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ARCHIVED - Capital gains tax in Spain declared unconstitutional
The Treasury in Spain will be forced to adjust how the tax is calculated
The coffers of local governments in Spain have been dealt a major blow on Tuesday October 26 as the Constitutional Court has declared that capital gains tax, which has been in force in this country since the beginning of the century, is null and void. The tax, which is paid on the value of land when it is sold, has been deemed unconstitutional and could potentially result in a loss of 4 billion euros to municipal revenues this year alone.
When a person sells a house in Spain, it is assumed that during the time in which it has been owned the value of the land has been revaluated, and so the seller has to pay a tax on that ‘capital gain’. The obvious issue, however, is that this sum is always calculated upwards, whether or not the value of the property has increased.
The Constitutional Court has judged that the tax is unfairly balanced towards local councils, for whom there is always a capital gain, regardless of the state of the market. During the global crisis of 2008, for example, the housing market crashed and the vast majority of properties lost value, but municipalities continued to apply the tax as if an increase had been registered.
In fact, the tax was first declared unconstitutional for this very reason back in 2017 but the regulations were not changed; now though, the tax can’t be applied to properties until the situation is straightened out.
What it’s likely to mean for sellers is that they will be required to present an evaluation of the land in question at the time it was bought and the time it is being sold in order to prove that it hasn’t increased in value. Since the tax was first questioned back in 2017, a number of files remain open, many of which will be open to claims. According to the experts, if the local council automatically applies capital gains tax, the seller has one month to appeal. However, in many areas in Spain, the owner completes a self-assessment, in which case the taxpayer has four years to claim.
Ultimately, capital gains tax will not disappear as it is too valuable to local councils, but rather the system of calculating the payment will be subject to a reform.
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