The ad valorem tax, in Spanish "Plusvalía municipal", is due when a property changes hands (exception: new buildings), regardless of whether it is Sold, inherited or given away. The tax is payable by the seller and levied by the local authorities. Accordingly, it is a weighty item in the annual budget of the municipalities in which many properties change hands.
The calculation of this tax has now been reorganized, as in the past the tax was also incurred if the property had not been more expensive Sold at all. From now on, the real increase in value will be taxed.
The taxpayer can decide which method of calculation to choose. There are two methods. One is based on the cadastral value. Here, the land portion of the cadastral value is multiplied by a coefficient. The coefficient is determined by the years that a property belonged to the previous owner. For example, if the house was owned for less than a year and is now Sold, the coefficient is 0.14. If the period is 20 years or more, the cadastral value is multiplied by 0.45. The result depends on the municipality. The result is taxed at a maximum of 30 percent, depending on the municipality.
Under the second calculation method, the actual increase in value is taxed at up to 30 percent. The increase in value results from the difference between the old and the current sales price. In the case of inheritances and gifts, the market reference value is used.
We recommend that you seek detailed advice on this subject from a tax advisor in Mallorca.
