Capital gains tax on the sale of luxury real estate in Mallorca

Is it possible to reclaim the capital gains tax?

Have you sold a luxury property in Mallorca before 2021 and wonder if you have paid too much tax and if it is still possible to reclaim the capital gains tax? Learn everything you need to know

If you sold a property in Mallorca before 2021, you probably had to pay capital gains tax. However, in recent years there has been a change in case law that allows taxpayers to reclaim capital gains tax in certain circumstances.

Capital gains tax is a municipal tax levied on real estate transactions in Mallorca and is based on the increase in value of the property since the last transfer. But how is this tax calculated and when can you claim it? 

In this article, you will learn everything you need to know about capital gains tax and how case law has developed.

What is capital gains tax and how is it calculated?

The capital gains tax is a municipal tax levied on the increase in value of municipal real estate at the time of its transfer, whether by sale or inheritance. It is important to know that this tax is levied even if the property was sold for less than the purchase price.

How the ad valorem tax is calculated depends on the municipality where the property is located and the local tax legislation. Generally, the cadastral value of the property, the duration of ownership and the change in value of the property during this period are taken into account.

To calculate the increase in value, a rate is applied to the cadastral value of the property, which can range from 0.4% to 3.7%. A coefficient is applied to this result, which depends on the number of years the owner has owned the property. Finally, both values are multiplied to obtain the total amount of the tax.

It should be noted that the rules of capital gains tax have been controversial in recent years and some courts have declared them unconstitutional in certain cases. It is therefore advisable to seek advice from tax and financial law professionals in order to reclaim the tax if it has been wrongly paid.

When can capital gains tax be reclaimed?

Capital gains tax can be reclaimed under certain circumstances. One of them is when a property was sold for less than the purchase price, which means that no profit was made on the transaction and therefore there is no tax base for this tax. Another situation in which a tax refund can be claimed is when a property was sold at a financial loss, meaning that it was sold for less than the purchase price. Also, a tax refund can be requested if the cadastral value of the property has decreased since the last transaction.

In order to apply for a refund of the capital gains tax, the circumstances justifying the refund must be proven. For this purpose, the relevant documents are required, such as the purchase agreement, the transfer agreement and the capital gains tax notice. It is therefore advisable to seek the advice of a lawyer specialized in this field to ensure the success of the application.

In summary, it is possible to request a refund of capital gains tax in certain situations, such as selling a property for less than the purchase price, selling a property at a financial loss, or if the cadastral value of the property has decreased since the last transaction. In order to make a successful request, it is important to seek advice from a lawyer specialized in this field.