On the 26th October 2021 Spain’s Constitutional court declared null and void a series of articles which in practice translates into eliminating plusvalia tax. The exact details of the ruling remain unknown as it has still not made public as of the time of writing, but is expected to be released within the next days.
- Plusvalia tax is one of two taxes owners pay on selling property in Spain (along with capital gains tax).
- Plusvalia tax is also paid on inheriting property in Spain (along with inheritance tax).
Plusvalia tax had been under flak over the last 4 years by the Constitutional Court which had declared on no less than four occasions that some parts of the law were annulled. The most prominent ruling was one which basically declared it void when seller’s sold property at a loss in Spain. In such a case, sellers could file a tax rebate on it. We published a detailed article at the time: Selling property at a loss in Spain: Have you sold your property at a loss? Plusvalia tax no longer payable – 18th May 2017
However, the significance of this ruling is simply groundbreaking. On this occasion the articles that have been annulled are of such relevance, that in practice it makes it impossible to calculate the tax; and therefore, for all intents and purposes, plusvalia tax has been supressed.
Plusvalia tax raises over 2.5bn euros in revenue every year and municipalities (read town halls) are hugely reliant on it to finance themselves. The elimination of this tax will no doubt endanger the finances of thousands of town halls across Spain.
The tax office has wasted no time to announce that it will review the tax urgently, in light of the Constitutional’s Court ruling, and reinstate it as soon as possible.
Where does this ruling leave us?
It means that if you are selling property or inheriting in Spain - and only for the time being - you do not need to pay plusvalia tax, at least in theory.
However, in practice, as we still have no access to the ruling itself, I strongly recommend plusvalia tax is paid. Once the ruling is out and made public, your appointed lawyer can then file a tax rebate clawing it back. I think it is only prudent. Bear in mind the tax itself has not been annulled; what has actually been declared void is how to calculate it, which is different. So, in purity, the tax obligation is still very much in force by local administrations but it cannot be calculated in practice. I know, clear as mud.
The bottom line is to pay first and then file a tax rebate on the back of this week's high court ruling. I hope that clarifies.
Retroactivity?
The ruling has no retroactive effects.
However, that said, I’m confident some colleagues will fight their corner and try to force retroactive effects on it.
But as of right now, it has no retroactive effects. Meaning that anyone that sold property or inherited prior to this ruling being published needs to pay this tax.
However, all those selling or inheriting after the ruling is published, will be exempt from paying plusvalia tax, at least for the time being.
Is this tax change permanent?
No. Town halls are greatly dependent on this tax to finance themselves, so it must be reinstated or else a new tax needs to be urgently approved to replace it and plug the budgetary void its absence will create.
As stated above, the Spanish Tax Office is already busy working to reinstate the plusvalia tax as soon as is possible. The window of opportunity to be exempt from paying this tax is slim. Perhaps only a matter of weeks, or months at most.
Further reading from idealista: