Plusvalia Tax Refund
In February this year Spain’s Constitutional court declared that ‘Plusvalia’ property tax cannot be charged when a vendor sells a property at a loss. In simple terms no profit, no taxation.
When selling a property in Spain a vendor is liable for two taxes
1.Capital gains tax (paid to regional Authorities).
2.Plusvalia tax (levied by the local town halls).
As you are probably aware there is normally a retention of 3% made at the notary if the seller is not fiscal resident in Spain, this tax is refundable if the property was sold at a loss however, on the second tax “Plusvalia” the vendors need to pay this tax as a result of the increase of value in the land to the town hall where the property conveyed is located. If there is no increase in value, no tax should be paid, however the Town halls have fought to avoid this as they are over dependent on this local tax.
This tax constitutes in most cases their main source of income. Only last year over 140 million euros was collected in Malaga province alone.
The significance of the Court’s ruling is that it gives vendors who had complained over the years that it made no sense to pay taxes on a property they were making a loss on selling. Town halls had turn a blind eye and refused to reimburse vendors, until now!
Town halls calculate the ‘Plusvalia’ tax using the rateable value of property the cadastral value. Most town halls have not updated their records in line with today’s current values, that’s why vendors are still being charged this tax despite making a loss on selling.
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