A question our clients frequently ask is what taxes they’ll have to pay if they’re thinking about selling their home. After all, if you’re selling property in Spain tax implications can be complex and will differ if you are a tax resident or non-tax resident. As one would expect, the rules are likely to differ to those you’re familiar with in your home country, so it is prudent to seek professional advice. For instance, under the Spanish legal system, if you sell your property as a non-resident in Spain, you’ll be required to pay a 3% retention as well as capital gains tax and the plusvalía tax.
In this article, we run through the different requirements and share some general advice. However, we would like to remind you that taxes in Spain can be complicated and you could be subject to fines or penalties if you miss a deadline or don’t do your taxes properly. Advisably, you should seek fiscal advice from an expert to avoid possible complications.
Tax implications of property sales for non-residents
If you’re selling property in Spain tax implications principally include capital gains tax. Capital gains tax is due on the profit made on all property sales in Spain. For non-residents, the capital gains tax rate is 19% of the profit made on the sale. To calculate this figure, we must work out the true purchase price:
Purchase price (as written on the Title Deed) + costs incurred in the purchase
The purchase costs will include the VAT, Land Registry fees, Notary fees, transmission tax and legal fees. Next, you take the current selling price and deduct from it the costs incurred in the sale (legal fees etc). You can also deduct certain costs of major structural alterations you have made to the property, but only if you can produce the official receipts for the materials and/or work involved. We can not do this if you paid by cash and don’t have a VAT receipt.
These calculations will leave us with a final sale figure.
Final sale figure – true purchase price = net profit
Please note, if you have made alterations to your property but these have not been included on your Title Deed, this needs to be rectified at the point of sale.
The amount to pay and the procedure depends on whether you are a resident or a non-resident. If you are a non-resident you should also be aware that you will be affected by the 3% retention.
Understanding the 3% retention
If you are a non-resident selling property in Spain, tax implications include the 3% retention. This means that 3% of the current sales price is retained by the lawyer acting on behalf of the buyer. This is paid to the hacienda pública (tax office) in the name of the seller on tax form 211. This is a legal requirement when non-residents sell property. The non-resident seller receives 97% of the agreed price at the time of the sale. To claim an outstanding balance or pay any additional taxes, such as capital gains tax, the seller must submit form 210H within three months of the sale.
Taxes payable by residents
If you resident in Spain and can produce a fiscal residency certificate, you won’t be liable for the 3% retention fee. You will, however, still be liable for capital gains tax. That said, there are many variables that will affect the amount you pay:
- To be liable for capital gains tax under resident conditions, you must have been a resident for at least three years.
- Whether or not the property is your main residence and the length of time this has been the case
- If you are over 65.
- Whether you are buying another property for use as your main residence.
Please remember Spanish taxes are paid one year in arrears. You will still have to complete an annual resident tax return the following May or June. On this form, you will declare the details of your property sale.
The plusvalía tax
If you’re selling property in Spain tax implications to consider include the plusvalía tax. As this tax is a particular idiosyncrasy of the Spanish system, it’s easy to overlook. However, it is essential to take this charge into account as it applies to both residents and non-residents. Depending on the area and the length of time the seller has owned the property the amount to pay will vary.
The plusvalía is a municipal tax charged by the town hall on property sales. It is calculated on the rateable value of the land (valor suelo) and the number of years that have passed since the property last changed hands. The objective is to tax the increase in the value of the land itself, some of which will be due to improvements carried out by the local government and the community at large. Even apartments have their corresponding percentage of land on which the complex stands, so this tax is still applicable even in this case.
Selling property in Spain: Tax implications and legal advice
If you’re selling property in Spain tax implications and processes can be challenging to navigate alone. To make sure your interests are fully protected, it is essential to hire an experienced, impartial legal adviser. Ábaco Advisers have assisted our clients with all their Spanish legal and tax obligations for more than 20 years. To ensure you’re armed with all the information you need, book a free consultation at one of our offices. We can provide you with the information you need according to your individual circumstances.