As I mentioned in my previous communication, during the coming weeks I will be sending you useful information about the selling process, as many vendors are unsure of the exact process of the sale of their properties in Spain. For this reason, the following is a brief description of the capital gain tax to be paid by the seller:
CAPITAL GAIN TAX
Any non resident -individual or entity- who sells his Spanish property is liable to pay Spanish Capital gain tax at a rate of 19%.
3% retention.
As guarantee against this tax the buyer must withhold 3% of the purchase price and deposit it with the Tax Office in the seller’s name. This deposit must be done within 30 days after completion using Form 211. If the buyer fails to do so, the property will be liable for this 3%.
If the seller is tax resident in Spain, he will not suffer the 3% retention. In order to prove it, the seller must provide the Notary, at completion, with a tax residency certificate issued by Hacienda. The residence card issued by the Police is not enough for this purpose.
How Capital Gain Tax is calculated?
Roughly, Capital gain tax is 19% of the sale value minus purchase value.
The “Purchase value” is the sum of the following concepts: Purchase price; Expenses and taxes inherent to this purchase (Lawyer fees, Notary and Land Registry fees, transfer tax, stamp duties, mortgage costs); Annual 3% Special Tax for off shore companies and; Improvements, not mere reforms (i.e. swimming pool or a home extension).
In order to bring the above sums to today’s values it is necessary to apply an inflaction correction which amount will depend on the years of purchase and sale.
The “Sale value” is much simpler to calculate: total sale price minus taxes and expenses incurred (lawyer fees, real estate agent fees, plusvalía tax, and notary fees if any).
Transitory rules.
Those who purchased the property before 31/12/1994 can apply a reduction factor to reduce the gain.
How to settle the tax?
The vendor must settle the capital gain tax within 4 months after completion using Form 210. The 3% deposit will be deducted from the amount of tax owed. If this 3% deposit is greater than the tax due, Hacienda will refund the excess by bank transfer to the account mentioned in Form 210. Hacienda will deduct any other outstanding taxes (i.e. annual income tax) before refunding the money.
Legal tips.
Make sure you keep records of all expenses and taxes paid as well as any home improvements as they will reduce the capital gain tax significantly.
When buying a property make sure that the vendor deposited the 3% (previously 5%) if he purchased the property from a non resident. He must show you Form 211. Otherwise you property can be found liable for this deposit.
Adolfo Martos Gross
Gutiérrez del Alamo y Martos, Abogados