Taxes: find out what changed in Spain in 2019

All transactions are taxed and, even more so, if they involve real estate. This year there have been several new developments related to taxes in Spain, specifically those regarding municipal capital gains, property and personal income. We will tell you what the main changes are.

1. Municipal Capital Gains Tax (Plusvalía Municipal)

The Tax on the Increase in Value of Urban Land (IIVTNU), also known as the municipal capital gains tax (plusvalía municipal), has provided many surprises for taxpayers this year. the Supreme Court for the first time condemned the Spanish State to compensate a taxpayer for having issued a regulation on municipal capital gains that has been declared unconstitutional by the Constitutional Court. This ruling opens the door to recovering what was most unduly paid: this is either because losses were made on the transfer of a property, or because of the confiscation of this tax.

In other words, the Constitutional Court has already declared that the municipal capital gains tax is unconstitutional when the taxpayer transfers a property with losses and when the money to be paid by the citizen exceeds the amount obtained with the sale of the house, that is, when it is considered to be confiscatory.

But these are not the only changes regarding this tax the Constitutional Court. considers that the costs of buying and selling a home (notary fees, registration, taxes paid or cancellation of a mortgage) do not count when getting out of paying the municipal capital gains tax. This is criteria which is seen to be favourable for City Councils, but less so for taxpayers due to the fact that until now the Constitutional Court has considered that these expenses could be included to reduce the profit obtained from the sale of the property.  

2. Property Transfer Tax (ITP)

Property Transfer Tax (ITP) is a tax that must be paid by the buyer of a second-hand property and varies according to each Autonomous Community in Spain. In early December, the Supreme Court handed down a landmark ruling stating that transfer tax must also be paid by the buyer who acquires a second-hand property when the seller is a private individual.

Therefore, property transfer tax is no longer paid only for the purchase of a used home or for renting it. However, tax rates vary depending on whether the property is immovable or movable and on each Autonomous Region.

For example, in Madrid buying gold from a private individual will be taxed at 4%, while buying a house will be taxed at 6% in terms of transfer tax. In the region of Valencia however, buying used goods will be taxed at 6%, while acquiring a property will be taxed at 10%.

3. Property Tax (IBI)

The Supreme Court has closed the door on requests for the return of urban property tax (IBI urbano) that was paid for pieces of non-building land plots during 2014 and previous years. In 2014, it was declared that the land which could be developed but had nothing built on it should not pay urban property tax, but rather rural property tax. For this reason, many taxpayers with land for which they paid urban property tax began to pay taxes for non-building plots. They also requested for the nullity of the property tax liquidations paid in previous years. However, the High Court has just closed this avenue for the respite of the city councils.

4. Personal Income Tax (IRPF)

2019 left us with yet another change in terms of personal income tax: the Economic-Administrative Court (TEAR) in Valencia has declared that taxpayers who lose money by donating a home can compensate for that loss in personal income tax with the profits obtained that year and in the following four years. These new criteria contrast with the ones maintained until now by Inland Revenue (Hacienda), which has denied the existence of a loss in assets in the case of free transfers. Now taxpayers will see the possibility of benefiting from significant tax savings.

The Valencian court considers that it is possible to declare a capital loss in terms of income tax (IRPF) in the event that a property is given away for less than its purchase value, in order to compensate such losses with profits.

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