Capital gains tax is applied in most countries and Spain is no exception. Essentially, capital gains tax is a levy imposed on the sale of a non-inventory asset, that is, a capital asset that’s not likely to be liquidated into cash within a year. The most common capital gains are profits earned from the sale of stocks, bonds, and property. Exactly when and what you have to pay varies from country to country, depending on your residential status. However, capital gains tax in Spain is paid on the profit you make from all property sales, whether you are a resident or not. In this article, we discuss calculating capital gains tax in Spain, so you can get an idea of what you may owe.
Working out capital gains tax in Spain
Capital gains tax in Spain for non-residents
Unusually, capital gains tax in Spain is simpler for non-residents than residents. For non-residents, the Spanish capital gains tax is a flat rate of 19% on profits made on the sale of a home. However, calculating capital gains tax is a little more complex than merely working out 19% of the sale price. Instead, you need to calculate the following:
- The true purchase price:
- This will be calculated from the purchase price (as written on the Title Deed) with plus some costs incurred during the purchase, including VAT, Land Registry fees, Notary fees, Transmission tax and legal fees.
- The final sale figure
- This will be calculated from the current selling price, less the costs incurred during the sale. For instance, this would include your legal fees. Some costs of major structural alterations made to the property can also be deducted. However, you will need to be able to produce the official receipts for the materials and work involved. If you have made alterations to your property and you have not included these in your Title Deed, this needs to be rectified at the point of sale.
Finally, we can calculate:
- Final sale figure – true purchase price = net profit
The amount of capital gains tax you owe will be deducted from the net profit.
Capital gains tax in Spain for residents
In contrast, if you are resident in Spain, the amount of capital gains tax you pay is incremental. Remember, you are considered a tax resident in Spain if you reside in the country for more than 183 days per year.
Therefore, as a resident, the Spanish capital gains tax you owe will be:
- 19% for the first €6,000 profit
- From €6,000 to €50,000, the tax percentage is 21%
- From €50,000 upwards, it’s 23%
|Profit||Up to €6,000||From €6,000 to €50,000||More than €50,000|
Remember, if you are unsure about your capital gains tax obligations, consult with an expert. It is not advisable to follow online routes involving a tax calculator – Spain has some complex bureaucratic systems. Furthermore, CGT is a further levy applied on regular income tax in Spain so an income tax calculator may be incorrect.
Residents selling their home in the UK
In Spain, as in many European countries, you are liable for tax on your global income. If you are a resident in Spain and sell your property in the UK, then you are also liable to pay capital gains tax in Spain. You must declare the income from the sale on your annual resident tax declaration. However, it is important to remember that this declaration covers the previous year. Therefore, if you sold your house in May 2019 you would declare it in June 2020 and not in that year’s declaration.
Furthermore, the Autumn 2018 budget introduced changes to capital gains tax in the UK. Currently, you don’t have to pay capital gains tax on your main home. However, now you need to pay capital gains tax on second homes and buy to let properties. In the UK, you pay a higher rate of capital gains tax on property than other assets. Basic-rate taxpayers pay 18%, while higher band taxpayers pay 28%. However, all taxpayers have an annual CGT allowance, which means they can earn a certain amount tax-free. In 2019-20, capital gains of up to £12,000 are tax-free.
Seek expert advice on your taxes
Taxation is complex, especially if you live in a foreign country or own a second home. Don’t be tempted to turn to an online Spanish property tax calculator – the system can be complicated. Instead, seek expert advice on your taxes from a qualified professional. At Ábaco Advisers, we have extensive experience helping foreign nationals navigate the tax system in Spain and how it interacts with their tax obligations at home. For more information, don’t hesitate to get in touch.