Have you paid plusvalía tax on a property sold in Spain at a loss? You may be entitled to a refund!

The “Plusvalía” tax in Spain has been ruled unfair in cases where properties are sold at a loss

The “Impuesto Sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana” (IIVTNU) o Plusvalía Municipal”, is a local tax administered by Town Halls in Spain which aims to measure and tax the increase in value on an urban property when it passes into new ownership, either through sale of purchase or by any other means.

In essence it is similar to a capital gains tax, taxing the “profit” made by homeowners when they sell a property for a higher price than they paid for it.

However, the validity of this tax has been questioned for a long time, and even more so since many owners have been forced to sell their property in a loss situation. This has come about due to the decrease in property values during the economic crisis in Spain over a long period of time, as owners either find themselves forced to sell at prices lower than they paid.

This generally relates to properties purchased pre-2008, as the economic crisis began in the first quarter of 2008, when property prices started to fall.

Many owners who purchased off-plan have found themselves facing a bizarre situation; they purchased off-plan at a pre-contracted price, but by the time the property was completed the price had started to fall and the property was already worth less than the market value by the time it was completed.

Since then, values have fallen by between 30 and 55%, depending on the location and nature of the property.

This situation was further complicated by the volume of “black money” which had formerly changed hands in property transactions, when it was common practice for property to be declared at an inferior value, with a percentage of the transaction undertaken in a cash payment, effectively defrauding the authorities of legitimate tax revenue.

This means that many property owners are in possession of purchase documentation inferior to the value they actually paid for the property and are being hit hard by the Plusvalia taxation system.

In order to minimize fiscal evasion, the Spanish government introduced two measures; one, reducing the amount of cash legally permitted in any transaction to prevent fraud, and second, designing a system setting a minimum value for each classification of property, based on location and floor area, taking the values at the time the legislation was introduced. Since that point, property values have fallen considerably, meaning that many property owners who have been forced to sell for less than they paid have been unfairly taxed on profits that they have not actually made.

Also in some cases owners have also been forced to hand over their property in exchange for the cancellation of the mortgage debt contracted with the bank (Dación en Pago).

Many vendors have challenged the Plusvalía bill presented, and doubts over the validity of the “Plusvalía” were reinforced on 11^th May 2017 by the Constitutional Court, the highest court in the country, who reached a decision that "the tax on the increase in the value of land of an urban nature violates the constitutional principle of economic capacity, insofar as it is not necessarily linked to the existence of a real increase of the value of the asset, but to the mere ownership of the land during a period of time".

In other words, the way that the tax is designed makes it possible for those selling property to be faced with a bill even when the capital gain they are assumed to have made does not actually exist!

This is deemed to be in contravention of Articles 31.1 of the Spanish Constitution as well as Articles 107.1, 107.2a) and 110.4 of the law regulating the tax, and as a result the door has been opened for anyone who sold a property at a loss to claim back the amounts paid to their local Town Halls, always through the legal procedures established by Spanish legislation.

HOW TO CLAIM

The legal way to claim back tax of improperly paid tax is far from easy, and in this case is not exempt from problems, since the tax itself has not been eliminated: instead its application has been questioned, and the cases that should be exempt have been identified.

Assuming the transfer and the payment of the tax have been made, the first step is to submit a written request for rectification and refund of undue income to the local council which collected the tax, stating the amount paid, and presenting allegations, documents and evidence that justify the lack of profit as a result of the sale.

With this requirement we have opened the administrative channel, and the Administration will have to resolve the question raised. If the Town Hall does not comply with our request, we will have a deadline for a reinstatement and/or an Administrative Economic Claim to the corresponding Municipal Economic and Administrative Court in those places where it exists. The resolution of these resources by the Local Administration exhausts the administrative route.

If this does not provide satisfaction, we can initiate a judicial procedure, through the Contentious-Administrative Appeals Courts. The deadline for filing is two months from the end of the administrative procedure and must be addressed to the corresponding Superior Court of Justice. Here there is a greater chance of our rights being recognized and reimbursement being forthcoming.

Before initiating any claim we always recommend that each case is studied carefully for various reasons. Firstly, reimbursements are not always due, as it is necessary to prove beyond doubt that there was no profit made on the sale of the property, and in addition, it is not always worth appealing to the Courts of Contentious-Administrative Appeal due to the costs entailed. For these two reasons it is recommendable get advice from experts on this issue.

For further information, and for an analysis of your case, please do not hesitate to contact us at 1st Legal Services using the contact form or telephone number listed below.