Spanish fiscal Residents and Non Residents selling property are liable to pay capital gain tax.
The capital gain or loss on property sale is calculated by the difference between your selling price and your purchasing cost, as stated on your purchase deed.
The current Spanish Tax Law allows us to increase the purchase price, by adding up all the costs related to the purchase, such as solicitor fees, notary fees, land registry fees, alterations made to the property and taxes paid on purchase.
In the same way, we are allowed to deduct all costs related to your sale, such as estate agent fees, plusvalia tax and solicitor fees.
According to current law, the total purchasing cost can be increased by applying a coefficient based on how long the property has been owned.
Additionally, for those properties acquired before the 31st December 1994, the resulting capital gains difference can be reduced for properties purchased before 2006 by applying a reduction of 11.11% per year on the portion of gain accruing before 20th January 2006. Consequently gains accruing from 20th January 2006 are fully taxed up.
The following table shows the percentages by which capital gains susceptible to a reduction can be reduced on the basis of the length of time the asset had been owned by the taxpayer at 31st December 1996.
|Number of years till 31st Dec 1996||Purchase Date||% Reduction|
|2 years||From 31/12/1194 to 31/12/1996||0,00%|
|3 years||From 31/12/1193 to 31/12/1994||11,11%|
|4 years||From 31/12/1192 to 31/12/1993||22,22%|
|5 years||From 31/12/1191 to 31/12/1992||33,33%|
|6 years||From 31/12/1190 to 31/12/1991||44,44%|
|7 years||From 31/12/1189 to 31/12/1990||55,55%|
|8 years||From 31/12/1188 to 31/12/1989||66,66%|
|9 years||From 31/12/1187 to 31/12/1988||77,77%|
|10 years||From 31/12/1186 to 31/12/1987||88,88%|
|More than 11 years||Till 30/12/1986||100,00%|
And finally the following tax rates apply on the gains made by Spanish fiscal residents on the sale:
|Capital Gain||Tax Rate|
|On the first 6,000||21%|
|For the next 12,000||25%|
|For the amount exceeding 18,000||27%|
However, for Non Fiscal Residents there is a flat rate of 21% regardless of the amount of the capital gain which will be reduced to 19% in 2015.
Non residents are also subject to a 3% retention to be made by the purchasers on the sale price when selling property. 3 months after the first month of completion, they will need to complete a capital gains tax declaration to declare their gain or loss. The 3% retention is fully refundable when the vendor declares they have not made a gain on the sale.
THE NEW TAXATION LAW WHICH COMES INTO FORCE IN 2015
In line with last years reforms, the Spanish government has continued approving several tax and administrative changes since the financial crisis, as well as improving the prosecution of fraud and the collection of debt. The tax reduction will come into effect on January 1, 2015, and will be implemented in two stages.
With reference to Capital Gain Tax the following measures have been adopted, in the first stage:
- Tax rates have been cut off according to the following table:
|On the first 6,000||20%|
|For the next 50,000||22%|
|For the amount exceeding 56,000||24%|
- However, we will be no longer be allowed to apply the aforementioned table of costs which increases the property purchase costs, and neither the reductions depending on whether you purchased your property before the 31st December 1994.
- This means that in spite of the fact that our capital gains will be taxed at a lower rates, we will be facing a much higher tax bill.We may see an example in the following table:
Therefore, those people who sell their property after the 1st January 2015, will see an increase on capital gains tax, especially for those properties bought many years ago.
Finally, no changes have been made on the following exemptions:
Spanish Fiscal Residents:
- People selling their main home and re-invest in a new home, which will be their main residence, are exempt to pay capital gains tax on the amount reinvested.
- People older than 65 years old are totally exempt for capital gains tax when selling their main home, regardless of whether they reinvest or not. They must have owned and resided in that property for at least three years.
Non Residents and Spanish Fiscal Residents:
- 50% tax exemption on capital gains tax on properties purchased between 12th May 2012 and 31st December 2012. You will only be taxed 50% on your capital gain.
There is an important exemption which has been introduced for Non Residents:
- Only EU Non Residents will benefit from an exemption on capital gains tax, when selling their main home in Spain and re-invest in a new home in Spain, as they will be also exempt to pay capital gains tax on the amount reinvested .
If you are willing to sell your property now, you should contact your lawyer immediately so they can calculate the difference on tax liability, between selling before the end of the year or after.
We advise you to contact a professional who can asses your tax obligations and liabilities, for your peace of mind.
Juan Francisco Orenes Hernandez
Chartered Accountant & Certified Financial Auditor at
Corral & Alcaraz Law Firm
LAWYERS, BARRISTERS & ACCOUNTANTS