If you sell your house at a loss, you will not have to pay the municipal capital gains tax. This was established by the ruling of the Constitutional Court (TC) on 11 May, thus extending to the whole of Spain the ruling it had issued for the territory of Guipúzcoa.
But how will this ruling be applied in practice?
Firstly, it should be clarified that the so-called tax on the increase in value of urban land (IIVTNU) is legal, but the high court considers that, in the case of losses, it violates the constitutional principle of economic capacity set out in article 31.1. of the Spanish Constitution, which states that “everyone shall contribute to public expenditure in accordance with their economic capacity, through a fair tax system inspired by the principles of equality and progressiveness which, in no case, shall be confiscatory in nature”.
Thus, the TC has once again ruled in this respect, reiterating that the levying of this tax when there is no increase in value is completely contrary to the principle of economic capacity, as it is not linked to the real existence of an increase in value but only “to the mere ownership of the land for a period of time”, the purpose of the levy being to obtain an exclusively revenue-raising result, something prohibited by the Spanish Constitution.
With this new ruling, the Constitutional Court extends the doctrine already applied to the case of Guipúzcoa and Álava to the whole of Spain, and considers that from now on it is up to the legislator to carry out “the relevant modifications or adaptations to the legal system of the tax”, so as to regulate the way in which “situations of non-existent increase in value of urban land are not subject to taxation”.
Secondly, the municipal capital gains tax does not disappear, what happens is that, as we have said, it does not have to be paid when there is a loss when the property is sold. Obviously, you will have to pay it if the transaction generates a profit. However, if you have sold your house at a loss or have been evicted, you are entitled to claim the municipal capital gains tax.
But what are the steps to follow? In principle, even if you are sure that the sale has generated a loss and you have an appraisal that proves it, you must continue to pay the municipal capital gain that you will later reclaim, in order to avoid a possible penalty for not paying it. It should also be taken into account that in order for the aforementioned judgement to be fully effective it must be published in the Official State Gazette (BOE), which could take a couple of weeks to a month.
As for the means of proof or the procedure to prove that there was no capital gain on the sale, the court ruling does not provide for anything. For this reason, it will be necessary to take into account each specific claim and get the help of a lawyer, as this proof can range from the deeds of sale to appraisers’ reports. In any case, it is advisable to provide some technical means.
In any case, whatever your situation, reclaiming capital gains tax is usually a long and cumbersome process, so we recommend that you seek specialised legal advice.