Understand the tax rates, reliefs and allowances (as they apply to both residents and non-residents) in the event of a gain on the sale of a property, quoted share prices or other assets in Spain…
Spanish capital gains tax is complex. It is paid by residents of Spain on their worldwide assets and by non-residents on property that they own in Spain. The main home of Spanish residents can be exempt depending on your situation.
Capital Gains Tax Rates
From 2007, gains made on the sale or transfer of assets, whether moveable or immovable assets, are taxed as “savings income” – so gains are added to your other savings income for the year and then taxed accordingly. For 2007, 2008 and 2009 the tax was 18%. On 1st January 2010 it increased to 19% on the first €6,000 of savings income and 21% thereafter.
As part of Spain’s austerity measures an additional contribution has been added to the tax rates for 2012 and 2013. The total savings income (including gains) tax rates for 2012 are therefore:
|Up to €6,000||21%|
|€6,000 to €24,000||25%|
Capital Gains on the Sale of Property
When calculating the gain, in addition to the cost of acquisition, expenditure on improving or enhancing the property is allowable as a deduction when calculating the net gain and there is an “indexation co-efficient” that increases the allowable costs for inflation, based on how long the property has been owned.
There may be reductions available depending on whether you acquired the property before or after 31 December 1994 and whether or not it was sold after 20 January 2006.
If you bought your property after 31 December 1994, the gains are taxed in full (subject to the main home relief/exemption – see below).
Where a property acquired before 31 December 1994 was sold prior to 20 January 2006, the full gain was reduced by 11.1% for every year (or part-year) owned prior to 31 December 1994 – so property acquired before 31 December 1986 was wholly tax free.
Where the asset was acquired before 31 December 1994 and is disposed of on or after 20th January 2006, the gain needs to be time-apportioned into:
- the gain arising before 20 January 2006, and
- the gain accruing from that date
The reduction is only available on the portion of the gain accruing before 20 January 2006. Gains accruing from 20 January 2006 are taxed in full. Gains are treated as accruing evenly throughout the period of ownership.
Main home relief/exemption if under 65
Reinvestment relief is available to Spanish residents when they sell their main home and invest in a new one.
To qualify for this relief, the property must be your main residence and you must have lived in it continuously for at least three years (less if you had to sell because of a change of job, marriage etc.) from the date of sale or completion. You must then buy a new main residence within four years, starting two years before the sale.
The tax relief is based on the proportion of the sale proceeds reinvested into the new home. If the new home costs more than the sale price of the old home, then all of the gain is exempt. If only 50% of the sale proceeds are reinvested, then only half of the gain is exempt. If the property being sold has a mortgage on it, then it is the net sale proceeds that need to be fully reinvested to escape capital gains tax.
In order for the reinvestment relief to apply, the taxpayer must declare the gain on their Spanish tax return together with their intention to reinvest the proceeds into a new main home. If the required declarations are not made, the relief is likely to be denied by the Spanish tax authorities.
Note that reinvestment relief is only available to Spanish tax residents (you will need to have registered as a resident and be paying tax locally). However the main residence does not need to be in Spain to qualify for the relief, nor does the new home.
Main home exemption if over 65
If, as above, you have lived in the property as your main home for three years or more, if you are over 65 years of old when you sell it, the gains are exempt from capital gains tax even if you do not buy a new property.
Again, you must be able to show you have been tax resident in Spain.
Sale of property by non-residents
When property is sold by a non-resident of Spain, purchasers must withhold 3% of the purchase price (not the gain) and pay it over to the Spanish tax authorities as an advance payment of capital gains tax on behalf of the vendor. If this is not paid, the purchaser can be fined and the unpaid tax becomes a charge over the property itself. If this 3% exceeds the tax due on the gain, a repayment will be made of the excess; however, if the tax due is more than the retained amount, further tax will be due in Spain. The vendor must file a Spanish tax return on the transaction within three months of the sale before any repayment can be made.
If a person is not resident in Spain, tax may also be due in the country where they are resident, subject to any Double Taxation Treaty Relief.
Gains on quoted shares
As with property, there may be reductions available if you acquired the shares before 31 December 1994. If you acquired the shares after this date then there are no reductions and the gains are taxed in full.
If shares were acquired before the end of 1994 and disposed of before 20 January 2006, the gain was reduced by 25% for every year until 31 December 1994. Where shares were bought before the end of 1994 and are sold any time after 20 January 2006, the gain is time-apportioned.
The gain arising from before 20 January 2006 benefits from the annual 25% reduction, while the gains from after this date are taxed in full.
Other Capital Gains
In a similar manner to the treatment of gains on property and quoted shares, the part of the gain on other assets accruing prior to 20 January 2006 is reduced by 14.28% per year for every year or part year of ownership prior to 31 December 1994. If the asset was sold after 20 January 2006, then the part of the gain accruing from that date is taxable in full, as is the whole gain on any such asset acquired after 31 December 1994, since no distinction is then made with reference to 20 January 2006.
In addition to any mainstream capital gains tax on the sale of property there is also a local tax in urban areas levied by Spanish town halls commonly known as the Plusvalia (which literally translates as “gain”) on the growth in the value of urban land (excluding the buildings).
The real growth in value of the land is reflected by the allowance of a realistic allowance for inflation, unlike the token allowance in Spanish mainstream capital gains tax.
The tax rate varies depending upon the size of the local population and the length of ownership. For a town of more than 100,000 inhabitants the minimum tax rate is 20 per cent and the maximum 30 percent, with the town hall fixing a rate within this.
Any Plusvalia tax paid is allowed as a cost of disposal in calculating the mainstream capital gains tax.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.
- Spanish government tax offices, Agencia Tributaria