We analyze the possible non-existence of a taxable event in the Capital Gains tax of a property acquired by inheritance
When there are properties to inherit, in addition to the inheritance tax, it is mandatory to settle the Tax on the increase in the value of urban land, also known as the municipal capital gains tax. This tax is settled at the City Council of the place where the properties awarded in the inheritance are located and the fee depends on the years that have elapsed since the previous transfer of the property and on the applicable bonuses for each municipality.
In recent years it has become clear that the objective criterion for quantifying the Capital Gains tax called IIVTNU (Tax on the Increase in Value of Urban Land) was feasible during the times when the properties were revalued each year, but manifestly incompatible with the constitutional principle of economic capacity in times of crisis and continued falling prices in the real estate sector, as has happened in Spain during the years after the explosion of the “real estate bubble”.
The tax base for this tax is calculated based on the property’s cadastral value, the time that has elapsed in the possession of the seller or the donor or deceased, the coefficients approved by the City Council (for periods of 5 years, up to a maximum of 20), and the tax rate approved by each City Council. The person obliged to pay is the transferor except in the case of inheritances and donations, where the taxpayer is the person who is awarded the property.
The Constitutional Court in Sentence No. 59/2017 of May 11, 2017 in the same line as in previous Nos. 26/2017 and 37/2017, has indicated that we are not, before a tax that subjects a transfer of assets to taxation, since the object of the tax is not subject to the fact of the transfer, but to the increase in value (the rent) that the property has experienced over time.
We are, before a tax that subjects to taxation, the potential income derived from the ownership of urban land revealed on the occasion of its transmission. Now, the TC emphasizes that one thing is to tax a potential income (the increase in value that presumably occurs with the passage of time in all urban terrain) and quite another to subject an unreal income to tax since this would be the opposite. to the constitutional principle of economic capacity.
Currently it is perfectly possible that the market value of a property at the time of the death of the family member is lower than the price for which the property was acquired by the testator, so there would be no taxable event for the municipal capital gains tax.
Consequently, those heirs, in this situation that the tax is unduly paid or that in the last four years (tax prescription period) have unduly paid the capital gains tax to a City Council as a result of an inheritance and can credit for any means of proof, that the real value of the property at the time of the deceased’s death, was lower than the price at which the property was originally purchased, they may request a refund from their City Council or, where appropriate, the nullity of the tax settlement.
And in the event that the City Council does not resolve positively, we may appeal in the first instance to the Economic Administrative Court or optionally to the corresponding Administrative Litigation Court, where in recent years, numerous sentences have been handed down in favor of taxpayers, at protection of the outlined doctrine of the Constitutional Court.