Plusvalia tax overturned by Spain's Constitutional Court

Raymundo LarraĆ­n Nesbitt, November, 2. 2021

Lawyer Raymundo Larraín briefly explains the high court’s landmark ruling.

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By Raymundo Larraín Nesbitt
Lawyer – Abogado
27th of October 2021

Yesterday 26th October 2021 it was announced that Spain’s Constitutional court declared null and void a series of articles which in practice translated into eliminating plusvalia tax. The exact details of the ruling remain unknown as it has still not made public but is expected to be released within the next days.

  • Plusvalia tax is one of two taxes owners pay on selling property in Spain (along with capital gains tax). We explain this in detail in our taxation article: Taxes on selling property in Spain – 8th December 2014
  • Plusvalia tax is also paid on inheriting property in Spain (along with inheritance tax). We explain this in detail in our taxation article: Spanish Inheritance Tax for Non-residents (Part I) – 8th March 2016

 

Plusvalia tax had been under flak over the last 4 years by the Constitutional Court which had declared in no less than four occasions that some parts of the law were annulled. The most prominent ruling was one which basically declared it void when seller’s sold property at a loss in Spain. In such a case, sellers could file a tax rebate on it. We published a detailed article at the time: Selling property at a loss in Spain: ‘Plusvalía’ tax no longer payable – 18th May 2017

However, the significance of this week’s ruling is simply groundbreaking. On this occasion the articles that have been annulled are of such relevance, that in practice make it impossible to calculate the tax; and therefore, to all intents and purposes, plusvalia tax has been suppressed.

Plusvalia tax raises every year over 2.5bn euros in revenue and municipalities (read town halls) are heavily reliant on it to finance themselves. The elimination of this tax will no doubt endanger the finances of thousands of town halls across Spain.

The tax office has wasted no time to announce that it will review the tax urgently, in light of the Constitutional’s Court ruling, and reinstate it as soon as possible.

Where does this leave us?

It means that if you are selling property or inheriting in Spain – and only for the time being – you do not need to pay plusvalia tax, at least in theory.

However, in practice, as we still have no access to the ruling itself, I strongly recommend plusvalia tax is paid. Once the ruling is out and made public, your appointed lawyer can then file a tax rebate clawing it back. I think it is only prudent. Bear in mind the tax itself has not been annulled; what has actually been declared void is how to calculate it, which is different. So, in purity, the tax obligation is still very much in force by local administrations but it cannot be calculated in practice. I know, clear as mud.

The bottom line is to pay first and then file a tax rebate on the back of this week’s high court ruling. I hope that clarifies.

Retroactivity?

This ruling has no retroactive effects.

However, that said, I’m pretty confident some colleagues will fight their corner and try to force retroactive effects on it.

But as of right now, it has no retroactive effects. Meaning that anyone that sold property or inherited prior to this ruling being published needs to pay this tax.

However, all those selling or inheriting after the ruling is published, will be exempt from paying plusvalia tax, at least for the time being.

Is this tax change permanent?

Not by any means. Town halls are hugely dependent on this tax to finance themselves, so it must be reinstated or else a new tax needs to be urgently approved to replace it and plug the budgetary void its absence will create.

As stated above, the Spanish Tax Office is already busy working to reinstate the plusvalia tax as soon as is possible. The window of opportunity to be exempt from paying this tax is slim. Perhaps only a matter of weeks, or months at most.

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Article originally published in Spanish Property Insight on the 27-10-2021: Spain’s Constitutional Court eliminates Plusvalia Tax on property

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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