The Plusvalia Tax, is the tax that is paid when a house is sold with profits, it is annulled, if the amount exceeds the profit by the sale of the good. The Constitutional Court has just declared the collection of this tax unconstitutional in those cases in which the amount payable by the taxpayer is greater than the real gain obtained.
The plenary of the Constitutional Court has unanimously considered the question of unconstitutionality raised by the Contentious-Administrative Court number 32 of Madrid and, consequently, has declared that article 107.4 of the Revised Text of the Law Regulating Local Treasuries, approved on 5 March 2004, is unconstitutional, in the terms referred to in the fifth legal basis section a).
The ruling argues that “when there is an increase in the transfer and the tax payable is greater than the increase actually obtained by the citizen, it would be taxed for a non-existent income, virtual or fictitious, producing an excess of taxation contrary to the constitutional principles of economic capacity and non- confiscation (art. 31.1 EC)”. The court limits the situations that can be reviewed exclusively to those that have not acquired firmness at the date of publication.
It has also been questioned how the tax should be applied when the profit obtained is less than that resulting from the formula for determining the taxable base. In fact, last July it raised a question of unconstitutionality before the Constitutional Court. This is a question that at the time was pending in the jurisprudence of this court, which now completes the pronouncements that in the past has made the Supreme Court regarding municipal capital gains in those cases in which the transaction generates losses to the seller.
In this way, after this ruling, will also be exempt from the payment of capital gains those who have had an increase between the purchase value and the sale, the application of the mathematical formula to calculate the tax results in an amount higher than the one he has earned.
The high court raised the question of unconstitutionality after analyzing the specific case of a married couple who bought a home in 2002 for 149,051 euros and made a reform for another 34,800.89 euros. In December 2015, the house was sold for 153,000 euros, and the Zaragoza City Council Municipal Tax Agency issued a receipt for 6,902.25 euros in municipal Plusvalia Tax.
The Supreme supports the formula
The couple understood that, after the expenditure of the reform, there had not been an added value with the aforementioned transfer, and, therefore, had not made it taxable on which to calculate the tax, for which reason they requested the rectification of the aforementioned self-assessment and the return of the amounts paid. They argued that if “we add to the initial acquisition value the cost of the reform, we have a much higher value than that of the sale in 2015”; and they added that “although we do not add these amounts, the increase in assets if we are at the value of purchase in 2002 and sale in 2015 is 3,950 euros and the payment for capital gain as we reiterate has been 6,900”.
The Supreme Court questions the formula used by municipalities throughout Spain to determine the taxable base of the tax, since it considers that it does not take into account the real capital gain obtained in the transfer of the property. This formula is based on objective parameters such as the cadastral value of the land and the period of tenure of the property, which would give rise to situations in which the amount of tax to be paid would be greater than the profit actually obtained, which, according to the experts consulted, could exhaust or even exceed the contributory capacity of the taxpayer, in clear violation of the principle of non-confiscatoriedad.
However, it is also true that the Supreme supports the formula used by municipalities to calculate this tax, as it considers that it is not possible to use a calculation formula other than that provided in the Law on Local Treasuries, rejecting that alternative formulas could be used for the calculation of such tax.