Capital Gains Tax

Capital gains tax

Capital Gains Tax (CGT) in Spain for residents is a maximum of 15%, calculated as part of their Spanish income tax. As of January 1st 2007, Capital Gains Tax for non-residents has been reduced from 35% to 18%. 3% of the declared value of the property will be retained at the Notary on the day contracts are signed. The remaining amount is deductible with the subsequent year's tax return. Any expenses incurred during the property sale (ie., Notary and solicitor's fees) can be offset against this. Up to 31 dec 1996 residents & non-residents could deduct 11.11% p.a. from their profits after the first two years of ownership and pay no tax at all after 10 years of ownership but this has ended.

4 exemptions from Spanish Capital Gains Tax

1. Residents over 65 yrs old selling their principal residence of three years are not liable for capital gains tax in Spain.

2. Residents who reinvest all of the proceeds of sale to purchase another principal residence can get capital gains tax relief, provided they have lived in the property for 3 years or more.

If they use only a portion of the proceeds from a property sale, they will get a percentage relief up to the amount reinvested. (rollover credit)

For example:

If someone bought a house for 120k, and sold it for for 180k (i.e. 60k profit)
If new house is 180k = no Capital Gains Tax
If the new house is 90k = capital gains tax is payable on only 30k (i.e. half of the original profit, because half of the proceeds of the sale have been re-invested).

3. Property bought prior to 31st Dec 1986 is exempt from CGT liability for residents & non-residents, due to old legislation which ended in 1996. Property bought between 1986 and 1996 is partially exempt.

4. Elderly people over 65 who use the "inherit from yourself scheme" in which you sell your house but retain the right to live in it until your death are exempt from CGT.

A contract is made to sell the property in exchange for lifetime right to live there and a monthly payment which is called a usufructo.

The only reductions allowed for today’s non-resident sellers on their capital gains tax liability are

Example of Capital Gains Tax calculation.

Take the price you paid as per the escritura (Title Deed). For example, 90,000E

• Taxes & fees i.e transfer tax for a resale property or IVA for a new property
• Expenses for notary, property registration, the plus valia & lawyer fees In this eample, we are assuming the total expenses were 10,000 E You must have the official receipts for expenses in order to claim them.

In our example, the original purchase price including expenses is 90,000+10,000 = 100,000. If we multiply this by the inflation factor we get an original purchase price of 104,040E at today’s prices.

In order to calculate your capital gains tax, you must calculate your profit.
Say you are selling for 150,000E on paper.
So your profit on paper is 150,000E less 104,040 = 45960

Residents pay Capital Gains Tax on this as part of their income tax (15% is the limit as this is limit of CGT) which equates to 6894E tax.

Up until January of this year, when non residents paid CGT at 35%, the cost would have been 16086E. Now, with the new legislation in force, and Spanish Capital Gains Tax for non-residents levied at 18%, the cost is marginally over 8272E – almost halving the cost. Fantastic news for non-residents looking to buy property in Spain.