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ENGLISH SPEAKING LAWYERS IN MALAGA (ANDALUCIA / COSTA DEL SOL) SPECIALIZED IN PROPERTY LAW & CONVEYANCING

Archive for plusvalia

RECLAMATION PLUSVALIA TAX FROM SALE PROPERTY AT A LOSS

plusvalia selling property

plusvalía, property, nerja

A few weeks ago, a seller was bitterly complaining to me about what they had paid for capital gains tax on the sale of their home in Capistrano, Nerja to a Swedish couple, even though no profit had actually been made.

I then remembered an article we published in June 2014 on this matter, where we spread the news about new case law defending the position of taxpayers who had sold a property at a loss and, furthermore, were forced by the city council to pay capital gains tax, even though no profit had been made from the sale of that property.

Many sales take place at a loss and there are many more to come as, in general, current prices are still below those in effect a few years ago.

In the two and a half years since the publication of that article, the position of taxpayers to be able to claim back what they had paid in municipal capital gains tax for the sale of their homes without having made any profit has improved and the government will probably be forced to amend the Law in order to prevent councils from continuing to demand payment in these situations.

First of all, if they want to cancel the capital gains tax bill received from the council, they must know that they need to pay it first and then file a claim, and they will then have no option but to resort to the courts to claim a refund.

However, according to a judgment of the Higher Court of Justice of the Community of Valencia in late 2016, it is not necessary to obtain an expert appraisal to prove the value of the property, as it is understood that the amounts shown in the purchase and sale deeds clearly determine the actual value of the property and, therefore, show whether a profit was made.

So far, taxpayers wishing to file a claim through the courts needed an appraisal to prove that the actual value of the property transfer was lower than the purchase price. However, through this judgment, the amount shown in the purchase and sale deeds can be enough to accredit the values of the property when, through examining the deeds, one can easily see that there has been no increase in the value of the land.

The strongest argument in favour of taxpayers is that the Constitutional Court, in its recent judgment of 16th February, established that making citizens pay taxes for non-existing enrichment in the sale of their homes contradicts the principle of financial capacity set down in art. 31.1 of the Spanish Constitution. The Constitutional Court clarified that capital gains taxes are legal but it is unconstitutional to pay this tax when no actual gains have been made in the sale of the property.

The Constitutional Court also clarified that legislators will be the ones who will have to amend the legal framework of this tax in order to prevent taxation in these situations where no capital gains are made from the sale of a property.

Until the Law is amended, we assume that councils will continue to demand payment of capital gains taxes even when properties are sold at a loss but, after the pronouncement of the Constitutional Court and with the arguments set down in the other judgments mentioned, taxpayers will be able to claim back what they have unduly paid to the council in these circumstances. However, it is true that, for smaller amounts of capital gains tax, it may not be interesting to file a claim, taking into account the costs involved in hiring a solicitor and a barrister.

Many cities in this area: Nerja, Frigiliana, Torrox, Vélez Málaga, etc., issue bills for capital gains tax once the sale is recorded in a Public Deed, for which reason, in order to obtain a cancellation of this bill from the council, it would be necessary to challenge it before the deadline established by law.

If the claim is not filed before the deadline and, therefore, the administrative action becomes unappealable, it will become more difficult to file a successful claim.

Author: Gustavo Calero Monereo (C&D Solicitors, lawyer, Málaga)

 

PLUSVALIA TAX PAYMENT WHEN THE ACTUAL VALUE OF CONVEYED PROPERTIES HAS DECREASED

Spanish Plusvalia tax decreased value property

Spanish Plusvalia tax with decreased value property

Currently, as a result of the existing conditions of real estate market, the sale price of a real estate property may be below the purchase price or slightly above it.

As regards of these situations and in connection to taxes to be paid when selling a property in Spain, it is necessary to clarify that the increase in urban land values is the first element of the taxable event of the local tax on the increase in urban land values (Spanish acronym I.I.V.T.N.U.), commonly called PLUSVALÍA. Thus, in the event of no increase, no tax may be applied, despite the content of the objective rules for the calculation of the tax provided by Article 107 of Spanish law regulating local taxation (L.H.L.), since no tax liability may arise when an essential element of the taxable event is missing.

The legal liquidation system does not preclude that the taxpayer proves in the specific case that the application of the calculation methods by the Tax Administration leads to unrealistic results. On the other hand, regarding the formula of Article 107 L.H.L., the Supreme Court ruling dated 22nd of October 1994 was conclusive when maintaining that this article was subsidiary, defending and safeguarding taxpayers. According to this Judgment “legal regulations only provide a rebuttable presumption, which is subject to be distorted in each particular case by appropriate and sufficient evidence in the above terms for the taxpayers and in conformance with the provisions of Article 385 of the Spanish Civil Procedural Law. This reasoning, in regards of the actual increase in value(plusvalía) from property sales leading to non-taxation, was also highlighted by the Supreme Court in the Judgment dated 29th of April 1996 and the Judgment dated 22nd of September 2001.

However, a recent Judgment from the High Court of Justice of Catalonia dated 18th of July 2013 also pronounces undoubtedly the fact that town councils cannot charge the plusvalía tax in the event that it does not exist, since the Judge states that when an essential element of the taxable event is missing –as for example obtaining a profit from a property sale—no tax liability to pay plusvalía tax may arise.

Recently, it is being confirmed an increase of court rulings admitting taxpayers’ appeals against tax liability in the event of loss of assets. In the words of Pablo Chico de la Camara, Professor of Financial and Taxation Law: “the caselaw of the Constitutional Court confirms the impossibility to tax a nonexistent taxable wealth by the local authorities”. This situation may occur when the transferor may certify the loss of assets on the occasion of a land conveyance. It is clear for the Supreme Court that the nonexistence of increase in land values precludes the application of the Plusvalía tax.

To sum up, the objective absence of increase of land value may lead to non-taxation, as a result of the nonexistence of the taxable event, since the legal contradiction cannot and should not be resolved in favour of the “calculation method” and to the detriment of the economic reality. Consequently, it would mean the ignorance of the principles of equity, justice and economic capacity.

These same conclusions shall be applied when an increase of the value occurs and the amount of this increase is proved to be lower than the result of applying this calculation method, being the same principles infringed.

These conclusions, which are already supported by several doctrinal criteria and caselaw, shall be considered as unquestionable at present, in view of the aforementioned economic reality.

In SHORT: when it is certified and proved in a specific case that there has not been an economic and actual capital gain from a property sale, the payment of the Plusvalia tax (I.I.V.T.N.U.) shall NOT be required by town councils.

But the reality is that Town Councils are still requiring the payment of this tax despite properties are sold at a loss, so that the judicial procedure is the only chance in this case for taxpayers to “tackle” the payment of this tax. However, when the resulting plusvalía tax payment is relatively low, it is not worth taking legal actions, due to legal costs.

For those who decide to claim, we understand that there are sufficient legal and solid arguments to obtain a favourable judgment.

 

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

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