The ruling on capital gains tax

The Constitutional Court has invalidated the way in which the tax that the councils receive for each sale, donation or inheritance of real estate is calculated.

It is a measure that obviously harms city halls income but is good news for those who resorted to paying the tax.

Capital gains tax. What is?

We know the capital gains tax on urban land (IIVTNU) as capital gains tax. A tax levied on the increase in value of land when it is sold, inherited or given.

This land only affects urban land and in no case rural land. In the case of a donation or inheritance, the capital gains tax is paid by the person who obtains the property. And in the case of buying and selling it is the seller who has to pay this tax.

It is a tax regulated by a state law but charged directly by the council. And this is an optional tax, but 90% of Spanish councils apply it.

The calculation:

The value of the land established by the cadastre at the time of the sale or donation is decisive. In no case is the value of the buildings that can be found in it decisive.

The default values ​​that will indicate the price of the sun since the last change of ownership are obtained from a rule that does not take into account the actual evolution of the market or prices.

This increase is obtained by multiplying the whole years that have passed since the property last changed ownership, for a maximum of 20 years, by a coefficient decided by the City Council, but the law sets limits: they are d 3.7% for periods of up to 5 years, 3.5 to 10 years, 3.2 to 15 years and 3 to 20 years.

Once this coefficient has been obtained, the percentage or tax rate decided by the City Council of the municipality in question, which can be a maximum of 30%, is applied.

The ruling of the Constitutional:

As we have already said, the Constitutional Court rejects the way in which the taxable base of the tax is calculated, regulated in article 107 of the law of local finances. The problem is:

The law assumes that prices always go up, when this is not always the case.

The calculation method can lead to situations such as having to pay tax even if a property was sold cheaper than it was bought because it had lost value, a paradox that the Constitutional already overturned in 2017.

When will it stop charging?

The texts of the magistrates of the Constitutional Court state that this tax can no longer be levied. According to them, the declaration of unconstitutionality implies the “expulsion” of the tax from the legal system and, therefore, is no longer “enforceable”:

“The declaration of unconstitutionality and nullity of arts. 107.1, second paragraph, 107.2.a) and 107.4 of the law implies its expulsion from the legal system, leaving a regulatory gap on the determination of the taxable base that prevents the settlement, verification, collection and review of this local tax, and therefore its enforceability. “

This means that the date of the ruling, this Tuesday, October 26, is from which the municipalities can no longer collect this tax.

Can we claim a refund of this tax?

TC members made it clear that the effects of the judgment cannot be retroactive, meaning that, as a general rule, amounts already paid cannot be claimed.

The only exceptions are cases where there have been previous claims that are pending resolution.

Do you have any doubts? We advise you to seek professional advice. Do not hesitate to contact us.

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