Rules on urban land value tax: what you need to know
On March 9 the Official Gazette of the Lower House of the Spanish Parliament published the wording of the Reform Bill for the Revised Local Finances Law (TRLHL), to adapt the rules on the tax on increase in urban land value (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana or IIVTNU) to constitutional court judgment 59/2017 holding articles 107.2 and 110.4 of that law unconstitutional.
In that judgment the Spanish Constitutional Court held unconstitutional and rendered null and void the articles in the Revised Local Finances Law on determining the tax base for the tax on increase in urban land value. Successive court decisions on the subject ensued, many holding that all assessments/self-assessments could be rendered invalid, regardless of whether there has been an increase in value, because the courts concluded that the constitutional court’s judgment banished the articles on the tax (article 107 article 110.4) altogether from the legal system, thereby preventing its assessment.
This issue will be sorted with the new rules on the tax on increase in urban land value sought to be approved. These rules treat as not taxable any transactions in which there has been no actual increase in land value, and take as “actual values” those reported on the deeds of acquisition and transfer, or if applicable, those audited by the tax authorities.
- What happens where the value has increased?
In principle the traditional method for determining the tax base must be used (number of years x multiplier x cadastral value). This method has also been questioned and is awaiting a decision by the Supreme Court.
Other amendments are introduced, including taxing gains arising in under a year (not taxable before) and making the rules valid retroactively from the publication date of the judgment, June 15, 2017, where there have been losses on the transaction, although we will postpone our study until we know what the final wording will be.
One thing we would recommend is to review any transactions transferring properties (by any means, sale and purchase, inheritance, gift, exercising call options under real estate finance leases, and so on) carried out over the past four years, check whether the tax has been assessed, and if so, look into the available alternatives so as not to forfeit the right to obtain a refund of the tax paid. This should be done before the Supreme Court rules on the various appeals in cassation lodged by the affected local councils.
Garrigues Real Estate Law Department