The capital gains tax in Spain is a tax that affects both tax residents and non-residents. It’s a tax that tends to concern non-resident taxpayers more. Capital gains tax is incurred upon the profit obtained from the sale or transfer of assets or economic rights. The filing deadlines and taxation differ and depend on whether you are a tax resident or not.
What is the Capital Gains Tax?
According to Article 33.1 of the Personal Income Tax Law, capital gains tax refers to the gains or losses of wealth that occur following the sale or alteration in the composition of wealth. Therefore, paying attention to this definition is important because both transfers and donations of assets or economic rights will be subject to capital gains tax. At Tejada Solicitors, we often come across many taxpayers who are unaware that donations are taxed as capital gains, which is an important issue we will explain in this article.
How does this tax work in Spain?
Article 24 of the LIRNR (Non-Resident Income Tax Law) and its reference to Article 33 of the LIRPF (Personal Income Tax Law) regulate how capital gains are quantified for both resident and non-resident taxpayers.
When calculating the acquisition and transmission values, you can take into account the expenses incurred in each of these transactions (adding the purchase expenses such as VAT or Stamp Duty, notary and property registry fees, lawyer fees, and subtracting the expenses assumed in the sale, such as the municipal capital gains tax).
Table of content:
- 1 test3
- 1.1 What is the Capital Gains Tax?
- 1.2 How does this tax work in Spain?
- 1.3 What types of assets are subject to Capital Gains Tax?
- 1.4 Application of the capital gain tax for residents in Spain
- 1.5 Application of capital gains tax for non-residents on the sale of real estate in Spain
- 1.6 Capital Gains Tax Calculator
- 1.7 Double Taxation Agreement UK-Spain
- 1.8 Capital Gains Tax when selling a property
- 1.9 FAQS
If the property is owned by an individual (both tax residents and non-tax residents), and it was acquired before December 31, 1994, the reducing coefficients provided for in the regulations for these cases will be applicable [LIRPF, D.T. 9th; IRNR, D.T. única].
Non-resident taxpayers, if they carry out multiple real estate sales in the same fiscal year, cannot choose to offset the losses they may have incurred in one transaction with the profits from another. In other words, taxation is limited to gains and is calculated independently for each operation. There is, therefore, no possibility of offsetting losses.
Net Profit = Sales Price + Investment and Improvement Costs – Purchase Price
In the case of properties that have been rented, in order to calculate the capital gain, the acquisition value of the property must be reduced by the amount of fiscally deductible depreciation following Article 40 of the RIRPF (Regulations of the Personal Income Tax Law), regardless of whether it was deducted or not during the rental period.
Net Profit = (Sales Price + Investment and Improvement Costs – Depreciation) – Purchase Price
What types of assets are subject to Capital Gains Tax?
Houses, flats, lands, and plots are not the only assets subject to this tax. Economic rights such as shares, bonds, stocks, prizes, compensation and property damage insurance, futures and options, exchanges of assets and rights, assets related to economic activities, movable property, and more are also subject to this tax.
Capital Gains on the sale of furniture with a property in Spain. Non-Fiscal Resident
This is an important and often challenging issue that we frequently encounter in our office. Many times, non-resident taxpayers decide to sell their property along with the furniture in Spain, and a common question from our clients is, “Do I have to pay capital gains on the sale of furniture in Spain?” We respond that in order to answer that, we need the purchase invoice for the furniture or the price listed in the property purchase deed for the furniture, along with an inventory list.
In most double taxation treaties, the sale of furniture (in our case, referring to the sale of furniture along with the property owned in Spain) is subject to taxation in your country of residence, not in Spain.
At Tejada Solicitors Law Firm, we advise our readers on the importance of providing and retaining invoices or documents that justify the purchase price of the furniture to the Spanish tax agency. Otherwise, the Spanish tax agency may demand that you pay capital gains on the value of the furniture since it cannot be substantiated.
The Municipal Capital Gains Tax
It is a local tax that levies the increase in the value of urban land subject to a transfer (known as Municipal Capital Gains).
This tax was declared unconstitutional by the judgment of the Constitutional Court on 26-10-2021, Case 4433/2020, which led to a new regulation through RD-Law 26/2021 that came into effect on November 10, 2021.
Among the modifications are changes in the method for determining the taxable base of the tax, allowing the taxpayer to choose between the Objective Estimation Method or the Real Estimation Method. An important new development introduced is that there is no tax liability for transactions in which there is no increase in value or when losses occur.
You can read more about the Municipal Capital Gains Tax by clicking here.
Application of the capital gain tax for residents in Spain
For tax residents in Spain who obtain capital gains, both in Spain and worldwide, the applicable tax rates are as follows:
Who is considered a resident in Spain?
