Current situation on the plusvalia tax in the Spanish conveyancing system
The plusvalia tax is a complex and delicate issue from a legal point of view. Below, I have tried to give a simplified summary of the current situation. I also give my adive if you are concerned by this issue.
What is the plusvalía tax and how to calculate it?
The plusvalía tax is a local tax that is paid to the local town hall when urban land is sold.
Its correct name is Urban Land Increase of Value Tax. It is basically a tax on the increase of the land value since the last change of ownership. For example, if you sell an apartment part of the price is a proportion of the urban land. The way to calculate the increase of the land value is applying a percentage to the current “Catastro” value. The «Catastro» is a tax registry of properties. After that yor apply the tax rate. That percentage is found by multiplying a coefficient by the total number of years you have owned the property.
According to the law, this is the only way that this tax can be calculated. Thus it is clear to see that according to the law there will always be an increase of value. Therefore there always is a tax to pay. This is because the tax calculation method. This method do not take into account at all the real increase or decrease of the land value. So the law states that if you own an urban property for some time you will always have an increase of value when selling it.
Many properties were and still are sold at a loss because of the real-estate crisis
Due to the real-estate crisis many properties were sold for less than they were originally purchased. This fact highlighted the injustice of the plusvalía tax. It seems obvious that selling for less price than the pruchase one means a loss. But it is not obvious for the tax office.
Spanish Constitutional Court has declared some provisions of the plusvalía tax law null and void
As the unfairness of the tax became so obvious the issue finally reached the Spanish Constitutional Court. The Court then had to decide on whether the tax was fair or not. It subsequently decided that it was not just. And made a number of provisions of the aw null and void.Specifically the method used to calculate the plusvalía tax. But only in cases where the tax is liable to be paid when the land value has not increased. Also, the provision stating that the tax payer was never allowed to produce any evidence showing the real increase or decrease in the value of the urban land sold. The reasons these provisions were made null and void was because they infringe the constitutional economic capacity principle that all taxes have to respect.
Nevertheless, this ruling caused a lot of confusion about its scope and how to apply it. So, from this point, some courts decided to make every single plusvalía tax liquidation null and void regardless of whether or not there actually was an increase in the value of the land as their understanding was that the tax calculation method had been made null and void completely. Yet, on the other hand, other courts understood that the town halls were able to liquidate the tax when the land value had in fact increased (which according to the law is always) and, therefore, the taxpayer has to prove if this was not the case.
Supreme Court rules on the Constitutional Court’s interpretation
As there was no clear agreement, the Spanish Supreme Court clarified the situation. And it did. It then declared that the correct version is the one that says town halls can charge the plusvalía tax when there is real increase in the value of the land. But, as the law will always expect an increase in the land value due to its calculation formula, then it is up to the taxpayer to show evidence that in that specific case the land did not increase in value. When the vendor sells his property for less than what he purchased it for, it is obvious in the difference in purchase and sale prices that there is no increase. Despite this, the safest way to prove that there was no increase to the value of the land is by via a technical report.
Is the matter definitely closed?
Not at all. The Spanish Supreme Court is still yet to decide on another key issue regarding this tax, namely the legality of the calculation formula to find out the increase of the value. So, we are now waiting anxiously for the court’s verdict. If the Spanish Supreme Court rules that the calculation method is illegal, then all the tax liquidations will be null and void. Every single one of them. And that would very good news for taxpayers but a real mess for the town halls.
So, what should I do if I am liable for this tax now?
For me, that depends on the amount of tax bill. In the case that the land value has not increased, you can challenge the town hall. If the purchase price was higher than the sale price, it will be easy to present evidence proving this. But, even in this case, the town hall may still try to argue and therefore, a technical report will be necessary, and this will result in further technical and legal costs. This is the reason that I suggest to ground your action on the amount figured in the tax bill. Otherwise it can be worth just paying it I a am afraid.
As you can see from the complexity of this matter and the issues that have ensued, it is especially advisable with this subject to seek the professional advice of an independent lawyer to make the best decision.
Thank you for your time and attention and I hope this information is of use. You are very welcome to share if you liked it.
Please, note that this is general information. This is not specific legal advice. It is advisable to seek legal advice for any specific legal issue.