Everything there is to know about capital gains tax on property in Spain

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Tax return and property tax After the purchase of property comes the associated sales contract and taxes. In the case of real estate, capital gains tax on property is the primary applicable tax. As a foreigner, it is sometimes a complicated task to understand the laws and tax system of another country, which is why we have compiled everything there is to know about the capital gains tax on property in Spain in this article.

Municipal capital gains or Plusvalía

Capital gains tax, or officially Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (in English, Tax on the increase in the value of urban land), is a tax that applies once a property changes ownership. Over the years, property may be revalued, and therefore at the time of resale the price is higher than the original purchase price. In this case, the difference in price between the two values is called capital gains and it is this amount that is taxable under Spanish legislation. This is a municipal tax, therefore it differs slightly according to the municipality.

Who must pay the tax?

Depending on the situation, the person who must pay the tax will not always be the same. – The seller: in the case of a classic sale. – The buyer: if the seller is not a Spanish resident, or if it is an inheritance or gift

How much is this tax?

First off, the exact value of the capital gains must be calculated. For this, the starting point is the cadastral value of the land, and not the building, at the time of acquisition. Once this value is obtained, the town hall of the city where the building is located must be contacted to obtain the applicable revaluation rate for the municipality. This is an annual rate, so all the years of ownership must be taken into account for the final calculation. Once these calculations are completed, you will obtain the exact capital gains value for your property, which corresponds to the assessed value. Although the rate applied on capital gains differs according to the municipality, it cannot be greater than 30%. You can also calculate the capital gains via this website.

The exceptions

Please note that in certain specific cases, the capital gains tax will not be applied:

  • Reinvestment in a principal residence
  • Sale of principal residence for those over 65 years of age (only if all sellers/owners are over 65 years old)
  • For non-residents in Spain, fixed rate of 24% if outside the EU and 19% if within the EU
  • Any person from a Member State reinvesting in a principal residence, even if it is located outside Spain
  • The sale of property acquired before the first of January 1995, if the asset was sold for less than €400,000
  • If the property was purchased between May and December 2012; due to the weakness of the real estate market during this period, a decree has established that capital gains on properties sold during this period benefit from a 50% exemption
  • In the event that the property is sold for less than its purchase price (which means that the capital gain is non-existent).

How to pay tax?

The payment procedure differs according to the city, so it is advisable to get in contact with the town council for where the property is located to get more information on the applicable procedure to follow.

When should I pay tax?

Once again, the deadlines vary depending on whether it is a sale, a gift, or an inheritance.

  • In the case of a sale, the tax is payable by a non-extendable deadline of 30 days. The time limit takes effect as soon as the property is transferred.
  • In the case of a donation and/or inheritance, the period is six months, extendable up to 1 year at no additional cost.

Good news! As of October 27, 2021, the sale, donation, or acquisition of inheritance in Spain is less expensive!

The Constitutional Court declared several elements of the Ley Reguladora de las Haciendas Local (in English, Law regulating local finances) to be incompatible with the Constitution. Until now the calculation method for determining capital gains was based on the cadastral value of the land at the time of transfer multiplied by a percentage depending on the number of years. The Constitutional Court considers that this method does not reflect the actual increase obtained by the seller. The decision of the Constitutional Court implies the annulment of a section of Article 107 of the aforementioned law. This implies a total nullity, which will now make it impossible to pay tax and reduce the cost of transferring real estate to Spain (in many cases the amounts were close to EUR 6,000). This new decision also allows for the refunding of taxes paid during the last 4 years. Even knowing all this information about the tax on capital gains for property, accurately determining the amount remains a complex task for which it is more practical to seek the help of an expert. At Delaguía & Luzón, our team of tax and legal professionals will accompany you throughout the process of selling your property and especially during the process of claiming the refund. Contact us today to discuss your project.

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