Under Article 9 of the Personal Income Tax Law (IRPF), you can be considered a tax resident in Spain if you meet any of the following requirements:
a) If an individual spends more than 183 days in Spanish territory during the calendar year, their presence in Spain is considered. Sporadic absences are taken into account for determining this period of stay in Spanish territory unless the taxpayer can provide evidence of tax residency in another country.
b) If the primary center or nucleus of activities or economic interests is in Spain, whether directly or indirectly.
By meeting any of the requirements described in point a) or b) of Article 9, you obtain tax residency, meaning you can live in Spain for fewer than 183 days and still be considered a tax resident if the main center of your economic interests is in Spain.
In Spain, the tax year is a calendar year, running from January to December. In contrast, the fiscal year in the UK or the USA is from April to April. Therefore, when you need to count the days you have lived in Spain to determine your tax residency, you should use the Spanish Tax Calendar.
Remember that when you acquire tax residency, you will be subject to taxation in Spain on your worldwide income, and the double taxation treaty approved between Spain and the source country will apply.
As a tax advisor at Tejada Solicitors, Rosana Tejada advises that before obtaining tax residency in Spain, you consult with a specialist advisor for expatriated taxpayers to understand the tax implications and the fiscal cost of changing your residency to Spain.
Application of capital gains tax for non-residents on the sale of real estate in Spain
For non-resident taxpayers in Spain, the tax rate applicable to capital gains generated from the sale of real estate is as follows:
FLAT TAX RATE OF 19% ON CAPITAL GAINS
Compared to tax residents, non-residents typically face lower taxation when capital gains occur.
How to avoid the Capital Gains Tax in Spain?
This section includes the reductions or exemptions for fiscal residents and non-residents.
Transfer of heritage elements for people over 65 years of age
The sale of a primary residence for individuals over 65 is exempt from income tax.
At the time of sale, if only one spouse, the property owner, has reached the age of 65, only 50% of the capital gains will be exempt.
When transferring to another property that is not your primary residence, you won’t be liable for tax on the profits if the entire amount is used to establish a life annuity policy, capped at €240,000, and this is done within 6 months of the property transfer.
Transfer of assets and liabilities for those under 65 years of age
When individuals under the age of 65 sell their primary residence and make a profit, they won’t be subject to income tax if they reinvest the proceeds in the purchase of a new primary residence.
An important condition is that the entire profit from the property sale must be reinvested in a new primary residence within 2 years of the initial transfer date.
According to tax regulations, to qualify for these tax exemptions, a primary residence is one that has been lived in for a minimum of 3 years prior to the property transfer.
The following reductions can be applied to both tax residents and non-tax residents in Spain who obtain capital gains from the transfer of properties.
50% reduction in capital gains tax
Both residents and non-fiscal residents can take advantage of a 50% reduction in Capital Gains Tax when selling a property in Spain that was acquired between May 12, 2012, and December 31, 2012.
Reductions for purchases made before 1995
A transitional tax regime can be applied to the transfer of assets or rights that were initially acquired before December 31, 1994. According to this regime, proportional reductions (14.28%, 25%, or 11.11% annually, depending on the type of assets) can be applied to the capital gains generated from the date of acquisition until January 19, 2006, for each year of ownership of the assets or rights between the acquisition date and December 31, 1996.
With effect from January 1, 2015, this transitional taxation regime applies when the value of the transfer does not exceed 400,000 euros per taxpayer. For this purpose, the values of the transfer of all assets transmitted from January 1, 2015, on which this transitional regime can be applied, should be added together. If the total amount exceeds the threshold, the transitional regime is applied proportionally to the part of the transfer value that does not exceed the threshold.
Exemption for Reinvestment When Selling Your Primary Residence Abroad
In accordance with tax consultation V2910-21 published on November 18, 2021, when an expatriate who maintains a residence abroad establishes tax residency in Spain for the current tax year (the calendar year in Spain), any capital gains resulting from the sale of a property is exempt from Spanish taxation. This exemption is granted under the condition that your primary residence is located outside of Spain and you purchase a new home there (effectively reinvesting) at the time of the property transfer or within the subsequent two years.
Rosana Tejada, a tax advisor at Tejada Solicitors Law, emphasizes that the Spanish tax agency will scrutinize this exemption. To maximize your tax savings, Rosana recommends careful planning and strict adherence to all the regulations for standard tax procedures. If you would like to learn more about this exemption, please click here.
