This article is only about capital gains tax in Spain. However, you might be thinking about settling in Spain.
If yes, I have the perfect articles I published on Torrevieja Translation to help you move to Spain, but I will put them at the end of the article.
What is meant by capital gains tax in Spain and who is liable to pay it?
Capital gains tax is the name of the tax you are liable to pay on any profits you achieve upon selling an asset such as property or land within that financial year.
You may also be liable to pay this tax on any investments held within Spanish territories.
Whenever a property or investment is sold and the value you receive is greater than the initial purchase price paid for that investment or asset, then capital gains tax is due under Spanish law to be paid on the profit of that transaction.
Everybody, regardless as to their being a Spanish resident or not is liable to pay this tax when selling a property, or land, within Spain or its territories.
How much will I be taxed?
The percentage of the amount you are liable to pay varies on several circumstances and remain set differently for Spanish residents than those owners not living in Spain.
A fiscal resident is anyone that lives in Spain for more than 183 days a year (here is my guide on tax in Spain for residents).
The amount payable is set at 19% for any profit on a property sale up to €6,000.
Any profit gained from €6,000 up to €50,000 is liable for taxation at a rate of 21%, any profits gained above €50,000 are set at a rate of 23%.
Any non-resident taxpayers in Spain, and for this scenario, it means anyone that resides in Spain for less than 183 days of a given year the amount of tax payable is set at 19% regardless of the amount of profit gained.
(Get your calculations right)
How can I avoid paying this tax as a tax liable resident in Spain?
There are three instances that might interest you where you may qualify for not paying the full amount of capital gains tax.
The first exemption you may qualify for is if the property is your main home, as a Tax resident for three years
The profit you create on your property sale is then to be reinvested in the purchase of your next home.
In this scenario, no capital gains tax is due from you. The major points you need to consider here are that the property sold is your usual residence address as will be the property you are buying in replacement.
One crucial element to consider here is that to be applicable for an exemption the property you are buying is inside the European Union.
(Properties outside the European Union are not applicable in this scenario)
The second possible exemption applies to anyone aged 65 or over
In this situation, any money you receive from the sale of your home is exempt from capital gains tax, regardless of whether you reinvest into a new home or not.
There is a crucial condition attached to this exemption, the property you are selling should be your regular residence and you must have lived there for a minimum of three years as a Tax Resident before the property was sold.
The third exemption relates to properties you wish to sell, that were bought before 1995
In this instance, you may qualify for a reduction in the rate of capital gains tax you are liable for.
This reduction only applies to gains up until January 2006, any gains in the asset value after this date is not liable for an exemption, those assets are not included in the reduction in tax and will be charged at the current rate.
To qualify for this reduction, the property, when purchased was required to have cost over €400,000.
If, your property qualifies under these requirements then you could receive a reduction of 11% on properties, up to 25% in company shares, while all other assets achieve a reduction of 14%.
What assets are liable for capital gains tax?
Your property is not the only asset liable for being taxed under capital gains.
The tax also applies for:
- Company shares
- Government bonds
- Precious metals
- Flats and apartments
- Other investments and assets
(Your assets can be connected in legal terms)
How to work out the amount of tax you owe
While the percentages listed earlier in this article may offer you some approximate guidelines, there are however, a few more details you need to be aware of in your calculations.
Firstly, your true purchase price is taken from the price written on your title deed and can also include costs incurred during the purchase of that property including:
- Land registry fees
- Notary fees
- Solicitor fees
- Transmission tax
- Any legal fees you paid
This collective total is then offset against the current selling price, minus the costs incurred during that sale, this includes your legal fees.
If, during your time owning the property you made any structural alterations the costs of these can be included in the deduction. However, any work of this nature will have to be clarified by producing receipts for materials and labour used.
If, these alterations are not included in the title deeds then this will need to be rectified at the time of the sale.
Once these figures are all available you will have the final sales figure, minus the true purchase price, which gives you your net profit. This amount is what you will be taxed on.
What about if I am selling my home in the UK, or another EU country?
If, you are resident in Spain, and sell a property in another EU country, or the UK, you are liable to pay tax on your global income, this includes paying capital gains tax in Spain.
You are required under Spanish law to declare the income (profit) from any sale of property on your annual resident tax declaration. You should remember, however, that this declaration covers the previous year.
For instance, any property sold in the summer of 2019, would therefore not be declared until the annual tax declaration of 2020.
Throughout this article, I have done my best to explain to you the basic principles of how to calculate your capital gains tax in Spain. Through these calculations, you have an idea as to the amount you may owe.
However, I feel compelled to remind you that the Spanish taxation system remains complicated and should you miss a deadline or fail to complete your taxes correctly you could be subject to paying fines or other penalties.
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