Selling property at a loss in Spain: ‘Plusvalía’ tax no longer payable

Raymundo Larraín Nesbitt, May, 18. 2017

Lawyer Raymundo Larraín Nesbitt explains to us the relevance of a new ruling from Spain´s Constitutional Court that affects all vendors of Spanish property, including non-residents. Specifically, vendors selling property at a loss and how they can claim back a full refund on their Plusvalia tax, plus legal interests.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
Thursday 18^th of May 2017

Following up on my blog posts from March 2017, Spain’s Constitutional Court rules ‘Plusvalia’ tax is illegal if property is sold at a loss and Recap of Legal Actions in Spain against Banks & Others, Spain’s Constitutional court in a new landmark ruling from last 11^th of May stated that the ‘plusvalía’ tax can no longer be charged by town halls when a vendor sells a property at a loss. This ruling has nationwide effects.

In plain English; no profit, no taxation.

I strongly recommend my blog posts from March are read in tandem with this other post to fully understand the new tax situation.

As a quick recap, on selling property in Spain, a vendor is liable for two taxes (you can read further in my article Taxes on Selling Spanish Property):

Capital gains tax (paid to regional Authorities).
‘Plusvalía’ tax (levied by town halls).

Regarding the first tax, capital gains tax, I had already covered in a detailed article the consequences of receiving a ‘Complementaria’ or Bargain-Hunter tax and how to appeal it successfully. I won´t mention it further in this post.

Today´s blog post will focus on the second tax listed above; the so-called ‘plusvalía’ tax. On selling, property vendors need to pay this tax as a result of the increase of value in the land to the town hall where the property conveyed is located. If there is no increase in value it stands to logic no tax should be collected, right? Wrong!

Town halls have fought tooth and nail to avoid this as they are overdependent on this local tax. This tax constitutes in most cases their main source of income. Only last year over 140 million euros were collected in Malaga province alone.

In March’s blog post I explained how the Constitutional Court ruled that some articles of a regional law from the Basque Country were deemed unconstitutional. The wording used in that regional regulation was in fact a blatant copy of a national law, word-for-word. So, it stands to logic I argued that if the court declared it was unconstitutional for the Basque Country it follows that its null and void effects should also be made extensive nationwide; which is exactly what´s happened two months on.

The new key ruling from 11^th of May has done just that. Spain’s Constitutional Court has declared, with nationwide effects, that when a vendor sells a property at a loss they are no longer liable to pay plusvalía tax.

Before you put the champagne on ice, please continue reading for the small print…

Practical Effects of this New Ruling

All vendors who sold property at a loss as from May 2013 can now request a full refund of plusvalía tax plus legal interests on top (a lawyer needs to be hired).
It is estimated over 550,000 vendors qualify for this refund since 2013.
Refunds on average stand to be in excess of €1,000.

Does that mean I no longer have to pay this tax on selling at a loss?

No. You will be expected to pay this tax on selling a property whether you have made a profit or not on selling property.

Hang on, you just said that on selling at a loss you no longer had to pay this tax! This is as clear as mud!

The law has still not been amended. Spanish Courts cannot rewrite tax laws but may declare them null and void. Tax laws need to be formally repealed, redrafted and enacted by Congress. It may take a while until a consensus is reached on new legislation and is formally approved by all political forces.

In the meantime, town halls, despite all these rulings from Spain’s Constitutional Court, will continue to exact from vendors the plusvalía tax as if nothing had changed.

As I wrote back in March, town halls are heavily reliant on the plusvalía tax to finance their public coffers. Ruling or not, they will continue to demand this tax until a new tax law has been approved on the matter. Don´t hold your breath waiting.

What to do If you sold property at a loss after May 2013

To claim, you must first pay the plusvalía tax as normal.

Only once paid, can your lawyer then lodge an appeal to claw back this tax successfully. Following this new ruling from May, the chances to attain a full refund (plus interests) are now excellent (they were moderate back in March when I first wrote on the subject prior to this new ruling).

Timeframe to Claim

Unfortunately, vendors can only claim back tax dating the last four years as any tax collected before May 2013 is now time-barred. In other words, any vendor who’s sold a property at a loss since May 2013, and has paid plusvalía tax, is now entitled to a full refund. The vast majority of vendors paid on average €1,000 or more in plusvalia tax on selling at a loss.

Can I claim without a lawyer?

You can certainly try and fail. You need a lawyer, period.

How to Claim

The process is not straightforward as it requires the input of professionals. It does not suffice to show the difference between the buying and selling price in the Title deeds as it will surely be turned down by the Administration. You need to appoint a competent law firm to act on your behalf to claw back this tax. To appeal the tax successfully a technical report must be commanded to back the legal recourse.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in inheritance, conveyancing, taxation and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Blog post also published at Spanish Property Insight: Selling property at a loss in Spain: ‘Plusvalía’ tax no longer payable

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Related articles

Taxes on Selling Spanish Property – 8th December 2014
‘La Complementaria’ or Bargain-Hunter Tax – 8th May 2015
House Hunting in Spain – 17th June 2015. The New York Times
Non-Resident Taxes in Spain – 8th December 2015
Snagging List Explained – 28th October 2016
Energy Performance Certificate Explained – 7th November 2016
Selling Property in Spain – 10 Reasons to Hire a Lawyer – 8th December 2016
Spain’s Constitutional Court rules ‘Plusvalia’ tax is illegal if property is sold at a loss – 3rd March 2017
Recap of Legal Actions in Spain against Banks & Others – 21st March 2017
Selling property at a loss in Spain: ‘Plusvalía’ tax no longer payable – 18th May 2017
Have you sold property at a loss in Spain? You can now apply for a tax refund – 8th November 2017

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