Following the judgement in the High Tribunal Guipuzkoa (Basque Country), that ruled on the 11th May that tax payers who have sold their properties at a loss will not have to pay the local Plus Valia Tax, the Constitutional Tribunal has extended this to the whole of Spanish territory.
The High Tribunal considers that the tax on the increase of the value of urban land, better known as the Plus Valia, breached the constitutional principle of “financial capacity” in the fact that it is not necessarily linked to the existence of a real increase in the value, but “merely to the ownership of the land during a specific time period”.
On the 16th February the Constitutional Tribunal had already ruled the unconstitutionality of the Tax on the increase of the value of urban land in Gipuzkoa, when the transfer of a property was made at a loss. With the new ruling, this is extended to all Spanish territory.
This means, that under old regulations the mere fact that you own a property during a period of time meant that you were liable for Plus Valia Tax even where the value of the property had not increased, or going further, had decreased. This circumstance prevents the tax payer from complying with his obligation to contribute, according to his financial capacity (art. 3.1. of the Constitution).
This is why the Tribunal has declared unconstitutional and annulled various articles of the law in question.
The regional government in the Basque country has reacted to avoid possible patrimonial losses that this judgement will provoke in the Town Halls, separating the value of the land from the value of the building to calculate the tax. The Town Halls made 2.625 million Euros in 2015 from the payment of the Plus Valias, and with this judgement this income will be significantly reduced.
Up until now, the tax base was determined applying coefficients to the catastral value of the land on transfer, based on the amount of time of ownership of the property. The gain or loss was not taken into account. According to the new regulations the value of reference will be the real value of the transfer (the sale price). There would be an increase when the value of the sale is superior to that of the original purchase (much the same as in the capital gains tax). Only when there is clearly a gain made would the contributor be liable for Plus Valia. We have yet to see if the State regulations will follow the Basque Country’s example.