Capital gains tax in Spain
10.03.2019When selling a Spanish property, you are obliged to pay capital gains tax in Spain. However, the capital gains tax also exists for other assets, such as shares. This article will be limited to the basic principles of the capital gains tax in Spain for real estate.
When does the capital gains tax apply in Spain?
The capital gains tax applies to residents as well as non-residents and to every sale of real estate located in Spain. In certain cases, the tax also applies to donations of Spanish real estate, in addition to paying gift taxes. In the case of a donation, you should ask specialized advice.
Please note: as a resident in Spain, you pay capital gains tax on capital gains realized on your worldwide assets. This means that capital gains realized in UK are taxable in principle in Spain. The double tax treaty between UK and Spain may possibly prevent double taxation.
Calculate the taxable basis of the capital gains tax in Spain
The taxable basis of the capital gains tax on Spanish property is calculated as follows. You take the actual sales price and reduce it with the costs associated with the sale, including the Land Value Tax (municipal plusvaliá). From this sales value you deduct the original purchase price plus the purchase costs such as, for example, the notary fees and registration fees. If you have made alterations or improvements to the property, you can also deduct these costs from the sales value, provided that you respect any depreciations and submit the necessary invoices. However, not all renovation costs are deductible.
A simple example. You bought a home in 2015 worth 200,000 euros. The Spanish taxes on the purchase of a second home and costs are amounted to 25,000 euros. In 2018 you will sell the property at a price of 240,000 euros. The sales costs and the plusvaliá together amount 5,000 euros. The taxable base then amounts to 10,000 euros (240,000 - 5,000 - 200,000 - 25,000 = 10,000).
Note: it sometimes happens that the official sales value is lower than the actual sales value. As a result, the buyer reduces the registration duties to be paid and the seller avoids the added value tax to be paid in Spain. These practices are illegal. Since 2016, the Spanish tax authorities have been checking the sales value more intensively. In addition, you risk high fines and in some cases even a legal procedure for tax evasion.
Exemptions and reductions in capital gains tax in Spain
However, a number of exemptions apply. If you meet the conditions of an exemption, you do not have to pay any capital gains tax in Spain. A first exemption concerns the family home. When you, as a Spanish resident (minimum 3 years resident), sell your family home in Spain with the aim of purchasing a new family home within the two years after sale, whether or not located in Spain, you do not pay any value added tax.
A second exemption is for older people over the age of 65. Under certain conditions you do not pay any added value tax on your family home, regardless of whether or not you reinvest the proceeds. There is also an exemption on all your capital gains if you use the capital gains for the renta vitalicia, a form of annuity.
In addition to the exemptions, reductions are also possible. If you meet the conditions of a reduction, the taxable basis is reduced. If you sell a property after January 1, 2015 that you purchased before December 31, 1994, you are entitled under specific conditions to a reduction of the tax base for the period between December 31, 1994 and January 20, 2006. However, the sale price may not exceed amount to 400,000 euros. The reduction is 11.11%.
Rates for calculating capital gains tax in Spain
For fiscal residents there is a progressive rate with three disks. There is a rate of 19% for the first bracket from 0 to 6,000 euros. The second installment consists of a rate of 21% on the capital gain between 6,001 to 50,000 euros. Finally, the rate of the third bracket is 22% for amounts from 50,001 euros.
A fixed rate of 19% applies to non-residents.
Withholding
The Spanish tax authorities deduct 3% of the sales value when selling a property in Spain by a non-resident seller. In practice, the buyer will transfer 3% of the purchase price to the Spanish tax authorities, as a result of which you receive less. With this arrangement, the Spanish Treasury wishes to insure that you will pay the surplus value tax due as a non-resident.
If the 3% deduction exceeds the surplus value tax to be paid, you can reclaim the overpaid tax. However, it may take a while before you see your money back. Depending on the tax office, the repayment term is between four to twelve months.
We take back the example from above. The second stay was sold at a price of 240,000 euros. The taxable base amounted to 10,000 euros. As a non-resident, a rate of 19% applies. This amounts to 1,900 euros of capital gains tax due. However, the deduction is EUR 7,200. In this example you pay 5,300 euros too much ...
Note: also as a Spanish tax resident you risk the 3% deduction. After all, you must explicitly demonstrate to the notary that you (1) reside in Spain and (2) that you are liable to pay tax in Spain.
Exit tax
There is an exit tax in Spain. An exit tax is a tax that you pay on the unrealized capital gains when you change your tax residence. In other words: you pay capital gains tax on fictitious capital gains if you leave Spain to live in another country. The exit tax applies when you have been permanently in Spain for at least 10 years in the past 15 years. The exit tax only applies to shares and not to real estate.
Decision
If you decide to sell your property in Spain, it is advisable to seek tax advice on Spanish taxes. After all, it is important that you can estimate the tax cost in advance and take the necessary measures to not pay too much tax as a non-resident. As a resident you must ensure that you avoid penalties by correctly declaring the tax due.