The so-called ‘plusvalia municipal’ is the Tax on the Increase in Value of Urban Land (IIVTNU). As its name suggests, it is a tax that the Town Hall charges in the event that a profit has been made at the time of a transfer. Or, in other words, if the value of the transfer is higher than the value of the acquisition, we have to pay the capital gain.
It is this increase in value that produces the taxable event.
So, if I sold my house at a financial loss, do I have to pay the municipal capital gains tax?
Yes, because the taxpayer is obliged to prove that there has been no increase in value. In other words, as of 10th November 2021, the tax must be paid as before STC 182/2021, unless the taxpayer proves that at the time of the transfer there was no increase in the value of the property.
The taxpayer is obliged to inform the tax authorities of the existence of the transfer of assets and thus prove the non-existence of the increase in value. Even with this, the Administration reserves the right to consider such accreditation as insufficient, without prejudice to the possible subsequent claim by the taxpayer.
Why can the Administration do this? The Administration takes as the taxable base the higher of the following values: the value declared by the interested parties, the price or agreed consideration or the market value.
In short, the value appearing in the deeds of acquisition and transfer must be taken into account, which will normally be the same or higher than the reference value determined by the Cadastre.
Who is liable to pay the tax?
Following the above, it is logical to think that the taxpayer is always the transferor, as it is he/she who obtains the benefit from the increase in the value of the land. However, this is not always the case.
Our legal system (RD 2/2004, art. 106.2) states that in the event that the seller is a person Not Resident in Spain, the buyer must pay the capital gains tax. This is due to the collection of the tax and the possibility that non-residents could avoid paying it.
If I sold at a financial loss and paid the capital gains tax, can I claim it back?
Taxpayers who paid the tax without really being obliged to do so can claim a refund of this undue income within 4 years.
However, this declaration of unconstitutionality (Court Judgement 182/2021) does not imply automatic recognition of the right to a refund, since at the time the tax was sent, it is considered constitutionally correct. Therefore, such unconstitutionality is supervening and it must be the taxpayer himself who requests the refund.
This is why we always recommend, when the seller is a Non-Resident, to withhold an amount to cover a possible capital gain at the time of the sale.
Do I have to pay the capital gains tax even if I sold at a financial loss?
In this respect, there are two options.
The first would be to pay the amount of the liquidation in the voluntary period and file the relevant appeals to contest it. In this sense, when the appeals are resolved, the administration would proceed to annul the settlement and, consequently, refund the amount paid plus interest for late payment.
The second would be to request the suspension of the act being challenged at the time of lodging the appeal for reconsideration, as long as a guarantee is provided for in the General Tax Law (art. 224): deposit, public securities, guarantee, bond, etc.
At Imont Legal Services we recommend that you pay the amount in the voluntary period established for this purpose and subsequently claim the same with the corresponding appeals.