the land where your property is located. You can find this information on the Real Estate Tax receipt, also known as IBI.
Then you must investigate what is the percentage that is applied to your home. This varies according to the years of seniority.
Example of Capital Gain in Madrid
The percentage of increase to calculate the capital gain in a sale can go from 2%, in properties with one to five years old, or go up to 3%, when the tenure exceeds twenty years.
But be careful. To the value then we must add the tax base, which in the case of Madrid is 29%
You want to sell the house that you have had for 12 years. You bought it for 150 thousand euros and the sale is stipulated at 200 thousand euros. In the IBI receipt it is reflected that the cadastral value of your property is 80 thousand euros.
- Multiply the age by the percentage of increase established in Madrid by the cadastral value. This way you will obtain the tax base of your home.
12 years x 3.5% x 80,000 euros = 33,600
- The Madrid city council establishes that the tax rate is 29%. So the amount you must pay in tax is equal to the tax rate x the tax base.
33,600 x 29% = 9,744 euros.
When calculating the capital gain from the sale of your apartment in Madrid , the amount you must pay in tax is 9,744 euros.
Who Pays It?
The tax always falls on the beneficiary. When it comes to a home buying and selling process, it is the seller who must pay the capital gain. In an inheritance or in the case of a gift, it is paid by the person who receives the property.
Like all taxes, not everyone agrees with this charge. But it is an obligation that must be fulfilled after the transfer of a property.
It is important that you document yourself about the laws in your area. You can always count on the help of a real estate professional or an accountant. And before starting a sale, try to calculate the capital gain. This way you will have an idea of what your real profit will be and you can define the most suitable sale price for the sale of your property.