Plusvalía Mallorca: What owners need to know about the municipal capital gains tax
Tax aspects of selling property in Mallorca
There are various taxes to pay when selling a property in Mallorca. One of these is the municipal capital gains tax, also known as Plusvalía Municipal. This tax is levied on the increase in value of the land on which the property stands. But who has to pay it? Are there any exceptions? And what happens if you can't pay it? We clarify the most important questions.
Who has to pay the municipal capital gains tax?
The obligation to pay Plusvalía Municipal depends on the type of transfer of the property:
- When selling a property, the seller bears the tax burden.
- In the case of gifts, the person who receives the property pays tax.
- In the case of inheritances, the heirs are obliged to pay.
Who is exempt from paying the capital gains tax?
There are various cases in which the Plusvalía Municipal does not have to be paid:
- No capital gain on sale: As of November 10, 2021, the tax liability no longer applies if the property was sold at a loss.
- Unchanged property values: If the value of the property has not increased since it was purchased, no tax is payable.
- Transfers between spouses: If a property is transferred as part of an equalization of gains or to support the children, the tax is not due.
- Culturally protected properties: The prerequisite is that necessary maintenance or improvement work has been proven.
- Property transfers to state or non-profit organizations: These include the state, autonomous communities, social security institutions and the Spanish Red Cross, among others.
- Agricultural land: Certain agricultural land is exempt from tax.
- Assignment for debt repayment: If the property is assigned to repay a debt secured by a mortgage, the tax liability is waived.
Who is exempt from capital gains tax on an inheritance?
Two scenarios allow for tax exemption:
- Agricultural land: heirs of land used for agricultural purposes do not have to pay capital gains tax.
- No increase in value: If the inherited property has lost value since it was acquired by the testator, there is no tax liability. This must be proven with a self-assessment and suitable evidence.
What happens if the tax cannot be paid?
The municipality can continue to claim the outstanding amount and charge interest on arrears:
- 5% for late payments of up to three months
- 10 % for late payment between three and six months
- 15 % for late payment between six and twelve months
- 20 % in the event of payment arrears of more than one year
Does the capital gains tax have to be paid for an apartment that is more than 20 years old?
Yes, provided that a profit was made on the sale of the property. The duration of ownership is irrelevant. However, the tax is calculated over a maximum period of 20 years of appreciation. Even if the property has been owned for longer, the calculation is limited to this period.
The municipal capital gains tax is an important factor when selling property in Mallorca. While it applies in most cases, there are various exceptions and exemptions. Sellers, heirs and recipients of gifts should inform themselves in good time in order to correctly calculate possible tax charges or, if applicable, to benefit from an exemption.
