Spanish Capital Gains Tax or Impuesto sobre Incremento de Patrimonio de la Venta de un Bien Inmeuble is complicated, but in simple terms, it is a tax charged on capital gains, i.e. the profit made on the sale of an asset that was purchased at a lower price. 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 in certain circumstances. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property.
The rate for residents and non-residents is currently 19% (as of March 2010). For residents, you pay 19 % on the first €6,000 of total savings income (which includes capital gains) and 21 % on the rest. Non-residents pay a flat rate of 19 %.
Since March 2010 whether resident or non-resident you will be obliged to pay CGT on any property sale. However, the rate for non-residents used to be a whopping 35%, as opposed to 15% for Spanish nationals. This higher rate contravened the European Community Treaty rules on discrimination and the court said the higher levy must be repaid, with 6 per cent interest.
So if you were not tax resident in Spain and sold a property between January 1997 and December 2006 (when the rate was changed by the tax office) you are entitled to reclaim the 20% you were charged, but you only have until 1st November 2010 to take advantage of this window and make a claim. You will need a copy of your CGT form called Modelo 212 or 210 to proceed.
Generally, during a property sale, your bank will deduct 19% -21% of the interest paid and pay the tax office (Hacienda) on your behalf. Or you can ask your lawyer to obtain the relevant forms Capital Gains Tax Form 212 from the Spanish tax office.
There are no changes regarding the retention of 3% of the property price for non residents, but it is likely that we will see an increase on inspections to prevent tax evasion. Non residents have a period of three months after the sale to comply with their legal obligations for paying the remainder, regardless of the initial retention of 3% at the notary signing of the title deeds.
If the seller of the property is non-resident, the buyer will pay 97% of the property price at the signing of the deeds. The buyer then has one month to pay the remaining 3% to the Spanish treasury using form 211. This 3% retention is an advance on the capital gains tax that the seller will have to pay later on. If the seller is a fiscal resident and is selling his main residence (where he has lived more than 3 years) he is not liable for capital gains tax if he reinvests the income by purchasing another main residence within two years. If only a portion of the income from a property sale is reinvested, then they will get a relief in the form of a percentage up to the total amount reinvested.
Also in Spain a person is exempt from capital gains tax on the sale of their main residence if:
*They are 65 years or over
*And they have lived in the property for three years or more (or, if less, had to sell because of a change of job, marriage, separation or the death of a partner).
In addition to capital gains tax paid on the sale of property there is also a local tax in urban areas levied by Spanish town halls known as the Plusvalia (which literally translates as ‘the gain’) which is paid on the growth in the value of the urban land (excluding any buildings). This 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 percent 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.
A seller will be able to offset tax exposure by considering:
*When the property was purchased – for instance if you have owned the property since 1994 or before.
*The costs of the purchase, (including Plusvalia tax) and money paid for major works done on the property. *Extensions and improvements done on the property.
If you can provide receipts of extension or renovation work completed you may gain some tax relief, only if the costs are not general yearly maintenance.
Please click here if you wish to read more on How to go about reclaiming the Capital Gains Tax that you may have overpaid.