Constitutional court confirms that 'plusvalía' tax is illegal if the value of property sold falls

The top court overseeing the interpretation of the Spanish constitution has ruled that a big part of the money raised by town halls through 'plusvalía' tax is illegal.

The 'plusvalía', whose official title is Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU), is levied by councils when a property being sold has increased in value.

The new ruling by the Tribunal Constitucional in Madrid confirms decisions by courts across the country. It says that the calculation method is illegal under article 31 of the Spanish constitution, which says a person can only be taxed to support public funds according to their ability to pay.

The decision throws council finances into chaos. According to official data, 135.7 million euros were collected by local authorities in 'plusvalía' tax in 2015 in Malaga province.

Consumer groups are advising sellers to still pay the tax for the moment then raise a formal complaint afterwards with the town hall to demand a refund.