If you live in Spain or are planning on investing in property or other assets within the country, you may eventually encounter the capital gains tax when it comes time to sell the property. It is important that you become acquainted with the tax requirements so you can plan ahead and determine what exemptions are applicable to your situation.
What is Capital Gains Tax in Spain?
The capital gains tax is the main tax in Spain to consider when selling your property and is a fairly straightforward concept. In short, the capital gains tax is paid on the profits earned when you sell an asset such as property or company shares within Spain. For example, if you purchased a property for €200,000 and then resold it for €250,000, the capital gains tax would be applied to the €50,000 – just the profit itself.
The tax itself primarily applies to property (buildings, apartments, houses, and land), company shares, government bonds, and precious metals.
Capital gains tax and Plusvalia tax
When it is time to sell, you will also need to pay the Plusvalia tax. The Plusvalia tax is similar to a capital gains tax, but paid to the municipality instead of the tax office, and is based on the increase of land value. It is typically less than the capital gains tax discussed in this article.
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Your residency status within Spain is a determining factor for what percentage you’ll be required to pay on your capital gains tax.
Something very important to note, if you’re living within the country for more than six months out of the year, you will automatically be considered a tax resident in Spain.
The capital gains tax brackets for residents are:
|Up to €6000||€6000 to €50,000||€50,000 to €200,000||€200,000+|
|19% tax||21% tax||23% tax||26% tax|
Please note that these percentages only apply to the actual profit earned on the transaction, not the overall selling price.
If you don’t intend to stay in the country for more than six months (183 days) out of the year, then you’ll be classified as a non-resident for tax purposes. For capital gains tax, non-residents are split into two key categories:
|Non-residents from elsewhere in the European Union (EU) or European Economic Area (EEA)||A fixed 19% rate on all capital gains|
|Non-residents from countries outside the European Union (EU) or European Economic Area (EEA)||A fixed 24% rate on all capital gains|
Once again, these rates only apply to the actual difference between your original purchasing price and what you’re selling the property/investment for – just the profits.
3% withholding tax for non-residents
When going through the process of selling your property as a non-resident, there is also another percentage you need to take into consideration. The CGT withholding or retention tax is a levy of 3% of the overall selling price that the buyer must pay to the Spanish tax authorities to cover any capital gains liability.
You can reclaim this money once the authorities are completely satisfied that you have paid all of your capital gains tax. However, this process takes a significant amount of time. Additionally, there have been reported incidents where non-residents have had difficulty reclaiming these funds for various reasons. So it’s imperative to have all of your documentation and paperwork in order to minimize the possibility of this happening.
Exemptions for residents
There are a few different ways you can completely avoid or reduce the capital gains tax on the sale of your property or assets, provided you are a resident.
1. Reductions on assets purchased before 1995
If you are a resident of Spain who acquired property, shares, or other assets before 1995, you can benefit from a capital gains tax reduction. However, there are a few requirements:
- The property or asset must have been purchased on or before December 31st, 1994.
- The reduction can only be applied to gains up until January 2006. Meaning, the value increase of your property or asset after this timeframe will still be taxed at the standard rate.
- You must sell your property or asset for €400,000 or less to be eligible for this tax reduction.
If the asset in question meets all of these requirements, you can benefit from reductions of 11.11% on properties, 25% on company shares, and 14.28% on any other assets.
2. Main home exemption
Residents can avoid the capital gains tax on the sale of their property altogether, provided the money earned from the sale will be reinvested in a new property that will be used as a primary residence. Two key things need to be proven to benefit from this exemption:
- The property you’re selling must be your habitual residence as well as the property you’re acquiring with the money from the sale.
- The property for sale or to be purchased must be located within the EU or EEA in order to qualify.
3. Exemptions for taxpayers over 65 years
If you’re a resident who’s 65 years old or over, then you’re not required to pay any capital gains tax on the property sold, even if you have no intention of reinvesting the profits into a new home. The main requirement is that the property you’re selling must have been your primary residence for more than three years.
Additionally, you may be exempt from capital gains tax on the sale of any other property or assets on the condition that you use a portion or all of the profit obtained to invest in a whole of life pension annuity, otherwise known as renta vitalicia, within six months of making the sale. Please note that only the money invested in the pension annuity will be exempt from the tax in this situation.
Exemptions for non-residents
Unfortunately, related to real estate selling, non-residents don’t have many options at their disposal for tax reductions or exemptions.
However, if you’re a resident of another country within the EU or EEA that participates in the tax information exchange agreement with Spain, you could be eligible to claim the main home exemption. Bear in mind that there are a number of requirements, and qualifying as a non-resident can be complicated, so we recommend seeking professional guidance before starting the process of your sale.
Spain does have tax benefits for non-residents such as the Beckham Law.
Changing your tax residency
If you’ve been a tax resident of Spain for at least 10 out of the previous 15 years and intend to leave the country and move elsewhere, you may encounter a Spanish exit tax. While this is a complex concept, we’ll break down the key things you should take into consideration.
- The exit tax is applied to any unrealised gains made on various assets regardless of what country they are located. Unrealised capital gains are the difference between the purchase value and the market share value.
- While the circumstances may vary, this exit tax should only be applicable if the value of your shares or assets exceeds €4 million or if your shareholdings are more than 25% and are valued at over €1,000,000.
- Unrealised capital gains will be taxed under the standard resident thresholds at 19% for up to €6000, 21% for €6000 to €50,000, 23% for €50,000 to €200,000, and 26% for €200,000+.
- If you happen to move to a country with a tax treaty and information exchange agreement with Spain or leave on a temporary work assignment, the exit tax can be deferred or may not apply. However, we suggest seeking professional advice before proceeding.
We highly recommend obtaining all invoices, fees, and licences related to your property, as these may be valuable to help you reduce your capital gains tax in Spain when selling property.
If you require any guidance through the legal process of selling your property or assets, you can contact us for tax advice and property law services. We will be ready to assist you.
Disclaimer: Information on this page may be incomplete or outdated. Under no circumstances should the information listed be considered professional legal advice. We highly recommend seeking guidance from a legal expert if you lack extensive knowledge or experience dealing with any of the procedures outlined in these articles.
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