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Taxes when Selling Spanish Property

marbella-lawyers.com
2nd of May 2002

Capital Gains Tax (non-residents)

A non-resident seller is liable for payment of a 35% Capital Gains Tax on the profit of the sale of their property unless it was bought before January 1st 1.987. However, there are exemptions available for those who have owned their property since 1.994 and before. Also, the vendor can offset against the gain made on the sale other costs.

A vendor will be able to mitigate his tax exposure by three different ways:

Reductions on when the property was purchased

• Those who bought a property after the 31st of December of 1.994 will not be entitled to any reductions.
  
• Those who bought in 1.987 of after will enjoy of a reduction of 11.11% on the net gain for every year they have owned the property before the 31st of December 1996 after taking the first two years. This means that a seller starts benefiting from this reduction, his first 11.11%, if he bought in 1.994, 22.22% if he bought in 1.993 and so on.
  
• Those who bought before the 31st of December 1.986 will be pay not tax, as the cuttoff point is 1.996.
  

Reductions on the inflationary movements

This reduction is obtained by applying a percentage to the l purchase price, raising the original price to the level of the value of the peseta today. This inflationary correction factor is applied to the entire purchase price, as well as to all costs surrounding the purchase. Likewise, improvements and extensions on the property will have to be updated inflation-wise.

The correction factor to be applied will be the following:





Reductions on the inherent costs of the purchase, works done on the property and others.

• Costs of the purchase: these would include VAT or Transfer Tax, Plusvalía Tax (where paid by the buyer), Land registry and Notary fees, lawyer´s and real estate agent´s fees, where applicable.
  
• Extensions and improvements done on the property: These should not be confused with maintenance and conservation costs, as these are not deductible. In practice, there is no clear cut distinction between one and the other.
  

Examples of not deductible costs are repair or maintenance works, such as painting, repairs on heating systems, lifts, plumbing and so on.

Examples of deductible costs are the installation of iron bars, doors, double glazing windows and similar improvements on the property.

We've put together this Capital Gains Tax calculator so you can determine how much CGT you will attract when you sell your spanish property.

Plusvalía Tax (Municipal Tax on the increase of the value of the land over the years)

From a little as a few thousands pesetas for small properties recently purchased to as much as a few million pesetas for larger estates purchased many years ago. This tax is calculated on the basis of two variables; ratable value of the property and number of years of ownership by the vendor. The market value or the sales price does not have an effect on this tax.

It is recomendable for the seller/legal representative to find out with the Town Hall the amount of tax they will demand.

Discuss this Article

• Lawbird Lawyer Says:

  Tue, Dec 30th 2008, 10:57

  Dear Sir, You are absolutely correct. After a protracted process grounded on discrimination the European Commission forced Spain to equate the Capital Gains Tax for residents and non-residents alike leaving it at 18% as from the 1st of January 2007 not as from 2008 as you mistakenly write. We don't update old articles; we publish new ones with the new laws that are passed and we always include the date when they are published. The reason is that we have been publishing articles for over a decade and we can ill afford the time to amend each and every legal article every time a new fiscal law is passed, which occurs almost on a monthly basis as new laws are enacted every day and published in Spain's Official Law Gazette (BOE). What really matters is that the companys' lawyers are aware of the changes in law and are always up-to-date. In any case I confirm we will be writing a new updated article on this matter within the next weeks so as to avoid any further confusions in this important matter. Which is why it is a good idea to always ask a lawyer to confirm if the tax rates you've read in legal articles dating back years -such as the one you quote- are correct and updated. Quite often it will not be the case.

• M Vaughan Says:

  Tue, Dec 30th 2008, 05:40

  Surely, the EU law reduced this unfair tax and Spain complied this year 2008 with the new law, therefore you need to update your site.

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