Spain is one of the leading countries in the world with the most housing property, given that more than 77.8% of citizens have houses in which they live, a percentage that surpasses by almost 10 points the European average according to Eurostat data.
Historically, this situation has been a massive tax opportunity for public Administrations, which have raised the tax burden on real estate transactions in Spain to be one of the countries in the European Union with taxes proportionally higher taxes on owned property.
Among the most important taxes recently levied on property-without them being the only ones- those highlighted are:
- The Tax on real estate (IBI) and Municipal Capital Gains Tax (IIVTNU) exacerbated by town halls.
- The Patrimonial Transmissions Tax and the Judicial Acts Documented which Autonomous Communities collect for the sale of second-hand properties and the formalization of mortgage loans.
- The personal income tax charged to the central state for the possession or exploitation of real estate other than habitual residence.
As a result of this, certain tax novelties that have occurred so far in 2019, which will undeniably have an impact on the Spanish housing market:
1. The leases of permanent housing are exempt from the Tax on Patrimonial Transmissions
Article 5 of the Royal Decree-Law 7/2019, issued on the 1st March, on urgent measures regarding housing and rental, which came into effect on March 6th, establishes a new exemption in the one-dimensional figure of patrimonial transfers, of the tax on property transfers and documented legal acts, which affects “housing leases for stable and permanent use referred to in article 2 of Law 29/1994, from November 24th, on Urban Leases”
This is to encourage the leases of permanent housing (not seasonal or touristic), since the taxation of Onerous Transmissions of Patrimony was in practice constituting a burden-more bureaucratic than monetary-that affected this rental market.
It is noteworthy that, previously, the Autonomous Community of Madrid, through the amendment of Royal Legislative Decree 1/2010, which approves the Revised Text of the Legal Provisions of the Community of Madrid regarding taxes assigned by the State, by half of its Law 6/2019, December 19th, of Fiscal Measures of the Madrid Community, had already established with effect from January 1st, 2019 a bonus of 100% of the fee delivered from the lease of housing that is not destined to the exercise of a business or professional activity, provided that the tenants were in possession of a copy of the receipt of deposit in the Social Housing Agency of the Community of Madrid, formalized by the landlord and on the condition that the annual rent agreed was less than 15,000 euros.
2. A new issue of unconstitutionality has been admitted to the Municipal Capital Gains Tax, when there is surplus value in the transfer but the tax rate is disproportionate.
In the Official State Gazette of April 2nd 2019, the admission to proceedings by the Constitutional Court (CC) of the unconstitutionality Issue No. 1020-2019 was published, in relation to articles 107 and 108 of the Revised Text of the Law Regulating the Local Estates, approved by the Royal Legislative Decree 2/2004, from March 5th, in relation to article 31 of the Spanish Constitution.
This question of unconstitutionality, which has been raised by the Contentious-Administrative Court No.32 of Madrid, affects yet again the regulations of the Tax on the Increase in the Value of Urban Land (IIVTNU), commonly referred to as “Tax of Municipal Added Value”.
This time what was raised before the Tribunal Court, even in cases where there has been an increase in value, the application of articles 107 and 108 TRLHL may lead to settlements that violate the guiding principles of our tax system collected in Article 31 of the Constitution: economic capacity, progressivity and, mainly, non-confiscatory.
In the case prosecuted in the contentious-administrative appeal that gave rise to this issue of unconstitutionality, there had been an increase in value of 4.343 euros (of the building which was acquired in 2003 for 66.111 euros and transmitted in 2017 for 70.350 euros), and the IIVTNY fee for application of regulations of this tax was 3,560 euros, which represents more than 80% of the profit obtained and is clearly disproportionate.
3. The Supreme Court admits the possibility of discussing, on the occasion of the challenge to the liquidation of the IBI or the IVTNY, the cadastral values of properties that have acquired finality, provided that exceptional circumstances arise.
Through the Judgement of the Contentious-Administrative Chamber No. 196/2019 from February 19th 2019, the Supreme Court admits the possibility of discussing the cadastral value of the property, not only at the fixed time, but also afterwards, on the occasion that the challenge of the liquidation of the IBI or the IIVTNU, when exceptional circumstances occur. For example. As it happens in those cases in which the declaration that a property is not urban for cadastral purposes has occurred after the notification of the cadastral value.
In these cases, the taxpayer may discuss the cadastral value of the property-which constitutes the tax base of the IBI and is the value that determines the taxable base of the IIVTNU- even if there is a firm cadastral valuation in the administrative channel.
Authors: >Antonio López Poza and Ángel Lavín
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