The municipal capital gains tax — technically known as the Tax on the Increase in Value of Urban Land (IIVTNU, or plusvalía municipal) — is a local tax levied on the increase in value experienced by urban land during the period a property has been held by its owner. It applies to any transfer: sale, inheritance or donation. Each local authority (ayuntamiento) manages the tax, which means that the applicable rate and coefficients may vary slightly between municipalities within Mallorca. It is one of the taxes that most surprises sellers, precisely because many are unaware of it or underestimate it until they are about to sign at the notary.
Who pays the municipal capital gains tax in Mallorca?
As a general rule, the municipal capital gains tax is paid by the seller. In private sales, the transferor must settle the tax with the relevant local authority within 30 business days of signing the title deed. However, the law allows the parties to agree contractually that the buyer assumes the cost — though this arrangement has no effect on the tax authority: if the tax is not paid, the local authority can demand it from the seller. In inheritances, the heir or legatee is liable, with a six-month deadline from the date of death (extendable to one year upon reasoned request). In donations, the donee (recipient) is the taxable person.
The two calculation methods in 2026
Since November 2021, following the approval of Royal Decree-Law 26/2021 — which adapted the IIVTNU rules to the doctrine of the Constitutional Court — there are two alternative methods for calculating the taxable base. The taxpayer can freely choose whichever is most favourable, and the local authority cannot reject the chosen option provided it is properly documented. This was a fundamental change: before 2021, the objective method was always applied, even when a property had been sold at a loss relative to its purchase price, creating situations the Constitutional Court declared unconstitutional.
Objective method (based on coefficients)
Under the objective method, the taxable base is calculated by multiplying the cadastral value of the land at the time of transfer by a coefficient set according to the number of full years of ownership. These coefficients are approved annually by Ministerial Order as maximum values; each local authority may apply its own as long as they do not exceed these caps. The formula is: Taxable base = Cadastral land value × Coefficient for years of ownership. Practical example: a property with a cadastral land value of €80,000, held for 12 years, with an applicable coefficient of 0.45, generates a taxable base of €36,000. Applying the maximum rate of the Palma City Council (30%), the tax due would be €10,800.
Real method (based on actual gain)
The real method calculates the taxable base from the actual increase in land value. The formula is: Taxable base = (Sale price − Purchase price) × (Cadastral land value ÷ Total cadastral value). This cadastral ratio isolates the portion of the total gain attributable solely to the land, which is what the IIVTNU taxes (not the building value). Example: a property bought for €200,000 and sold for €350,000, yielding a gain of €150,000. If the cadastral land value represents 60% of the total cadastral value, the taxable base would be €90,000. Applying a 30% rate, the tax would be €27,000 — higher than under the objective method in this case.
How to choose the most favourable method
The professional recommendation is always to calculate both methods before filing the self-assessment or declaration with the local authority, and to choose whichever generates the lower tax. The local authority cannot prevent this choice if it is properly documented. In practice, the objective method tends to be more favourable for properties acquired recently or in areas where the cadastral value is low relative to the market price; the real method generally suits properties held for many years with modest actual appreciation, or in cases where the sale is at a loss. The deadline for filing the self-assessment is 30 business days from the deed signing in the case of a sale.
| Scenario | Objective method | Real method | Recommendation |
|---|---|---|---|
| Property acquired recently with high appreciation | Favourable | Unfavourable | Objective method |
| Property held for many years with modest appreciation | Unfavourable | Favourable | Real method |
| Sale at a loss vs. purchase price | Tax still owed | Zero liability | Real method or exemption |
When the municipal capital gains tax can be zero
There are two main scenarios in which the municipal capital gains tax liability can be zero or minimal. The first — and most relevant — is a sale at a loss or with no real increase in land value: if the property is sold for a price equal to or below the original purchase price, applying the real method yields a taxable base of zero and therefore no tax. This was recognised by the Constitutional Court in Ruling 182/2021 and consolidated by Royal Decree-Law 26/2021. To prove the loss, it is sufficient to provide the purchase and sale deeds. The second scenario concerns rural land: the IIVTNU only taxes urban land, so rural estates (fincas rústicas) in Mallorca — a highly sought-after asset — are entirely exempt from this tax, regardless of the sale price.
Municipal capital gains tax on inheritances in Mallorca
When a property is inherited and subsequently sold, two separate capital gains tax events may arise. First, at the time of inheritance: the heir must settle the tax within six months of the date of death (extendable to one year), using the cadastral land value at that date as the taxable base. Second, if the heir later sells the property, a new municipal capital gains tax calculation applies for the period from the date of inheritance to the date of sale. The clock resets from the date of inheritance, not from the original purchase by the deceased. This has significant implications for families with inherited properties in Mallorca who are planning a sale: in many cases, waiting a certain number of years after inheritance may be tax-efficient depending on the applicable calculation method.
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Leer más →Frequently asked questions about municipal capital gains tax in Mallorca
Can I defer payment of the municipal capital gains tax?
There is generally no automatic deferral of the municipal capital gains tax. Some local authorities allow instalment payments upon a prior reasoned request evidencing financial hardship, but this is not a universal or automatic option. In Palma, management falls to the Agència Tributària de Palma, to whom a deferral request must be addressed before the 30-day deadline expires. It is essential not to miss the filing deadline: a late self-assessment — submitted without a prior demand from the administration — incurs surcharges of 5% if filed within three months, 10% up to six months, 15% up to one year, and 20% beyond one year, plus applicable late-payment interest.
Does the buyer or the seller pay the municipal capital gains tax?
As a matter of law, the municipal capital gains tax is always paid by the seller (or the heir/donee in non-sale transfers). However, the parties may agree in the private contract that the buyer assumes this cost — a clause sometimes negotiated in the context of a sale. This agreement, however, has no effect on the tax authority: if the buyer does not pay, the local authority will claim the tax from the seller, who is the legal taxable person. This obligation should never be transferred without a clear contractual guarantee and proper legal advice, as the seller remains responsible to the tax authority regardless of what has been agreed between the parties.
What happens if I sell at a loss compared to the purchase price?
If you sell your property for a price equal to or below what you originally paid, using the real method the taxable base of the municipal capital gains tax will be zero and therefore no tax will be due. To prove this, you will need to present the purchase and sale deeds to the local authority, demonstrating that there has been no real increase in land value. It is important to note that the obligation to file the self-assessment or declaration still exists even when the liability is zero: failing to file anything can lead to penalty proceedings by the local authority. Always retain the original purchase deeds — including properly documented acquisition costs — as evidence before the administration.
