Changes to Spanish capital gains tax

Taxes Mon, 29 Sep 2014
Changes to capital gains tax

It's perhaps a symptom of government austerity that taxation is a particular target for change. It is one of the best means of increasing revenue but must also be handled carefully if your electorate are not to be upset as an election year approaches.

As the Spanish government has the ballot box in its sight it must continue to bring in the money and balance the books. The dilemma is how to keep the population happy (or at least not too unhappy). It seems as though changes to capital gains tax in Spain are a legitimate target.

As some people are feeling the pinch and taking the decision to sell property, so the question of how much Spanish capital gains tax they might need to pay becomes an important one.

Changes to capital gains tax in Spain

The bad news

The value of your property generally increases over decades and allowance has, until now, been made for this in calculating capital gains tax.However, from January 2015, it is proposed that inflation will no longer be taken into consideration and the original price of the property will be used to calculate capital gains instead.

So, for example:

  Before 31st December 2014 From 1st January 2015
Original price of house in 1990 75,000 € 75,000 €
Sale prices of house 116,000 € 116,000 €
Taxable amount 10,459 € 41,000 €
Capital gains tax to pay 2,375 € 8,900 €

A difference in the amount of capital gains tax to pay of 6,525 € a significant amount and one that people, with an option, will want to avoid. It is anticipated that this change will lead to those contemplating the sale of a house in Spain doing it sooner rather than later.

The good news

To compensate a little for this, the tax rates for income tax and consequently capital gains tax are being reduced. Below, the chart shows the anticipated changes:

2014

Amount of capital % of CGT
0 - 6,000 € 21%
6,000 - 24,000 € 25%
24,000 € + 27%

2015

Amount of capital % of CGT
0 - 6,000 € 20%
6,000 - 50,000 € 22%
50,000 € + 24%

So, for example

  Before 31st December 2015
Taxable amount 10,459 €
21% on first 6,000 € 1,260 €
25% on 4,459 € 1,115 €
Capital gains tax to pay 2,375€

 

  After 31st December 2015
Taxable amount 10,459 €
20% on first 6,000 € 1,200 €
22% on 4,459 € 981 €
Capital gains tax to pay 2,181 €

For most people the reduction in the % of capital gains tax charged will not compensate for the additional capital gains hike that they may experience when selling an older property.The only people who are really likely to gain, and then by a small amount only, are those selling properties they have bought recently.

In the shorter term we are likely to see a rush to sell. Having too many houses on the market will again suppress house prices and create an imbalance of supply and demand that may take a while to correct. Just at a time when there was a little optimism creeping back into the market.

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