Capital gains tax and inflation at the time of selling a property in Marbella, Spain
Today we are going to speak about what happens if we acquire a property that was bought in Spain when the previous currency was in circulation and
The first purchase of this property may have taken place more than 25 years ago, with no subsequent transfer to date, which is why we are writing this blog.
We must first explain what municipal capital gains tax, this tax being “the tax levied on the increase in value of urban land subject to a transfer or constitution or transfer of any real right of enjoyment, limiting ownership, over said land”, in other words, it is the municipal tax levied on the increase in value of urban land at the time it is transferred.
In relation to inflation adjustments, our TC (Constitutional Court) has already rejected in a precedent, referring to the municipal capital gains tax, that this should in any case be calculated taking into account inflation. In that case it stated that the nominalist prinicple is consistent with the constitutional order and that only in “extreme situations” of “particularly acute” inflation would the legislator be required to act to prevent inflationary from adversely affecting the principle of economic capacity.
The Court considers that the economic situation before and after the 2014 reform, with an average inflation rate of 2.37 per cent per year for the period 2004-2014 and 1.80 per cent per year for the period 2014-2023, is far from being “extreme” or “particularly acute”.
This was due to the question of unconstitutionally raised by the Contentious-Administrative Chamber of the High Court of Justice of Andalucia, Ceuta and Melilla, based in Malaga, on paragraph 21 of article one of Law 26/2014, which amended, among other regulations, the Personal Income Tax Law. Specifically, the High Court raised the question of whether the principle of economic capacity, protected by the Constitution, requires the law to take inflation into account when determining the amount of capital gains derived from the transfer of real estate, so that it does not tax purely nominal capital gains.
While it is true that this criterion is followed at national level, it should also be borne in mind that in certain territories such as País Vasco and Navarra there is a disparity in the provincial treasuries, since in País Vasco the adjustment for inflation continues to be applied, while in Navarra no such adjustment for inflation is provided for at all.
Do not hesitate to contact our law firm in Marbella if you have any questions about the inflation of money in the calculation for capital gains in the transfer of an asset. Our accounting experts in Marbella will be happy to advise you.
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