EDITION: December 2021 - February 2022

Municipal capital gains tax is temporarily repealed

By Armin Gutschick & Anja Sämann-Gutschick
The Spanish Constitutional Court (“Tribunal Constitucional”) declared the method for calculating the “plusvalía tax” to be inadmissible as of October 2021. As a consequence of this the municipalities can no longer collect this tax for the time being.

The municipal plusvalía taxes the increase in the value of land in the event of a transfer, but the structures (buildings) are not considered. The legal definition of plusvalía is “tax on the increase in value of developed land” (“Impuesto sobre el incremento de valor de los terrenos de naturaleza urbana”). It is a municipal tax, so the proceeds are paid directly to the municipalities. If you want to determine the amount of plusvalia tax due in advance of a property sale, you can put the cadastral value of the property and dates of purchase and sale on the website https://www.foro-ciudad.com/plusvaliamunicipal.php. This will show you the current amount of tax to be paid.

Four years ago the Spanish Constitutional Court established a fundamental right to recovery of this tax in cases where a property was sold without making a profit. According to the court, in those circumstances the municipalities should not request a plusvalía. The Court’s decision mandated that repayment would only be for those cases in which there was no increase in value at all - not those in which the claimed increase in value was lower than assumed by the municipality. However, since the municipalities have their own calculation bases (cadastral value, number of years and coefficient), they do not use the difference between purchase and sales price as a standard (unlike income tax). So, in order to assert a claim for repayment, the taxpayer had to provide evidence that no increase in value was achieved between the acquisition and the current sale. They also had to prove that their claim had not yet expired (limitation period: four years plus 30 days after the transfer of the property).

This new judgment of the Constitutional Court declares that parts of the law which regulates the calculation of the tax base of the plusvalía are “unconstitutional and null and void”. The municipalities must take into account the real increase in value of the land on which the houseis being built. The final full text of the judgment has not yet been published, but for now the municipalities will no longer be able to collect these taxes until the legislature corrects the regulations. This means that the plusvalía will be temporarily deleted until the law is changed.

This ruling also gives taxpayers the opportunity to reclaim taxes that have already been contested. However, there are doubts as to the scope of how many claims this will affect. Most consumer advocates assume that the judgment only affects those cases in which an objection has already been lodged within the last four years. In addition, the judgment has no retrospective effect if the filing of an objection is barred by statute, or if it was rejected in the past. In many cases this prevents taxpayers from claiming the amount wrongly paid in recent years from the municipality.

In summary, it can be stated that the plusvalía may not be levied by the municipalities from now on until the law is changed. The judgment can be understood as an expression of displeasure with the legislature, which in the last four years has not managed to adapt the rules for calculating the plusvalía to be consistent with the applicable provisions on state profit and income tax.