Plenary session in October at City Hall. / MIGUE FERNÁNDEZ

Town halls fear for public services as Plusvalía tax is ruled unconstitutional

The levy on changes in land value when a property changes owners is based on fictitious values says the Constitutional Court


Local mayors in Malaga province are worried that they will have a huge hole in their budgets for next year and they may have to cancel vital public services following a landmark decision by Spain's Constitutional Court this week.

Town halls in the province are joining councils from across the country in asking the central government to urgently provide funds to plug the gap after the Court ruled the so-called 'Plusvalía' tax on increased land value was unconstitutional.

The tax is charged by the town halls when a property is sold, donated or inherited, and represents an important part of local government local tax income - second only to the IBI tax.

Revenues across Malaga province lost while the tax cannot be charged will amount to 170 million euros a year (based on the latest figures from 2019). Malaga city alone was planning for 55.2m euros income from this tax in its budget planning for next year.

Mayor of Malaga Francisco de la Torre asked Madrid to come up with "solutions" for next year and recognised that town halls "now have a serious problem".

Mayor of Marbella Ángeles Muñoz said, "We ask the Tax Ministry, who have known for three years that there was a case before the Constitutional Court, to make an immediate decision."

Marbella collected 27 million euros in Plusvalía in 2019 and an initial vote on the town's 2022 budget had been planned for next Monday but is now up in the air.

Torremolinos council, which normally collects over 7 million euros of Plusvalía, urged central government to create, "alternative and adequate routes to reform this tax, or rather create a new one".

The Constitutional Court has declared void certain clauses in national municipal tax legislation that apply in order to be able to charge the Plusvalía.

Their finding, which has not been made fully public yet, argues that the tax is applied on the premise that there is always an increase in land value when an owner passes it to somebody else compared to when they acquired it, "independently of whether or not this has really existed". In other words, the way Plusvalía is worked out doesn't match reality.

Although this finding is the most significant, there have been other rulings against the Plusvalía in recent years.

In 2017 the same court said people whose property had gone down since they bought it didn't have to pay.

In 2019, it was ruled that the tax due couldn't be more than the total real increase in the property value (which it sometimes was).

The latest judgement cancels the whole principle of the tax for the moment, although it will not be backdated.

The government has said it will adapt the Plusvalía to take into account the Constitutional Court's findings, but hasn't said when.