When you are selling a property in spain you have to pay Plusvalia and Capital Gains tax

If you are selling a property in Spain, as a non resident or resident, You have to be aware that selling a home has a number of costs that you must consider when calculating how much profit you will actually make on the sale.

Let’s take a closer look at what the national Capital Gains tax in Spain includes and how the regional municipal tax Plusvalia is calculated for example in Costa del Sol.

What is Capital Gains Tax in Spain?

Capital gain tax is a pivotal aspect when selling property in Spain. This tax is levied on the profit made from the sale.

The Spanish National Tax Office collects the Capital Gains Tax, which is determined by the net profit from selling a property.

This profit is the difference between the final sale price (after deducting, expenses incurred on major repairs, real estate agency fees, solicitor’s fees and mortgage cancellation fees as well and any ohter costs related to the sale) and the original purchase price, which includes expenses such as VAT, Land Registry fees, property transfer tax, and legal and notary fees.

Did you know? The above expenses are only valid if you have an official invoice (including VAT) for the service.

Resident vs Non-Resident Taxation

Your residency status in Spain significantly affects your tax liabilities. If you reside in Spain for more than 183 days within a calendar year, you are considered a tax resident.

Calculating Capital Gains tax

It involves assessing the acquisition value (all-inclusive cost of buying your property) and the transmission value (selling price minus selling costs).

Detailed Example:

Consider a resale property bought for €300,000. Including transfer tax, legal fees, and registry costs, the total acquisition value becomes €330,000.

Upon selling the property for €360,000 and subtracting €20,000 in selling costs, the transmission value stands at €340,000. The capital gains here is €10,000.

Tax Rates

Residents: A sliding scale is applied. For instance the tax rate starts

at 19% for the first €6,000 profit obtained and increases thereafter to

21% when the gain is between €6,000 and €50,000,

23% when the gain is between €50,000 and €200,000, and

26% for any gain over €200,000.

EU Non-Residents: A uniform rate of 19% is applied to the capital gain.

Non-EU Residents: The tax rate is 24%.

Exemptions and Special Considerations

Main Home Exemption: if you sell your main residence, which has been in your name for the last 3 years, and reinvest the proceeds within 2 years into a new main residence in Spain or in another EU country, you do not have to pay capital gains tax.

It is important that the new property must also become your main residence.

Over 65 Exemption: Seniors over 65 selling their primary residence are fully exempt from this tax.

Are there any reductions or exemptions for non-residents?

Yes, there are specific exemptions available for non-residents under certain conditions.

The key exemption applies to non-residents who are legal residents in any European Union country that maintains a tax treaty with Spain.

In such cases, these individuals are eligible for the capital gains tax exemption. This also includes the privilege of benefiting from the main home exemption, similar to what residents enjoy, provided they meet the necessary criteria.

More detailed information about this place will be provided by our lawyer.

Important Consideration for Non-Resident Sellers

Non-resident sellers must note that buyers are legally required to withhold 3% of the purchase price for tax purposes. This amount is used as a prepayment towards your capital gains tax.

As a property seller, it’s essential to submit a tax declaration factoring in the 3% of the selling price previously withheld by the buyer.

This needs to be done within three months following the sale, and you’ll be responsible for paying any additional tax owed beyond the 3% already retained.

In cases where the withheld amount by the buyer is more than the Capital Gains Tax (CGT) due, you have the right to request a refund for the surplus and repayment can take place within about 10 months

To facilitate this, ensure you have documented evidence of the initial 3% withheld by the buyer, which is necessary for completing your tax return and all related paperwork

What is the Plusvalía Tax in Spain?

The Municipal Plusvalía Tax is a tax applied to the increase in the value of urban land

The “plusvalía” tax, or land value tax, is a tax on the increased value of the land where a property is located.

This tax comes into play when a property is sold, inherited, or given as a gift. It’s usually the seller who pays this tax.

Importantly, this tax isn’t on the building or house itself, but on the land that the property is on. So, if the land’s value goes up from the time you got the property to when you sell or pass it on, this tax applies to that increase in value.

What does the Plusvalia tax depend on in Spain?

Land Value: Look at your council tax receipt. It shows two values – land value and construction value. For this tax, only the land value matters. You can find it on your IBI (council tax) receipt, ask at your local town hall, or consult a tax specialist.

Calculation: Each year, the land value on your receipt goes up. To figure out the tax, multiply this value by a rate set by your local town hall. This rate depends on how long you’ve owned the property (with a cap at 20 years), where exactly it’s located in the town (different areas have different rates), and the size of the property.

Varies by Municipality: For larger municipalities (over 100,000 people), the tax rate ranges from 20% to 30%. Even similar properties can have different Plusvalía taxes if they’re in different areas because the tax is based on the “valor catastral” (rateable value) of the land, and each place values its land differently.

In short, the Plusvalía tax is not a one-size-fits-all. It changes based on how long you’ve owned your property, where it’s located, and its size.

How much is Plusvalía tax in Spain and how it is calculated?

The Spanish Plusvalía tax has two methods of calculation, and taxpayers can choose the one that results in a lower tax amount.

Here’s a simple breakdown:

Objective Method: This is based on the cadastral value of the land and a coefficient provided by the municipality. It doesn’t consider the actual sale price. If you’ve made significant profit from the sale, this method often results in a lower tax.

Real Value Method: This calculates tax based on the actual increase in value – the difference between the selling and buying prices. This method is beneficial if the actual profit is less than what the objective method assumes.

Why prefer one or another tax calculation method?

You are allowed to choose, because the real increase in the value of the property can be significantly different from the increase in the cadastral value.

Depending on the real estate market and the specific situation of your property, one method may be more financially advantageous than the other.

What do I recommend you?

First: Consult a local attorney or tax advisor before selling your property to make the smartest choices

Second: The information you find on the internet may not be up-to-date and the laws may have changed, so see the first point :).

If you have any questions, our accountant and lawyer can give you up-to-date answers.

Write and we will answer you within 24 hours.