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The Constitution denies that inflation lowers taxes on home sales

The Constitutional Court has confirmed that changes in inflation do not affect the taxes that someone pays for the profit after selling a house. Magistrates have agreed with the tax agency in a claim by a man who sold his house that his benefit calculation, comparing the proceeds from selling it and what it cost to buy, should be adjusted for inflation.

Mariano Rajoy’s government changed the law governing personal income tax (IRPF) in 2014 and, among other changes, established how a person benefits when, for example, selling a house: a calculation that adds up to the real amount. Purchases, investments and improvements made to the property, less the value at which it was ultimately sold. Therefore, this reform abolished several clauses that called for the application of coefficients to the purchase price, including inflation.

Andalusian courts decided to refer the rule to the Constitutional Court after examining the case of a man who sold a house he bought in 1995 in 2016. When he sold the property, the Consumer Price Index (CPI) was 1.6% and when. bought, it was more than 4.5%, three points more. In his case, the tax agency claimed personal income tax without updating the purchase price for inflation and the difference between the purchase and sale by three points.

The Andalusian Supreme Court decided to refer the case to the Constitutional Court and the majority of the plenary session chose to uphold the legality of this method and the 2014 reform. And they recognize that the principle of economic opportunity requires tax quantification. based on economic opportunities, but adds that the legislator “has a wide margin of freedom to determine the amount of the tax, in accordance with the criteria of reasonableness and proportionality”.

Therefore, the Constitution guarantees that 9 years ago the legislature chose to remove inflation from the calculation of taxes on the sale of an apartment. “It was based on the fact that real estate profits were the only income tax that took into account price evolution, without justifying this separate treatment,” recalled the plenary session.

The magistrates also recalled that in previous decisions, when they studied cases related to municipal capital gains, they also ruled out that this should be calculated taking into account inflation. In addition, in the case of the real estate market, buying and selling houses already has a “preferential treatment” because they are taxed at a lower rate, for example, than income from wages. They also “enjoy certain benefits when they come from their habitual residence”.

The conclusion of the Constitution is that the legislature is not obliged to update all taxes according to inflation. “This is a legitimate option that may be disagreed with in terms of political or legislative feasibility, but which does not involve a case of unconstitutionality by omission,” they conclude.

Two magistrates, Ricardo Enriquez and Enrique Arnaldo, voted against the verdict. They understand that with this reform, “citizens would be taxed on a completely or partially non-existent manifestation of wealth.”

Source: El Diario





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