Once again the Spanish courts have been in the news following a landmark ruling affecting most people who either own a property in Spain or who have sold one in the last 4 years.
For many of us however, the news has created more questions than answers.
What is Plusvalia? How might it have effected me? What should I do if I think I have been left out of pocket?
This article is intended to answer most of those questions.
What is Plusvalia?
Before we explain ‘Plusvalia’ we quickly need to clarify another term; “Catastral Value”.
The ‘Catastral Value’ of a property is set by the local town hall and is used as a base for calculating taxes related to the property. This value will typically be increased by the town hall every year. ‘Plusvalia’ is dependent upon the catastral value of the property.
Correctly titled the ‘Tax on the Increase in Value of Urban Land’ (Impuesto Sobre los Terrenos de Naturaleza Urbana), ‘Plusvalia Municipal’ is a tax levied by the local authority and payable by the vendor of real estate upon its sale.
The tax is calculated by applying a coefficient to the ‘catastral value’ of the property at time of sale, and it increases according to the number of years (between 1 and 20) that the property has been owned by the vendor.
Plusvalia therefore, despite being a form of capital gains tax, is not calculated using the difference between purchase and sale price of the property. It depends upon (and increases along with) the number of years that the property was owned by the vendor.
What was the problem?
Following the financial crisis, the market value of property fell dramatically. At the same time local authorities needed to find ways to help replace their lost revenues and in many cases they increased catastral values in order to increase tax income. This led to an unfair situation; many people were paying a tax upon the increased catastral value of their homes despite the fact that, in reality, they had lost money having sold their property at a loss.
Inevitably court cases followed.
The Court’s Judgement
(The first bit of this section is quite technical so please feel free to skip to the last paragraph if you just want to know the outcome!)
The Judgement of the Constitutional court on May 11th, 2017 deemed that articles 107.1, 107.2 (a) and 110.4 of the consolidated text of the Local Finance Regulatory Law are unconstitutional, but only in so far as they make subject to taxation situations where there is no real increase in wealth. The objective calculation of tax using catastral value and an elapsed period of time is contrary to the principle of economic capacity provided for in article 31.1 of the constitution, in so far as the tax is not linked to an increase in the value of a property “but to the mere ownership of property over a period of time”.
The outcome put simply: the court stated that it is unconstitutional to tax somebody for an increase in wealth when there has, in fact, been no increase in wealth.
What does this mean for me?
If you sell, or if you have sold a property in Spain in the last four years, either at a loss or with no capital gain, then this judgement is relevant to you.
If you are selling a house
If you are selling a house at a loss, or for the same amount you paid for it, then following the judgement you will not need to pay Plusvalia, however, different town halls are applying the judgement is different ways.
Some town halls are requiring that the vendor presents a written justification as to why they are selling at a loss in order for the tax to be extinguished. Other town halls are requiring that the tax be paid at the point of sale and that the vendor then apply for a rebate.
We recommend that if you are selling a property you take the advice of a Spanish lawyer and, if you are selling at a loss, make sure that you advise your lawyer that this is the case so that they can take the necessary action regarding the plusvalia tax.
Our in-house legal team have been dealing with property conveyance since 1997 and if you do not already have a lawyer please contact us and we will be happy to advise you. We offer a free initial consultation.
If you have sold a house at a loss
You are entitled to claim back the plusvalia tax from your town hall. The statute of limitation will however restrict claims to those who sold a house within 4 years of the start of a claim (therefore, if you sold just under 4 years ago you will need to move quickly).
Before making a claim you will need to establish whether or not the claim is worth while. If you only paid a couple of hundred euros in plusvalia, it may be that the cost of lodging a claim will outweigh the benefit, especially if the claim is denied by the town hall and there is a requirement to go to court (cynically one might suspect that the town hall may deny smaller claims, specifically to drive up cost and put people off of claiming). If the claim is for a higher amount then the claim may well be worth pursuing.
In either case we suggest that you employ the services of a Spanish Lawyer to assess the value of the claim, and the likelihood of its success (given their knowledge of different town halls) and from there make a decision as to whether or not to move forwards.
If you do not already have a lawyer please contact us and we will be happy to advise you, our in-house legal team have been dealing with property conveyance since 1997.
We offer a FREE initial consultation, please contact us using the form below for more information:
I hope that this information is useful however please feel free to contact us if you have any questions?
by James Brinton of Laddr International based upon the original attached Spanish article written by Serafin Sanchez – Abogado – Laddr International.
About Laddr International
With offices in San Javier and Cartagena, Laddr international’s in-house legal team have decades of combined experience in property and banking law.
Our English speaking team can help with:
- Conveyancing package for buyers and sellers.
- Help with registering as a resident in Spain.
- Drafting and registration of Spanish Wills.
Our specialist legal team are also constantly monitor the Spanish courts and legislature to stay abreast of any changes to the law which may be relevant to our clients, past, present and future.