Plusvalía Tax

Plusvalia Tax is also called “Impuesto Sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana” and many times it can be confused with Capital Gain Tax or CGT (I will explain this in a different post).

When is the Plusvalia Tax generated?

It’s a Tax generated when someone transfers a property either via sale, donation or inheritance. Once the transfer has been completed you will be notified by a letter of payment. Many times, the buyer calculates the full amount and withholds this quantity (from the amount of the purchase) to pay on the sellers behalf (this usually happens when the seller is a Non-Resident)

Ciudad de las Artes y las Ciencias, Valencia, Spain
Ciudad de las Artes y las Ciencias, Valencia, Spain

Who produces the letter of payment?

Plusvalia is a Local Tax, so it’s produced by the Town Hall where the property is located. At any moment, you can find out how much your Plusvalia Tax will be. If you sold your property tomorrow, you would only need to contact your Town Hall.

How is it calculated?

In the calculation of the Plusvalia, basically four elements are taken into account:
– Catastral Value of the land
– Years owned
The Coefficients approved by the Town Hall
The Tax Rate approved by the Town Hall.

For example:

Dean purchased a property in 01/02/2005 for Eur 100.000.
Dean sold the property in 23/01/2010 for Eur 90.000
Catastral Value Eur 50.000
Coefficient 2,5% and Tax Rate 20%

50.000 x 5 x 0,025 x 0,2 = Eur 1.250

As you can see, the Plusvalia Tax does not consider if you get Capital Gains with the transaction or not, and it should be the first condition to produce this Tax.

What the Court says about it?

In February of 2017, the Constitutional Court annulled the Plusvalia Tax and, in another May ruling, established that taxpayers should not pay such tax when the sale of the house has generated losses.

Now the Supreme clarifies that you can only claim the return and the Plusvalia Tax in cases where it can be proved that there were losses. That proof are property deeds, both, acquisition and transfer deeds.

I suggest to all of you that if you intend to do a property transfer (either Donation, Inheritance or Sale), contact with a high qualified Lawyer or Tax Advisor.

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