During the years of the property bubble, the value of real estate increased so rapidly that it fetched unfeasibly high prices. The recent crisis in the sector caused a severe drop in prices which has led to many properties being sold at a loss with respect to their purchase value.
Municipal tax over the increase on the land value levies the sale of an asset, using a formula which applies a ratio to the cadastral value of the land by the number of years the asset has been owned, from a minimum ownership of one year to maximum of twenty. It implies a considerable disbursement when a property changes hands, costing several thousands of Euros.
Sentence 59/2017, of 11th May 2017, ruled by the Spanish Supreme Court, resolved the question of unconstitutionality regarding several injunctions in the consolidated text of the law which regulates local tax authorities, approved by Legislative Decree 2/2004, of 5th March 2004. The matter was deemed unconstitutional, and articles 107.1, 107.2 a) and 110.4 of the abovementioned law were declared unconstitutional and void, but only in cases where taxes have been levied against transactions where there has been no increase in value.
In other words, the Spanish Constitutional Court has declared that payment of Plusvalia tax is null and void in cases where there has been no increase in value. However, the High Court does not stipulate how to determine whether the value has increased or not.
To this effect, the Administrative Chamber of the High Court declared in its Sentence of 9th July 2018 that the liable taxpayer, i.e. the seller, must prove that the property has not increased in value and is therefore not subject to municipal capital gains. Once the seller has proven that his property has not increased in value, it is up to the authorities to determine if there has been an increment in order to levy the tax.
If you have sold property at a loss during the last four years, and have paid municipal Plusvalía, seek legal advice regarding possible tax recovery.