Capital gains tax in Spain

Your obligations when you sell a property

Taxes Tuesday, January 19, 2016
Capital gains tax in Spain

As people are selling their properties both in Spain and the UK they are wanting to know what the tax implications might be. The rules around capital gains tax (CGT) can cause confusion.

Capital gains tax is applied in most countries when you sell a property. The idea is that you pay tax on the profit you make. There have been a number of changes in relation to capital gains tax that have caused some confusion amongst foreigners living in Spain.

With the property slump many people will not actually have made a profit from the sale of their home in Spain. However, if you have been in the fortunate position of selling your home for more than you bought it for then Spanish CGT can be a big issue.  

Non-residents

If you are a non-resident you will pay 19.5% capital gains tax in Spain in 2015, lowering to 19% in 2016 as a standard levy. The Spanish Tax Authority withholds 3% from the sale of your property. This is taken directly from the purchaser so that 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 more CGT is needed than is covered by the 3% then you will need to provide the extra, if not you will receive a refund. In order to collect any refund you need to complete a form 210H. This should be submitted within three months of the sale along with the last four years of non-resident income tax. From the date that it is presented you should allow around a year to receive the refund.

Residents

If you are a resident you must declare CGT on your annual tax declaration. You will be charged capital gains tax according to your overall annual income. There are possible exemptions from capital gains tax if you are a resident.

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 it.  

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 permanent property you buy can be in any member state of the European Union 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 become disabled and can no longer manage to live in a high-rise property or if you have to move because of work-related reasons.

You might also be exempt from paying CGT on a second property in Spain if you are over 65, have been a tax resident for more than three years and invest all the money from the sale in an annuity.

How is it calculated?

Capital gains tax is the purchase price (as written on the Title Deed) with some costs added to it including VAT, Land Registry fees, notary fees, transmission tax and legal fees. 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 purchasing and selling expenses can be deducted you should note that this does not apply to any mortgage or other debts that you have.

Until January 2015 it was the case that some account was taken of inflation when calculating capital gains tax. However, this is no longer the case and means that some people are paying significantly more CGT.   

Selling abroad

If you are selling property in another country within the EU and you are a resident in Spain, you must declare the CGT in Spain when you make your resident tax declaration in June. This declaration covers your income from the previous year.   

Improvements to your property

A frequent question we are asked 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 registered 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.

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Comments

My wife and I have been tax resident in Spain for over three years and have sold our UK property in 2017. We are both over 65 years of age. Are we exempt capital gains tax on the sale of our UK property that was our main home for 22 years before moving to Spain?

Hi Michael 

I'm afraid you won't be exempt as this was not your residential home when you sold it. 

Will the CGT be the value of my house in England when it ceased to be my domicile 10 years ago as opposed to the MUCH lower purchase price when I bought it.

Hi Bernard

Capital Gains is based on the purchase value plus official costs less the sale prices less costs and you are taxed on the difference. 

I am selling my house in the UK for £275000 with a mortgage outstanding of £35000 having bought it in 1996 for £62000, completion will probably be January 2019, we can see that in the UK there is no CGT but as are planning on moving to Spain next year we have been told that we will be liable for CGT there.
We are selling our main residence in the UK and buying our main residence there for around 208000 euros, as we will NOT be resident in Spain when we sell our house, we are moving AFTER it is sold we will not be resident for tax purposes or will we.
Please help

Hi David

Provided the sale of the property in the UK is done in the year before you come to Spain to live, then you will not be liable for CGT here. So, if you sell in 2018 and do not come to Spain as residents until 2019 there will be no CGT. However, if you sell in 2019 and become residents in Spain in the same year, there will be. 

Hi. thanks for this info - very helpful
Just to be certain:
- If I sell my house in the UK, the only possible tax liability in Spain is on the capital gain? (it's not yet certain whe all this will happen so I want to know my maximum liability)
- I can offset verifiable improvement costs against the gain? Is this a case of producing builders' receipts?
- Am I right in thinking there is also a threshold of about 11,000 that can be set against it?
- I see the rate for non-residents is 19%. What would it be if I were resident and not in anyway exempt from CGT?

Many thanks

Dear Joanna

This is quite a complex case and each case such as this must be studied to see if modifications and builders' receipts are acceptable or not. If you are a non-resident of Spain then you do not pay capital gain tax here for the sale of a property in the UK. 

In the uk cgt is only payable on gains over £11.700, is there a figure that is non taxable in Spain please ?

Dear Martin

There is no allowance for capital gains tax. 

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