Farewell to the municipal capital gains tax: the Constitutional Court declares the tax null and void

The Constitutional Court declares null and unconstitutional the objective method of determining the taxable base of the Increase in the Value of Urban Land, known as the municipal capital gain. Until now, the courts had rejected payment when a property was sold at a loss.

The municipal capital gains tax, the tax that citizens pay to local councils for selling or transferring a property or estate, has always been in the eye of the storm of justice. The Supreme Court, and the Constitutional Court itself, had already limited its collection when the sale operation entailed losses for the former owner or ate up almost all the profits. Today, the Constitutional Court has given the coup de grâce.

The ruling, for which the magistrate Ricardo Enríquez was the rapporteur, considers that part of the Law regulating local taxation (articles 107.1, second paragraph, 107.2.a and 107.4) referring to the calculation of the tax base are unconstitutional and null and void. The court says that the method used always establishes a value of the land during the period of taxation, irrespective of whether there has been such an increase and irrespective of the actual amount of the increase. In practice this meant that even if the property was sold at a loss, the taxpayer had to pay. Following the decision, the municipalities must stop applying this tax. It is now up to the Government to adapt the law to the Constitutional decision or to remove the references to the municipal capital gains tax from the Law on Local Treasuries.

There will be no retroactive effects

Furthermore, the Constitutional Court declares the intangibility of firm situations existing prior to the date of approval of the ruling, which means that there will be no retroactivity for previous settlements of this tax.

This tax is levied on the change in value of urban land (it does not have to be a building) from the time it is acquired until it is sold or transferred (in the case of inheritances).

The tax was delegated to the municipal administrations, so it was the town councils that were responsible for managing it. Therefore, each municipality could apply this tax under specific premises, although always following general guidelines.

The ruling has the dissenting vote of the President Juan José González Rivas and the dissenting votes of the magistrate Cándido Conde-Pumpido and the magistrate María Luisa Balaguer.

The judgement and the dissenting opinions will be notified in the next few days, together with a more extensive press release.

Via: Diario digital

Skip to content