MUNICIPAL PLUSVALIA PROPERTY TAX IN SPAIN
In addition to any mainstream capital gains tax on the sale of a property in Spain, there is also a local tax IN URBAN AREAS, called plusvalía (which literally transaltes as “gain”) is a local (municipal) capital gains tax on the property in Spain, charged by the town hall on properties when they are sold. It is base don the growth in the value of urban land (excluding the buildings).
It is calculated on the rateable value of property and the number of years that have passed since the property was last changed hands.
The objective is to tax the increase in the value of the URBAN land on which the property stands, some of which is due to improvements to the area carried out by the local government and the community at large.
The base for this tax is the valor catastral (an administrative value that is sometimes lower, or higher than the market value, sometimes considerably so) of the property. The amount due in tax will depend on how long the seller has owned the property: the longer the period, the higher the amount of tax.
The real growth in value of the land is reflected by the allowance of a realistic allowance for inflation, unlike the token allowance in Spanish mainstream capital gains tax.
The tax rate varies depending upon the size of the local population and the length of ownership. For a town of more than 100,000 inhabitants the minimum tax rate is 20 per cent and the maximum 30 percent, with the town hall fixing a rate within this.
Any Plusvalia tax paid is allowed as a cost of disposal in calculating the mainstream capital gains tax.
Who pays the plusvalia tax in Spain?
In theory the vendor, though both parties are free to negotiate who pays it. During the real estate boom in Spain, when vendors had all the negotiating power, it was reasonably common for buyers to agree to pay it, especially in areas like Andalucia. After the boom turned to bust, any vendor lucky enough to find a buyer is going to have to pay the plusvalía.
How do you pay the plusvalia tax in Spain?
You have 30 days from the date of sale to pay the plusvalia to the town hall.
If you are non-resident, the buyer may insist on withholding funds to pay the plusvalía on your behalf, as the new owner would become liable for the plusvalía in the event of non-payment (i.e. if a non- resident does a runner without paying).
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.
PLUSVALIA TAX PAYMENT WHEN THE ACTUAL VALUE OF CONVEYED PROPERTIES HAS DECREASED
Currently, as a result of the existing conditions of real estate market, the sale price of a real estate property may be below the purchase price or slightly above it.
As regards of these situations and in connection to taxes to be paid when selling a property in Spain, it is necessary to clarify that the increase in urban land values is the first element of the taxable event of the local tax on the increase in urban land values (Spanish acronym I.I.V.T.N.U.), commonly called PLUSVALÍA. Thus, in the event of no increase, no tax may be applied,
despite the content of the objective rules for the calculation of the tax provided by Article 107 of Spanish law regulating local taxation (L.H.L.), since no tax liability may arise when an essential element of the taxable event is missing.
The legal liquidation system does not preclude that the taxpayer proves in the specific case that the application of the calculation methods by the Tax Administration leads to unrealistic results. On the other hand, regarding the formula of Article 107 L.H.L., the Supreme Court ruling dated 22nd of October 1994 was conclusive when maintaining that this article was subsidiary, defending and safeguarding taxpayers. According to this Judgment “legal regulations only provide a rebuttable presumption, which is subject to be distorted in each particular case by appropriate and sufficient evidence in the above terms for the taxpayers and in conformance with the provisions of Article 385 of the Spanish Civil Procedural Law. This reasoning, in regards of the actual increase in value(plusvalía) from property sales leading to non-taxation, was also highlighted by the Supreme Court in the Judgment dated 29th of April 1996 and the Judgment dated 22nd of September 2001.
However, a recent Judgment from the High Court of Justice of Catalonia dated 18th of July 2013 also pronounces undoubtedly the fact that town councils cannot charge the plusvalía tax in the event that it does not exist, since the Judge states that when an essential element of the taxable event is missing –as for example obtaining a profit from a property sale—no tax liability to pay plusvalía tax may arise.
Recently, it is being confirmed an increase of court rulings admitting taxpayers’ appeals against tax liability in the event of loss of assets. In the words of Pablo Chico de la Camara, Professor of Financial and Taxation Law: “the caselaw of the Constitutional Court confirms the impossibility to tax a nonexistent taxable wealth by the local authorities”. This situation may occur when the transferor may certify the loss of assets on the occasion of a land conveyance. It is clear for the Supreme Court that the nonexistence of increase in land values precludes the application of the Plusvalía tax.
To sum up, the objective absence of increase of land value may lead to non-taxation, as a result of the nonexistence of the taxable event, since the legal contradiction cannot and should not be resolved in favour of the “calculation method” and to the detriment of the economic reality. Consequently, it would mean the ignorance of the principles of equity, justice and economic capacity.
These same conclusions shall be applied when an increase of the value occurs and the amount of this increase is proved to be lower than the result of applying this calculation method, being the same principles infringed.
These conclusions, which are already supported by several doctrinal criteria and caselaw, shall be considered as unquestionable at present, in view of the aforementioned economic reality.
In SHORT: when it is certified and proved in a specific case that there has not been an economic and actual capital gain from a property sale, the payment of the Plusvalia tax (I.I.V.T.N.U.) shall NOT be required by town councils.
But the reality is that Town Councils are still requiring the payment of this tax despite properties are sold at a loss, so that the judicial procedure is the only chance in this case for taxpayers to “tackle” the payment of this tax. However, when the resulting plusvalía tax payment is relatively low, it is not worth taking legal actions, due to legal costs.
For those who decide to claim, we understand that there are sufficient legal and solid arguments to obtain a favourable judgment.
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