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Constitutional court confirms that 'plusvalía' tax is illegal if the value of property sold falls

The 'plusvalía' tax is a significant part of income received by town halls.
The 'plusvalía' tax is a significant part of income received by town halls. / SUR
  • The sentence confirms recent decisions by judges across Spain and threatens a key source of town hall income to fund public services

The top court overseeing the interpretation of the Spanish constitution has ruled that a big part of the money raised by town halls through 'plusvalía' tax is illegal.

The 'plusvalía', whose official title is Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU), is levied by councils when a property being sold has increased in value.

However, councils base the calculation of the amount to pay on the official rateable value of the property rather than the real value. Since the economic crisis forced prices down, many properties are now well below this official value, but this has made little difference to town halls who have continued to charge the tax at the outdated value.

The new ruling by the Tribunal Constitucional in Madrid confirms decisions by courts across the country. It says that the calculation method is illegal under article 31 of the Spanish constitution, which says a person can only be taxed to support public funds according to their ability to pay.

The decision throws council finances into chaos. According to official data, 135.7 million euros were collected by local authorities in 'plusvalía' tax in 2015 in Malaga province.

Consumer groups are advising sellers to still pay the tax for the moment then raise a formal complaint afterwards with the town hall to demand a refund.