Plusvalia tax
A resolution from the Constitutional Court dated 26.10.2021 has made null and void certain articles of the Plusvalia tax Act where the method of calculations of the tax was established.
What is the plusvalía tax?
This tax becomes due upon the transfer of urban properties and levies in theory the increase in value of the plot of land on which the property was built since the last transfer of ownership.
Who is responsible for the payment of the tax and which body can claim it?
By law the plusvalia tax has to be paid by the vendor in case of purchase and sale, by the heir in case of inheritance or, by the donee in case of gift. The tax has to be paid to the Local council where the asset is located or to the body that is in charge of collection of the tax on behalf of the Local Council.
How was this calculated?
The tax was calculated taken the ratable value of the land (construction not included) at the time of the transfer. On this value a coefficient was applied which is calculated taken the years the property has been in the name of the owner and on this value a tax rate was applied.
Resolutions from the Constitutional court affecting the tax.
There have been 3 resolutions from the Constitutional Court affecting the plusvalia tax.
1. Resolution from the Constitutional Court 59/2017 of 11th of May where it was established that no plusvalia tax had to be paid if there had been no gain in the transfer of the property, that is when the price on the sale is lower than the price for which the property was purchased
2. Resolution from the Constitutional Court 126/2019 of 31st of October where it was established that plusvalia tax could not exceed the gain received due to the transfer of the property.
3. The recent resolution from the Constitutional Court 182/2021 of 26th of October whereby the method of calculation has been made null and void, thus the tax really has been struck off for a certain period.
All of this is based on the argument that due to the method of calculation which does not compare the real value of the land at the time of the purchase and sale but just works it out taken the ratable value of the plot at the time of the transfer, the tax was not levying the real increase in value. The tax was then payable in all transfers even when there was a loss which was often the case due to the economical crisis when properties were sold for a price lower than the purchase price or when there was very little gain.
Despite the two first resolutions from the Constitutional Court there had been no changes to the plusvalia tax Act, and thus plusvalia taxes were paid when there were no gain or exceeding the gain, therefore the third resolution resolves to declare the articles regulating the method of calculation unconstitutional and therefore null and void.
New Regulations affecting the plusvalia tax.
There has been a quick reaction by the Government and on the 9th of November the Royal Decree 26/2021 of 8th of November came into force establishing:
That no plusvalia tax will become due if the owner has suffered a loss.
That in case the owner has a gain due to the transfer of the property a new method of calculation is applied.
The gain or loss is established by comparing the sale’s price and the former purchase price of the land value (construction not included).
If the plusvalia tax becomes due because there is a gain the tax payer can choose between the two following methods of calculation, whichever is the lowest:
1. The calculation is based on the ratable value of the land as shown in the local receipt (construction excluded) at the time of the transfer. On this value certain coefficients are applied depending on the time the property has been in the hands of the owner. On the resulting amount the tax rate is applied.
2. The calculation compares the sales and purchase price of the land (value of the construction not included). On the resulting difference the tax rate is applied.
At present the Royal Decree has established maximum coefficients and tax rates but the final coefficients and rates will be fixed by each Local Council.
The Supreme Court has resolved in a judgement of 28.02.2024 that any assessment rendered when a loss has been produced as result of the transfer of the property can be applied, even if the assessment could not be challenged for the lapse of the statutory period to claim the undue tax. These assessments are considered null and void and there is no statute of limitation to claim the refund of the tax.
How does this new Regulation affect transaction where there is a transfer of property?
1.-Transaction signed before 26th of October, 2021.
If the plusvalia assessments have already been rendered by the Council and paid these are considered null and void and there is no statute of limitation to claim the refund of the tax.
2. Transactions signed between 26th of October and 9th of November 2021: No plusvalia tax can become due as the Tax Act regulating the method of calculation was declared null and void and the new methods of calculation are valid only from 10th of November onwards.
3. – Transactions signed from the 10th of November onwards.
The plusvalia tax will be regulated according to the new Royal Decree 26/2021 of the 8th of November and plusvalia tax will become due if there has been a gain, the tax payer having the possibility to choose the method of calculation. However, no assessment will be received until the Local Councils approve their own regulations with the coefficients and tax rates to be applied.
If you need any advice as to whether a transaction you have recently carried out can be made null and void and the Plusvalia Tax not paid, please do not hesitate to contact us.
Rafael Berdaguer Barbadillo
Abogado
rberdaguer@berdaguerabogados.com
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Copyright © 2021 revised April, 2024 Rafael Berdaguer Barbadillo. All rights reserved