'Plusvalía' tax should not be charged if a property loses value

Thousands of people will now be able to claim a refund.
Thousands of people will now be able to claim a refund. / SUR
  • The Constitutional Court has decided that the law needs to be changed to stop councils applying this land added-value tax whenever a property changes hands

The Constitutional Court has finally issued its anxiously-awaited ruling about the ‘plusvalía’ tax, applied by all councils in Spain, finding in favour of the taxpayer: it says it is unconstitutional for the tax, based on hypothetical changes in land value, to be charged where a property is sold for less than it was purchased.

The court decision, which was unanimous, has opened the way for an avalanche of similar claims by people who have had to pay this tax in the past four years.

The decision is dated 11 May and it refers to a case lodged in Jerez in September last year, by a developer who bought land in 2003 to build 73 houses. The project ran into difficulties and Unicaja repossessed the properties, judging them to be worth 50 per cent of their original value. Nevertheless, Jerez council still charged the developer ‘plusvalía’ land added-value tax on the transaction.

Upon hearing the court decision, the minister for Finance, Cristóbal Montoro, said that the court decision had come “at an interesting time,” because the government is already looking into council financing, and that the cancellation of this tax in certain cases is “an opportunity to improve the taxation system.” However, the Hacienda tax authority is unlikely to be enthusiastic about the change, because it will mean lower income for councils and will therefore affect their budgets.