The Government has approved the bill which modifies the Local Finance Act to regulate the municipal surplus value in case of loss of property. The cornerstone of this new law is the way of determining the existence of the increase in the value of the land. In case of sale of a dwelling, the deed of sale will be the one which determines if it has been transmitted in losses or not.

The amendment of the Local Finance Act introduces a new assumption stating that the transfer of real estate in which the value of the land has not increased is not subject to the payment of the municipal goodwill.

The way to determine if there has been increase or not will be the following:

• Onerous transmissions (such as the purchase of a home): the deeds determine the existence of an increase in the value of the land. If the corresponding regional administration has checked the value of the same, then it is this value to be referred.
• Free transfers (such as donations or inheritances): it will be the real value for the Inheritance and Donations Tax (the one set according to the method of each regional administration).

Thus, the taxable base of the municipal goodwill is constituted by the increase of the value of the land, evidenced at the time of accrual and experienced over a maximum period of 20 years, and it will be determined by multiplying the value of the land in the accrual period by the coefficient corresponding to the generation period (the number of years from the acquisition of the land to the date of its transmission).

The coefficient to be applied to the value of the land at the time of accrual will be that corresponding to those approved by the city council according to the period of generation of the increase of value.

The municipal surplus value, in a legal vacuum

Since the Constitutional Court (TC) last May overthrew the tax on municipal surplus value when the property was sold with a loss, the collection of this tax is in a legal vacuum. Until the Government has finally approved the amendment of the Local Finance Regulatory Law (LHL), the settlements issued by the regional administrations are being considered null by the courts. And it is the new rule which must determine whether there has been a profit or loss in the sale.

Specifically, the ruling of the TC of last May 11 declared unconstitutional and null articles 107.2 and 110.4 of the LHL, articles that have been modified in the Bill, because they taxed taxpayers in cases where the land was transmitted in losses, and therefore no economic capacity existed.

At the same time, the Constitutional Court stated that the way of determining whether or not the increase in the value of the land is only a matter for the legislator. Hence, the bill has already been approved and will come into force in a few months.