CAPITAL GAINS TAX ON THE SALE OF PROPERTIES ACQUIRED BEFORE 31ST DECEMBER 1994
One of the key measures introduced by the new tax law of 28th November, Law 28/2014, which is effective from this year 2015 is the abolishment of the coefficient which reduces capital gains tax when selling estate property based on how long the property has been owned. This could allow us to increase the purchase value of our property and consequently reduce our tax bill when selling, for those properties acquired before 31st December 1994.
This coefficient, called ‘coeficiente de abatimiento’ together with the other coefficient which allows vendors to adjust the purchase cost they paid for a property in line with inflation, called ‘œcoeficiente de actualizacin’ have been now abolished and are no longer in force.
However, as an exemption and transitory measure we will still be able to apply the first coefficient to properties bought before 31st December 1994 with a limit of ¬400,000. Consequently the resulting capital gains difference will still 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. Gains accruing from 20th January 2006 are fully taxed.
The â‚¬400,000 tax bonus will apply to every single tax payer according to DT 9 de la Ley del IRPF, with no further extension when this sum is reached. This affects Property Estate as well as any other kind of assets.
This limit does not only apply to the sale of one single property, we may benefit from this limit on the combined sales of different properties till an accumulated gain of 400,000 is reached.
A new tax exemption could have been introduced by this new tax law: People older than 65 could be exempt from capital gains tax when selling properties if they reinvest the gain in an annuity pension with a limit of 240,000 as a complementary pension income on retirement. This compliments the other exemption on capital gains tax for this group of people aged over 65 when selling their main home as they are totally exempt from capital gains tax regardless whether they reinvest or not. The only criteria is that they must have owned and resided in that property for at least three years.
The capital gains tax rates which apply in the present year are as follows:
On the first 6,000: 20%
On the next 50,000: 22%
For any other amount exceeding 56,000: 24%
These tax rates will be reduced again in the year 2016 as per the following table:
On the first 6,000: 19%
On the next 50,000: 21%
For any other amount exceeding 56,000: 23%
If you are considering selling your property now, you should contact your lawyer who can advise you accordingly and find the best way to reduce your tax bill.
Article by Juan Francisco Orenes Hernandez
Chartered Accountant & Certified Financial Auditor at
Corral & Alcaraz Law Firm| LAWYERS BARRISTERS & ACCOUNTANTS