Capital Gains Tax Calculator
Example: Suppose a foreigner wants to sell a property in Spain and estimates a selling price of 150,000 euros. The purchase price was 100,000 euros, and the cost of furniture was 50,000 euros (which they believe cost the same or more).
|SALE OF PROPERTY WITH FURNITURE||SALE OF PROPERTY WITHOUT FURNITURE|
|We cannot justify the purchase price of the furniture because we do not have invoices or any other legal documents that could serve as evidence.||The seller has invoices from when they bought the furniture for the property, and therefore, it will not be subject to taxation in Spain.|
|Sales price: €200,000 (€150,000 for the property + €50,000 for the furniture)||Sales price: 150.000€|
|Capital gain subject to taxation in Spain|
|(Sales Price – Purchase Price) x 19% = (200,000€ – 100,000€) x 19% = 100,000€ x 19% = 19,000€||(Sales Price – Purchase Price) x 19% = (150,000€ – 100,000€) x 19% = 50,000€ x 19% = 9,500€|
As you can see, there is a significant difference that should be considered when structuring the transaction. If you would like us at Tejada Solicitors to assess your case, you can request an online or in-person meeting.
Double Taxation Agreement UK-Spain
In accordance with the Double Taxation Agreement signed between Spain and the United Kingdom of Great Britain and Northern Ireland, capital gains derived from the sale of real estate are regulated as follows:
Capital Gains (Article 13 UK/Spain double tax treaty): Concerning capital gains or wealth tax obtained from the sale of personal and real property located in the United Kingdom by residents of Spain, similar to shares, stocks, and other assets, these gains can be subject to taxation in both Spain and the United Kingdom. The taxpayer has the right to claim a deduction for international double taxation when filing their income tax return in Spain.
Similarly, under the double taxation agreements signed with Canada and the United States of America, capital gains derived from the transfer of real estate are also regulated under Article 13 of these agreements. These types of income are subject to shared taxation, meaning they may be taxed in the state where the properties are located, and it’s the resident’s state that should eliminate double taxation through the Personal Income Tax (IRPF).
Capital Gains Tax when selling a property
For the calculation of capital gains or losses resulting from the sale or donation of real estate, the following expenses must be considered:
The actual sum from the property transfer
Expenses related to the sale (e.g., Tax on the Increase in Value of Urban Land – Municipal Capital Gains Tax – attorney fees, etc.)
The purchase value encompasses the following elements:
The actual sum of the purchase
Costs for property improvements (if home renovations meet legal criteria)
Various expenses (notary, property registry, attorney, etc.)
Taxes associated with the acquisition (Stamp Duty – AJD, VAT, or Stamp Duty – ITP)
Depreciation. Depreciation represents an amount attributed to improvement expenses. It should have been applied over the property’s rental period, regardless of whether the seller/landlord declared it in their income tax returns. This depreciation is subtracted from the acquisition value when calculating the Capital Gains Tax for residents and non-residents.
Regarding non-resident taxpayers, when selling or donating properties in Spain, the property buyer is obligated to withhold 3% of the total transaction price. The buyer is only exempt from this obligation if the seller provides a certificate issued by the tax authorities, proving that they are indeed subject to Spanish Personal Income Tax (PIT) [LIRNR, art. 25.2; RIRNR, art. 14].
The withholding is applied to the full sale amount. As non-resident taxpayers are subject to tax on the profit earned (the difference between the acquisition and sale values), the withholding may exceed the final tax liability. In such cases, the non-resident has the right to claim the corresponding refund [RIRNR, art. 16].
If you’d like to learn more about capital gains or losses in property sales procedures in Spain, we recommend reading the following article: Cost of selling a house in Spain
How can we help you at Tejada Solicitors with this tax?
The Law Firm Tejada Solicitors is a practice composed of lawyers and economists specializing in property conveyancing and international taxation. Our client profile consists of non-resident investors and expatriates who choose to purchase or invest in Spain. We encounter various scenarios daily, and we meticulously examine them from a legal and fiscal perspective. In each case, we aim to address the different tax situations our clients may encounter. We always recommend prior planning to find an efficient solution, studying potential reductions and exemptions applicable to each specific case.
Only once, when the property is sold or donated, should you declare the capital gains obtained in your Personal Income Tax (IRPF) if you are a resident or in Non-Resident Income Tax (IRNR) for non-residents.
It depends on the case. For individuals over 65 years who sell their primary residence, this transaction is exempt from taxation in the Personal Income Tax (IRPF). However, if what is being sold is a property (e.g., a flat, house, villa, etc.) that does not have the fiscal classification of a primary residence, such a sale generally incurs capital gains tax. We always recommend consulting with a tax advisor to determine if the reductions provided by the IRPF law can be applied. Each case is different, and many variables and changing regulations can affect it.
The relocation of one’s primary residence for individuals under 65 years of age is subject to specific tax regulations. Taxpayers who realize a profit from selling their primary residence can benefit from a tax exemption, exempting them from paying income tax on the gain under certain conditions.
To qualify for this exemption, the entire amount received from the sale of the property must be reinvested in acquiring a new primary residence within two years from the date of the sale.
It’s important to note that, to be eligible for these tax exemptions, the property being sold must have been used as the individual’s primary residence for a minimum of three years leading up to the sale.