News about the “Plusvalia Tax” charged by Municipal Town Halls has been flooding the newspapers and the television.
According to the Spanish Constitutional Court judgment on 16th February 2017 the “Plusvalia Tax” that has been charged on real estate transfers where no enrichment of assets has been achieved, is considered to be unconstitutional, as it cannot be justified that it concurs with its purpose when there is no real increase in the value of the land.
Below we itemise the basic points relating to this Municipal Tax:-
What is “Plusvalia” and how is it calculated?
It is a tax based on the increase in the value of urban land. It is a Local Council Tax and is calculated using the cadastral value, which appears on the IBI (rates) receipt. Even if you own an apartment in a block where you have no land, you would be liable to pay proportionally for your share of the land on which the whole block or urbanization is built.
The calculation for this tax is based on two elements. The first corresponds to the increase in the value of the land at the time of sale or at the date of death.
The second element that is implemented is the approved tax rate in each council, this varies in each municipality.
Who is liable to pay this tax?
The responsibility for payment can fall on an individual or a legal entity any time real estate changes hands. In the case of an inheritance, the heir or heirs would be liable to pay it, whereas in the case of a sale, the vendor/s would be obliged to pay.
Why is it considered to be unconstitutional to pay “Plusvalia” on every real estate transfer?
Due to the economic crisis, many property exchanges have transpired where the real value at the time of the transfer is actually lower than the value was when it was acquired. Therefore, there is a good chance that a claim for reimbursement would be successful as no financial benefit has been achieved in the operation due to the fact that the value of the land in reality has not increased. This is the fundamental point on which the Constitutional Court based its decision, under article 31.1 of the Spanish Constitution.
When and how to claim back the “Plusvalia Tax” paid?
If the “Plusvalia Tax” was paid and it is less than four years since the date of payment, you can demand that the Local Council review the amount paid and request a refund.
In all likelihood the Local Council will refuse the request, which would be the end of the administrative route, so you would then need to appeal to the Administrative and Economic Municipal Tribunal, thereby initiating the legal process which should result in a more positive resolution under the Constitutional Court's recent ruling.
José Manuel Garzón – Senior Partner
Axarquía Solicitors is part of Marbellasolicitors SLP, a group of bilingual lawyers and tax experts that have more than 15 years experience assisting foreign buyers and vendors in Andalucía, both on the coast and inland.