End of the Plusvalía (Capital Gains Tax)? (Don´t be so sure …)

The Spanish Constitutional Court has issued a press communicate informing about a sentence which declares unconstitutional “the objective system in place to calculate the tax (…) because it states that there’s always an increase in value when a land ownership is transferred, disregarding whether if there has been an increase in the value and its quantity.”

The sentence (about to be published this Friday, October the 29th 2021) declares unconstitutional and null the articles 107.1, second paragraph, 107.2.a) and 107.4 of the rewritten text of the Spanish Ley reguladora de las haciendas locales (RD Legislativo 2/2004, de 5 de marzo), because it establishes an objective municipal capital gains tax base method that determines there is always an increase of the value of the land in the period subject to the taxation, disregarding whether if it really has been an increase and its quantity.

That is to say, the calculation method ignores if in a dwelling transfer of ownership there has been a loss in the selling, and if there have been any real gains.

The Spanish Tax Ministry has ensured that they will review the tax so that it complies with the constitution (and carries on being a core part of the municipal funding). 

What is Capital Gains Tax?

In Spain, Plusvalía is not the real name of the tax, but its popular name. The oficial name is a bit more complicated: Urban Land Nature Value Increase Tax (impuesto sobre el incremento del valor de los terrenos de naturaleza urbana: IIVTNU).

Roughly, the capital gains tax charges the appreciation in value of the urban land which any real estate property is built over, being the result of the difference when it was acquired and the moment it is sold.

Who pays it and who collects it?

There are three kinds of transmission. If there is a Sale, it’s the seller the one subject to pay the tax, who is allegedly the one enjoying the capital gain. In a donation, the one receiving the donation is required to pay the “plusvalía”. Last, in the event of a bequest, it is clearly the one inheriting who is required to satisfy the tax.

This is a national law depending from the Spanish Ministerio de Hacienda. Notwithstanding, this is a tax collected and managed by town halls and in some occasions, the Provincial government.

What has the Constitutional Court ruled?

Currently, and up to its publication, when all the details will be known, the court has ruled as unconstitutional the method of calculation of the capital gains tax base.

The press release gathers the third sentence against the tax calculation, the first one in 2017, when it was declared unconstitutional to pay the tax when there has happened a loss of the value of the real estate. A second sentence ruled out those cases when the amount to pay as a capital gains tax was bigger than the increase of the value itself.

The method of calculation is based on the value stated at the IBI (property tax) and it results of a percentage depending on the number of years passed since the acquisition … hence the outcome is always to pay some amount, this is the calculation method being ruled out by the Spanish Constitutional Court.

This tax is Paramount for the town hall funding in Spain. It is the second own tax of the municipal entities after the Property Tax (Impuesto de Bienes Inmuebles: IBI)

The ministry has informed that they are working on a draft for the tax that will “grant the constitutionality of the tax and will offer both law and order to the tax payers and city councils”

 

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Escrito el 28 Oct 2021 Por marbella360