Investing in the renovation of a dwelling is common practice: replacing installations, modernising bathrooms, or even carrying out a complete redistribution. However, an important question arises: can such renovations reduce the municipal capital gains tax payable upon the future sale of the property?
The Spanish Tax Authority’s official response
The General Directorate of Taxes (Dirección General de Tributos, “DGT”) has recently addressed this issue in Binding Ruling V0977/2025, dated 9 June 2025.
In the case considered, an individual purchased a dwelling for EUR 180,000. Shortly thereafter, the individual undertook a full renovation valued at EUR 80,000.
When the time comes to sell, should the EUR 80,000 renovation expenditure be added to the acquisition price in order to determine whether or not there is an increase in the value of the land for the purposes of the Tax on the Increase in the Value of Urban Land (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana, “IIVTNU”)?
What the DGT says about renovations and land value tax
The DGT has made it unequivocally clear: the answer is no. Investments in renovations or improvements are not taken into account in determining the acquisition value of the land.
In other words, in order to assess whether or not there has been an increase in the value of the land (which is what gives rise to the municipal capital gains tax), one must only compare the acquisition value—i.e. the purchase price of the property (EUR 180,000)—with the transfer value—i.e. the amount received upon sale. This is because the IIVTNU does not measure the revaluation of the building as such, but solely the change in the value of the urban land during the period of ownership by the taxpayer.
Key takeaway: renovations don’t reduce IIVTNU liability
Accordingly, although renovation works may increase the market value of the property, they do not alter the calculation of the municipal capital gains tax.
