Don't waste profits!
Whether you are selling a property in Spain yourself or leave it in the hands of an estate agent, for those selling property in Spain tax implications must be considered to avoid losing any profit obtained from the sale of the property.
Furthermore, a number of questions arise that should be considered as they will have an influence on the asking price.
To effectively manage this most important aspect of the sale, it is essential to be well informed and advised ahead of signing a contract of sale with the purchaser.
When you finish this brief lecture you may want to take a close look to our up-to-date guide to Guide to selling property in Spain. Do not leave it for another day, as we explain in the present post (selling a property in Spain) tax implications are huge BUT not the only issue you may be facing. Honestly, it is worth the effort to read this article: you will save time & money.
3% Non-Residents Retention
Firstly, it is important to distinguish between vendors who are resident and those who are non-resident.
In the latter case, it is necessary to take into account that on the day of the signing of the property deeds, the purchaser will retain 3% of the sales price and does so in order to comply with their obligation to deposit this amount with the Tax Agency, using Form 211, within a period of one month.
This 3% contributes towards the total 21% (soon reducing to 19%) central government Capital Gains tax. Should there be no profit on the sale, there then arises the possibility of claiming back this 3%.
Being able to do so may also depend on other factors such as having paid the previous four years non-resident tax.
It is also possible to have the money paid directly to your UK bank account - you just need to have the lawyer managing this for you to make the appropriate application to the Tax Office.
In addition, there is the obligation to pay to the local Town Hall, the Tax on the Increase in Urban Land Value (known commonly as the Plusvalia Municipal).
In order to calculate the amount of this tax, the catastral value of the property when it is purchased is taken as a reference point, and this is multiplied by the number of years that have transpired since the prior purchase, and a percentage coefficient that is determined by each Town Hall locally.
It is worth noting that nowadays this tax is somewhat questionable given that it no longer reflects any real profit or loss incurred as a result of the purchase and sale of a property but rather the assessed ‘increase’ in value according to the Town Halls’ own particular mathematical rules.
It is for this reason that in recent months some Courts have expressed opposition to the interpretation of the law by the Town Halls, considering that in order for the Plusvalía tax to be payable, it is necessary for there to exist a real increase in the value of the property.
In any case, if you are selling a property at a loss, do not fail to pay the tax that will be demanded by the Town Hall, but rather consider the possibility of appealing the tax following advice from your lawyer.
We shall provide more information on legal challenges of this type in a later article.
Capital gains tax for Residents in Spain
This is in addition to the Plusvalia previously mentioned, and is instead managed by the central tax agency. The benefit obtained is calculated simply reference to the difference between the purchase and the sales price. For Spanish residents the rate of tax is as follows:
- Up to 6.000 Euros: 19%.
- From 6.000 to 50.000 Euros: 21%.
- From 50.000 Euros and upwards: 23%.
Capital gains tax for Non-residents in Spain
Firstly, it is necessary to take into account that on the day of the signing of the sales deeds, the purchaser will retain 3% of the sales price in order to comply with their obligation to deposit this amount with the Tax Agency, using Form 211, within a period of one month.
This 3% contributes towards the total central government Capital Gains tax, which is 19% of the net benefit obtained by the sale. In order to reduce the amount of the tax, the taxpayer in entitled to certain deductions based on the taxes and expenses paid both for the purchase and the sale of the property (purchase tax, Notary fees, Land Registry fees, “plusvalía” tax, legal fees, Real Estate fees, etc.).
Should there be no profit on the sale (or if the profit is less than the 3% of the purchase price initially retained by the buyer), there then arises the possibility of claiming back from the tax authorities the whole of the 3% retention or part thereof. Being able to do so may also depend on other factors such as having paid the previous four years non-resident tax.
It is also possible to have the money paid directly to your UK bank account – you just need to have the lawyer managing this for you to make the appropriate application to the Tax Office.
Exemptions from Capital Gains Tax
An exemption from Capital Gains tax exists for those residents over the age of 65 or those who reinvest in a new home.
The period for reinvesting the funds in the purchase of a new personal, primary, principal home is 2 years from the date of the sale of the property.
If a Spanish resident sells the home dwelling (having lived there for a minimum of 3 years prior to the date of sale) AND being 65 years of age or more, then the capital gains tax is totally tax free, without any other requirements.
The above exemptions apply only to tax residents in Spain.
If the seller invests the proceeds (fully or partially) of the sale of the Spanish property (being this property the habitual residence) in another property with the same purpose (being used as habitual residence), those funds would be tax free -this exemption is only to be applied to the citizens of certain countries (all of the European Union, and Iceland and Norway)-.
Finally, and in addition to the taxes that correspond to the vendor it is convenient here to briefly summarise the other costs associated with a property sale, like for example the Energy Efficiency Certificate, appropriately registered, that is obligatory to produce at the Notary on the day of the signing, and the expenses associated with the cancellation of any mortgage held by the vendor and Notary as well as the contingent property registry expenses.
Selling property in Spain Tax Implications, wrap-up: Of course, in order to safely navigate the various legal requirements to ensure an orderly sale of your Spanish property assets, it is always advisable to obtain the advice and assistance of a qualified, registered solicitor in Spain.