Perhaps I could start to explain this matter from the basics, avoiding legal terminology to make it easier to understand.

When a property owner sells a property in Spain must pay a tax on the profit made when selling, this is the Capital Gains Tax (CGT). This tax is currently the 19% on the gain, costs, taxes, improvements and investments excluded (for foreigners residents in the EU). In case no gain is made, there is no CGT to pay. This tax, same as in all countries, is paid to the central Government.

Unfortunately, in Spain this is not the only tax payable for property sellers. There is another tax to be paid by sellers when selling a property. This tax is the “Plusvalia Tax”.

This tax is a tax over the increase of value of the portion of land included at any and all properties. The value of this portion of land could be seen at IBI / Suma bills … “Valor catastral del Suelo” in English “Rateable value of Land”. In fact this is another capital gains tax, but referred only to that portion of land and payable not to the central Government but to the local Town Hall where the property is located at.

However, the rules of this tax calculation are quite strange… According to Law this tax becomes payable in all cases, despite the property owner has or not a gain on the sale or despite that specific portion of land may have, at the moment of its sale, a lower value than when it was purchased. It does not look fair at all and it wasn’t, but now this matter does not work like this anymore, fortunately.

Throughout the last years we have witnessed how clients in Criado & Kraus Lawyers who purchased their properties when the prices where really high and had to sell those properties when the prices where not that high or even really much lower, additionally to have a big loss had to pay this Plusvalia tax.

Now, due to a new precedent in Law settled by our Constitutional Tribunal last February 2017, later on ratified in another sentence in the same sense issued in May same year, we can confirm that this unfair tax is not longer allowed to Spanish Town Halls. Since very recently, in cases where property sellers are not having a gain and it is proven that the value of the land included at the property sold is lower than when purchased, the Plusvalia Tax can be recovered.

As you see, unfortunately I can’t write that the tax becomes not due. At this moment in time I can only write that the tax can be recovered what in fact is still quite unfair. I will explain why below.

As the situation stands today, when a non resident sells property is more than likely that will be deducted / withheld form the proceeds the amount required for the payment of the Plusvalia tax. This happens mainly because according to Law, if the seller does not pay, this tax can be claimed to the purchaser. The property sold is itself is the legal guarantee for Town halls to collect this tax. They could, in theory, seize the property transferred to collect the tax. This means that there is little chance for vendors to avoid this retention from the proceeds.

What in fact is still needed is a change at the Law for the Plusvalia tax. This legal modification of the Plusvalia Law should require that Town Halls prove that the specific portion of land has increased in value before being able to issue the bill for the Plusvalia Tax (and as long as the vendor does not make money, does not have a gain). Until this change at the Law is done, the collection of the tax will continue t happen since the applicable law, in fact is still in place.

So what can be done now?

Well, what can be done now is to demand the Town Hall to return the payment received.

How is this done?

The first thing will be to collect from the purchasers the proof of payment of the Plusvalia.

Then my advice is to obtain evidence that the land included at the property sold has a lower value at the moment if the sale than when it was purchased using a Surveyor or an Architect’s report. In case the vendor has a profit in the sale, this fact will act as evidence that the value of the land was not lower than when the property was purchased being this the reason why this reclaim process is only available to those who sold their properties with a selling price lower than the purchase price.

We can now offer to our clients a low cost report to find out if, in their particular cases, the value of the lad included at the property sold had or not a lower value when sold

Which is the process to follow?

Then a Lawyer must write a writ to the Town Hall (here in after TH) to require the refund of the Plusvalia tax paid. The 2 things can happen (I rephrase, 3). The TH refunds you the money, what ends the fight. The TH replies and refuses to refund the money. The TH does not say any thing.

In case of option 3 then, according to Law, if in the period of 3 months there is no reply you can legally understand that the petition is refused (this is called the “administrative silence”, that can be positive or negative, being in this particular type of petitions negative).

In both cases 2 and 3 next step would be to reproduce the petition in a higher instance, the called “Economic – Administrative Tribunal”, herein after EAT.

It is likely that the TH will refuse to pay back the money since the applicable Law to collect the plusvalia is not yet changed. Besides TH are reluctant (though they should) to apply precedents in Law. This is something that a Judge can’t do.

At the EAT new fight against the TH will be developed. Here the person to decide is not a Judge. The referee her is still a civil servant from the Spanish Inland revenue so it is likely, for the same reasons, that the outcome will be exactly the same as before, a refusal. The time that this case will take, in my experience, could be between 6 months and a year. In case the claim succeeds, again the case will be over. An order to refund from the EAT will be issued to the TH who will return the money in the same way it was cashed or making a transfer.

Note that in case of loosing the case before the TH or at the EAT no legal fees of the winning party will be placed on the looser.

Then, in case of a refusal from the EAT, we have the doors open to the judicial route. This means that the case can be taken to the Jurisdiction of the “Courts of justice for Administrative matters”. That is the place where people litigate versus the Administration: Town Halls, Regional Governments, Social Security, public companies etc. In this instance is where we finally will find a judge. Judges do use precedents in Law so it is likely that the case can be won. Talking about court mattes it is not possible to certify anything but

The bad new is that this jurisdiction is quite slow. The case can easily take a year and a half. The good news is that interests could be added to the amount originally paid. Note that in this jurisdiction the loosing party pay all legal costs. TH will have to pay legal costs if the insist in litigating.

How long do we have to file the claim?

The time that a claimant has is 4 years since the plusvalía was paid.

How much will that cost?

Well, this is the most important question in practical terms.

As you seen there are 3 possible jurisdictions where to fight, one after the other. Besides when reaching the courts of justice a team of solicitor and barrister (here called Abogado and Procurador) will be required what means to retain another professional more.

Under this scenario, the legal representative of the claimant will have to be several years involved in the case. In my personal opinion I doubt that, bearing in mind the cost of legal advisors only cases with an amount to claim above 5.000,00 € may be economically viable.

Naturally another alternative is we aware of the time left to start the rebate process and wait to see if the Spanish Government passes any Law that obliges local Town Halls to refund they Plusvalia charged in a less expensive and more straight forward way.

If you are interested in the matter we at Criado & Kraus Abogados can study your case and together see the way to approach it.

Jose Francisco Criado Sanchez
Abogado – Solicitor – Advocaat


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