When people are selling their property in Spain, they wonder, “do you pay tax when you sell your house?” Generally, this type of taxation falls under capital gains tax (CGT), which can be complex. Capital gains tax applies in most countries when you sell a property. In essence, CGT is a payment on the profit you make. Recently, there have been a number of changes in relation to capital gains tax that have caused confusion amongst foreigners living in Spain.
Considering the property slump, many people will not actually have made a profit from the sale of their home in Spain. However, if you are in the fortunate position of making a profit on the sale, then Spanish CGT can be a big issue. In this article, we address the conundrum of “do you pay tax when you sell your house in Spain?” in more detail. We would also like to remind you that taxation in Spain can be challenging to navigate and you could be subject to fines or penalties if you miss a deadline or don’t do your taxes properly. Advisably, you should consult an expert to avoid possible complications.
Do you pay tax when you sell your house if you’re a non-resident?
If you are a non-resident you will pay 19% capital gains tax in Spain. This was reduced to a standard levy from 19.5% in 2016. To enforce this rule, the Spanish Tax Authority withholds 3% from the sale of your property. This is taken directly from the purchaser so you only receive 97% of the amount the property was sold for. The 3% is a safeguard so that non-residents do not ‘disappear’ before they have settled their CGT account.
If you don’t owe CGT then the 3% will be refunded. However, if more is required then you will need to provide the extra. In order to collect any refund, you need to complete the form 210H. You should submit this form within three months of the sale, along with the last four years of non-resident income tax returns. From the date that you present the documents, you should allow around a year to receive the refund.
What about when you’re a resident?
If you are a resident you must declare CGT on your annual tax declaration. The Spanish Tax Authority will charge capital gains tax according to your overall annual income. There are possible exemptions from capital gains tax if you are a resident. These include:
- If you are over 65 years old and have been living as a tax resident in the same permanent home in Spain for more than three years, then you are exempt from paying Spanish capital gains tax on the property.
- You can also be exempt from paying CGT if you have been a fiscal resident in Spain for three years and reinvest your money from your principal home in another principal home. However, you must continue to live in this new property for the next three years. The property you buy can be in any member EU state, but you must reinvest all the money. If you do not then you will be liable to capital gains tax in Spain on the difference.
- If you haven’t quite made the three-year threshold and there is a compelling reason why you have to sell, the Spanish Tax Authority will take this into account. So, for example, if you have a medical issue that means you can no longer manage to live in a high-rise property, or if you have to move because of work-related reasons, then the Spanish Tax Authority will take this into consideration.
Furthermore, if you are selling a property in another country within the EU and you are a resident in Spain, you must declare the CGT when you make your resident tax declaration in June. This declaration covers your income from the previous year.
How does the tax authority calculate Capital Gains Tax?
Capital gains tax is calculated with the purchase price (as written on the Title Deed) with some extra costs including:
This is then deducted from the final sale figure less costs incurred during the sale, including legal fees:
Final sale figure – true purchase price = net profit
Although you can deduct purchasing and selling expenses, you should note that this does not apply to any other debts or mortgages that you have. Furthermore, until January 2015, the Spanish Tax Authority took inflation into account when calculating capital gains tax. However, this is no longer the case. This means that some people are paying significantly more CGT.
What happens if I’ve made improvements to the property?
Aside from “do you pay tax when you sell your house in Spain?”, a frequent question our clients ask is what happens if you have made substantial improvements to your property and it has increased in value. Firstly, it is important to ensure that you have the correct building licences for any changes that you have made. These will also need to have been recorded at the Land Registry. When you register the changes there will be a revaluation of how much the property is worth that should bring it more in line with your selling price. As with most taxes, being aware of what to expect helps you plan accordingly.
More questions you might have
Navigating the taxation system of a foreign country can be an intimidating task – especially if you don’t speak the language. Furthermore, as many people who live in Spain know, Spanish bureaucracy can be particularly challenging. However, if you want to sell your home, Ábaco Advisers is here to help. At Ábaco Advisers, our team of experienced fiscal and taxation experts can help you make sure you follow regulations. For more information, without obligation, don’t hesitate to fill out this form. We can give you the advice you need in the language of your choice.