Because of the economic crisis the evolution of the value of urban land is not always upwards, as is presupposed by the Tax on the Increase of Value of Urban Land (IIVTNU), better known as Plusvalía Municipal. This issue is precisely the one that the Constitutional Court deals with in its recent judgments of February 16, 2016, March 1, 2017 and May 11, 2017, opening the possibility of claims. Find out if this is your case.
What is Plusvalía Municipal and how is it calculated?
The Plusvalía Municipal taxes the increase in the value of urban land when the ownership of a property is transferred for any reason (sale, inheritance or gift) or when any right of enjoyment or limit of ownership of property is established.
It is a local tax that is levied by the City Hall of the town where the property is located.
The calculation of the tax is based on the land cadastral value of the property transferred, the number of years it was owned (a minimum of 1 year and a maximum of 20 years) and a percentage applied by each Town Hall. A tax rate is applied to this base resulting in the tax payable.
This formula, in practice, means that the Plusvalía Municipal is always positive, regardless of whether the increase in value actually occurred. That is, you always have to pay the tax even if the land has lost value, a circumstance which is not infrequent because of the crisis.
However, recent judgments of the Constitutional Court affirm that when real estate is transferred which has not increased in value, the tax is actually a legal fiction according to which the mere ownership of a land generates a tax at the time of transfer regardless of the actual circumstances of each case, assuming an increase in value subject to taxation, which goes against the principle of economic capacity.
Upon publication of the Constitutional Court judgment, the law will have to be modified for situations where there is no increase in the value of urban land.
The following question is obvious.
Can I claim reimbursement of the Plusvalía Municipal I have paid in excess?
If you sold property for less than when you acquired it, for example during the real estate bubble, selling it during the economic crisis, most probably you are elegible for a refund.
To claim the reimbursement of the Plusvalía Municipal, first check two important issues:
First, your loss as demonstrated by an appraisal. It should also be considered whether the cost of the claim compensates the amount to be recovered.
Second, not more than four years have passed since the transfer of the property. After this time the action is time barred.
Once you have verified those two requirements, you can file the claim by submitting a form requesting rectification and refund to the City Hall where you paid the tax.
In its decisions the Constitutional Court does not clarify the procedure to document that there was no gain upon transfer, but based on the documents submitted in the lower courts with the result of its favorable decisions, the following documents should accompany the claim:
- Payment of the Plusvalía Municipal, that is, the tax receipt.
- An appraisal demonstrating the change in the market value of the land between acquisition and transfer. The calculation of whether there has been a loss in the value of the property is not limited to the comparison of the purchase price and the sale price since the Plusvalía Municipal taxes only the value of the land, and not the purchase price of the property, so the sale deed does not suffice.
- Acquisition and Sale deeds.
In the event that the City Hall rejects the claim, an appeal may be filed for reimbursement before the City Hall or an economic-administrative claim before the competent Municipal Economic-Administrative Court. In the event that the appeal or claim is dismissed, the administrative route is exhausted and court proceedings are then available.
In order to file an administrative claim the assistance of lawyer and barrister is not mandatory; it is required for a court claim.
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© 2017 POWERS ABOGADOS, S.L. All rights reserved. This document is a compilation of legal information prepared by POWERS ABOGADOS, S.L. and is strictly informative. Consequently, the information and comments contained therein does not constitute legal advice whatsoever. The information contained in this document cannot be divulged to third parties, either in its entirety, or in an extracted form, without the prior express authorization of POWERS ABOGADOS, S.L. in order to avoid the incorrect or misuse of the information contained therein.