Capital Gains Tax set to Soar in 2015

  • Francisco
    With more than 20 years legal experience, Francisco leads a multi-disciplinary law firm which comprises ten lawyers working in their specialised fields. Assistance in all major areas of the law are offered including property law, contract breach/debt recovery, business formation and taxation as well as civil matters such as family law and inheritances.

On the 1st of August 2014 the Spanish Govt introduced measures, that if fully adopted, will mean the removal of tax discounts available to those selling properties in Spain that increased in value after purchase. The impact will be particularly pronounced on properties that were bought by the vendor before 1994.

The fiscal discounts, whichapply to certain shares and financial investments as well as property, reduce the amount of tax payable on any increase in value of these assets by applying coefficients that artificially increase the purchase value of the property, thus reducing the size of any gain. However, if the government’s measures come into effect as planned, these coefficients will cease to be applied from the 1st of January 2015.

Consequently, if you are planning to sell or gift over a property acquired before the end of 1994, it would be recommended that you take into account the changes that may come into effect in the very near future.

The following example of the sale of a property for 100,000€, acquired in 1970 for 6,000€, illustrates the effect of the new rules:

Sale on December 31st 2014

In this case, the capital gain is considered  to be 18,307.88€ (once the discount coefficients are applied) which, with a tax rate of 21% applied, generates a tax bill of 3,844.65€

Sale on January 1st 2015

However, if the sale takes place once the new rules come into effect i.e. from the 1st of January 2015, there are no discounts applied, and the capital gain is considered to be 94,000€. Applying the 20% tax rate being mooted for 2015, on this entire amount, generates a tax bill of 18,800€

It can readily be seen therefore that you will be able to save 80% of the capital gains tax due upon selling assets acquired 20 years ago, by doing so before the end of this year. That might just help with the New Year hangover!

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