Plusvalia tax: when selling does not mean gaining
The Plusvalia (Tax on the increase in value of urban land) is a local tax levied on the transfer of a property, whether it is a sale or an inheritance. This tax is calculated on the basis of the cadastral value (Valor Catastral) of the property and is also based on the number of years the property has been in your possession.
There has been an on-going debate regarding this tax since the property market in Spain dropped, meaning that most of the properties’ value have now either been devaluated or remained static.
This tax is regulated in the Spanish Royal Decree 2/2004, 5th March. Article 104.1 of the Decree, in summary, estates as follows:
“The Plusvalia is a direct tax levying the increase of value of urban land that is generated due to a change of ownership or any type of transmission”
Prior to the landmark ruling from last 11th of May, any home-owner had to pay Plusvalia tax regardless if the transaction has meant a loss or a gain. This did not mean any problem when the Spanish´s market was booming but in the past years people are claiming the unfairness of paying this tax when they do not perceive any profit.
Since the aforementioned ruling the Spanish Constitutional Court has established that vendors will no longer be liable to pay Plusvalia tax when they sell the properties with a loss.
The decision does not mean that the tax will not be charged, the only change is that the charging will not happen automatically as now each transaction will be verified considering the circumstances.
The Court´s decision is not clear regarding possible claims from vendors who had paid the tax even when the sale did not imply a gain. However, there are two case-scenario where a claim can be issued:
- When the Town Hall issued the tax, you claimed against it and the appeal is still unresolved.
- If it was the vendor who requested the tax´s payment, within the following four years since the payment letter was issued.
The claiming process is complex and we highly recommend seeking for legal assistance as it will be a case-by-case process to study if it worth to get into the Tax claim.