Constitutional Court declares municipal Plusvalia tax, illegal

The Constitutional Court has declared the capital gains tax unconstitutional, which means that it has been annulled and will no longer be levied by local councils. This is the third ruling that the high court has handed down against this controversial tax on the increase in the value of urban land (IIVTNU), a tax that brings in around 2.5 billion euros to local coffers and which is applied when a property is sold, inherited or donated. Although the magistrates have already ruled on the legality of the tax, they have yet to draft the ruling, which will take a few days to be published.

The reason given by the Constitutional Court is that the calculation of the tax base [the amount on which the tax is applied] is based on objective parameters that do not always respect the capital gain actually obtained. The court considers, therefore, that the tax violates the principle of “economic capacity”, guaranteed by article 31 of the Constitution.

The Court of Guarantees had previously ruled on the unconstitutionality of this tax in extreme cases, but until now it had respected the general regulation. As of this new ruling, any possibility for local councils to levy the capital gains tax has been annulled, as of Tuesday, the date of the ruling. As a result of this ruling by the Constitutional Court, the councils will have to return all the amounts that had been challenged, pending resolution, whether the claim was brought through administrative or judicial channels.

Thus, the first annulment affects article 107.1, according to which the taxable base is constituted by the increase in the value of the land, made manifest at the time of accrual and experienced over a maximum period of 20 years. In its second paragraph, now declared invalid, the law stipulates that, for the purposes of determining that base, the value of the land at the time of accrual is to be taken into account in accordance with a series of rules, and the annual percentage determined by each local council.

Article 107.2.a) is also unconstitutional, which establishes that in the transfer of land, the value will be determined for the purposes of Real Estate Tax (IBI), that is, according to the cadastral value established by the Administrations.

The Plenary also declared paragraph 4, which provides for the application of an annual percentage, determined by each local council, on the value of the land, to be null and void. To establish it, the law provides that it is the result of multiplying the annual percentage applicable to each case by the number of years over which an increase in value has occurred.
Unconstitutional

The ruling, which upholds the question promoted by the High Court of Justice of Andalusia, and as it appears in the Official State Gazette (BOE), the court of guarantees already declared the unconstitutionality of paragraph 4 of the law in 2019, in those cases in which the resulting fee to be paid was greater than the increase actually obtained by the citizen. Furthermore, in 2017, it had already declared the municipal capital gains tax null and void if there were no gains.