Capital Gains Tax Real Estate Spain

Written by A1-Holiday.Com

Capital Gains Tax on Real Estate in Spain

Real Estate or property Capital gains tax, is a tax payable to the Spanish Government. The good news for investors is that this tax, has been halved leaving the investor with increased profits.

The tax is based on the difference between the purchase price and the sell price. This means you pay tax ONLY IF the Real Estate has increased in price, however, there are some other calculations that need to be taken into account and these are explained in the next section.

The rules on capital gains tax differ, depending on whether you are a resident or non-resident. The focus of this article, is for those that are non-resident. If you are a resident in Spain, this article may still be useful to you as the principles are the same.

How is property tax calculated?

The basic principles of calculating capital gains tax on real Estate in Spain is similar to that of the UK, but with some differences in the way it is executed. In the previous section, we mentioned the difference between the purchase and sale price. Clearly if you bought the property, say 10 years ago, economic inflation would have taken place. This inflation element needs to be taken out of the net gain. After all, it would not be fair to tax you on inflationary growth which is very different to growth over and above inflation, which represents the 'true' gain.

The figures that drive the inflation calculations are published by the Spanish Government and are specific to Spain when calculating for Capital gains tax.

One final point. The purchase price also includes all costs associated with the purchase of the property. For instance, legal fees.

Tax calculations - A simple example-

Suppose that you purchased a Spanish property 10 years for €120,000 (including purchase costs). You now sell the property for €350,000. The sale value excludes sales costs such as agency and legal fees.

What is your capital gains tax liability?

The difference is clearly €230,000 but of course we have to account for inflation. As stated above, the inflation amount is governed by official Government figures, but for the sake of this example, a reasonable estimate would be €75,000 which assumes an annual inflation rate of 5%

The taxable gain is €230,000 - €75,000 = €155,000

What is the tax rate in Spain?

The tax rate for non-residents in Spain stands at 18%. This is a new rate that came into force in January 2007 as an EU ruling to reduce the tax burden on foreign investors. The rate prior January 2007 was 35%.

In the above example, the tax liability would be approx. €28,000.

How to pay?

When you sell the property, the Notary will automatically retain 3% (was 5% prior January 2007) of the sale value and will hand it over to the Government. Clearly, the 3% may be more than the correct amount. Indeed it could also be less than the correct amount. It is up to you, to follow up the sale transaction with a claim or if the 3% was an underpayment, you are obliged by Spanish law to pay the remainder.

In our example, 3% of the sale would come to €10,500 so you would have to pay the balance of €17,500 (€28,000 - €10,500).