Plusvalia: how land is valued and taxed in Marbella (Part 2)

The ‘Plusvalia’ tax is one that every property owner and new buyer should become familiar with. At Terra Meridiana we always strive to keep our clients well informed, which is why we asked our lawyer, Adolfo Martos Gross, to explain it from a legal perspective.

In the previous blog, we discussed who pays this tax and how it is calculated. Now we look at some other legal aspects of Plusvalia.

Why does the buyer sometimes withhold this tax?

This is somewhat complicated, but it frequently occurs when the seller is non-resident in Spain for tax purposes. In this case, the law dictates that the buyer is considered the substitute taxpayer. When this occurs, and although the seller is meant to pay the tax, the buyer’s lawyer will normally insist on withholding funds to pay the plusvalía on the seller’s behalf to prevent the possibility of the buyer becoming liable for the plusvalía in the event of non-payment. However, if the seller is a ‘non-resident entity’, then this retention is not necessary as the buyer will not become substitute taxpayer.

What happens if the property sale price is lower than the purchase price?

This situation often occurred during the recession when property prices fell. However, the relevant fiscal laws decreed that there should be an assumption that there is always some increase in value.

In 2017 the Spanish courts determined that the way of calculating the tax was only valid if the seller profited from the sale and that it would be unconstitutional to levy the tax if there was a loss. Another court then ruled that any loss must be proven, either through documentation or expert evidence. In proving a loss, neither the expenses associated with the transfer of the property nor any expenses for property improvements may be taken into account, since what is taxed is the increase in the value of the urban land and not the buildings upon them.

And in October 2019, the Constitutional Court ruled that that the tax is also unconstitutional when the calculated tax payment is greater than the increase in value actually obtained by the seller, because “it would be taxed for a non-existent, virtual or fictitious income, producing an excess of taxation contrary to the constitutional principles of economic capacity and is non-confiscatory (article 31.1 Spanish Constitution).” What this means is that if there is a loss during the sale, then the local council is acting in a ‘confiscatory’ manner if it tries to apply this tax.

How can you stop the town council from making you pay Plusvalia?

The short answer is that you can’t stop them, even if you made a loss. However, there is a legal remedy. You must appeal to the court for a refund, and you are almost certain to win your case although this approach will involve time and expenses. We advise clients to get an expert appraisal report showing that the land has not increased in value during the time of the seller’s ownership. If the court accepts this testimony, the tax will be repaid.