Capital Gains Tax In Spain

    Capital Gains

The Tax Man Wants Part Of Them

Capital gains apply if you sell something for 150 that you bought for 100.

The tax man considers the difference of 50 as income and wants to have part of it in the form of taxes. There are many different kinds of capital gains; you can have them when selling shares, a company, certain rights or - on selling privately owned property.

In this Information Statement we are addressing ourselves only to the capital gains on selling a property in Spain, by residents and non-residents.


    A Complicated Transition

Due To New Legislation From 1996

We are at the moment in a complicated transition period when it comes to the calculation of capital gains, due to new legislation from June and December 1996, and the application methods of these laws.

The laws of 1996 established a new set of calculations on capital gains for all purchases done after 9th of June 1996.

Did You Buy After The 9th June, 1996?

If you are one of the new buyers after that date, just study the chapter about "New Set Of Calculations".

Or Did You Buy Before That Date?

But if your purchase of a property (and we refer to the date of the "escritura de compra-venta") took place before 9th of June 1996, the calculation is somewhat more complicated, and you must read carefully the chapter called "Owners Before The Change".

Circumstances Common To Buyers Before And After the 9th June, 1996

However, there is some common ground both for buyers from before 9th of June 1996 and the new ones after that date:

- If you are a resident above 65 years of age, you are exempt. But you must have held a residence permit for 3 years to benefit from this. Be aware that the exemption for capital gains under 500.000 pts. (3.012 Euro) is not valid any more.

- If you have got capital gains on selling your permanent dwelling (and only residents have a permanent dwelling in Spain) and you reinvest the proceed from the sale in another permanent dwelling, the costs of purchase of the new dwelling can be deducted from the gains on selling the first (see chapter on "Change of permanent dwelling").

- You have the right to add costs of purchase to the value declared in the purchase and to deduct the costs of sale from the value declared in the new escritura (see chapter "Additions And Subtractions").

- If you have more than one escritura (for instance one for the land and one for the house, or one for land and house and another one for an extension), separate calculations must be made for the part of total value represented by each of the escrituras (see chapter on "Several Escrituras").

- If you are several members in a family unit, making individual income tax declarations, the gains must be declared by the one(s) who is/are the registered owner(s). However, if two spouses have joint assets in their marriage, but only one of them is mentioned in the escritura, the gains will be split between them if they are making separate declarations.

    Additions And Subtractions

You Start With The Value Declared In Your Escritura

In all cases you start with the value declared in your "escritura de compra/venta" (title deed of purchase/sale).

To this value can be added the costs of acquisition, (the transfer taxes paid - IVA or ITP -, notary fees and registration costs).

Allowance For Inflation

Then on the total costs of buying the property, you apply the coefficients for inflation. Since the inflation varies every year, it is logical that the coefficients are being determined in the yearly state budgets.

The Additions To Be Made For Inflation

In the state budget for 2004 the following coefficients were established:

Year of your purchase(escritura) : Co-efficient

1994 or before : 1.1461
1995 : 1.2108
1996 : 1.1694
1997 : 1.1461
1998 : 1.1238
1999 : 1.1036
2000 : 1.0824
2001 : 1.0612
2002 : 1.0404
2003 : 1.0200
2004 : 1.0000

Deduct Sales Costs From The Sales Price Declared In The New Escritura

Then you take the sales price declared in the new escritura, and you subtract the sales costs (advertising costs, sales commissions, costs of a lawyer and 75% of the municipal Plus Valia Tax).

Finally, Deduct The Value Of Old Escritura From Value Of New Escritura (adjusted for costs)

Subtracting the value in the old escritura + registration costs, from the value in the new escritura - the sales costs, you have the brut capital gains.


    Several Escrituras

The Situation Becomes More Complicated

However, if you have more than one escritura on the property, the situation becomes more complicated. It can be that you first bought one plot of land, and later added another one. Or that you first bought the land and some time later declared the house in an "escritura de obra nueva". Or you made an additional "obra nueva" for additions to the house, to increase the total declared value.

Several Calculations Must Be Made

In this case, several calculations must be made, one for each of the sums mentioned in the different escrituras, making the additions and subtractions described in the previous chapter.

Differentiating Between The Value Of The Land And The Construction

If you have to differentiate between the land part and the construction in the new escritura, you can use several methods: - have a surveyor make an evaluation on the value of the house, - use the split often mentioned in the receipt for the IBI, where the plot is normally estimated to represent 40% of the total value of the property and the building 60%.

Improvements To The Property

If you have made improvements to the property (that could be payment of "impuestos especiales" for improvement of the infrastructure on your urbanisation) that has not been declared in an "escritura de obra nueva", and if you have all receipts with IVA (VAT) paid, you must calculate if it is worthwhile to add such costs to the price of acquisition, from the year they were paid.


    New Set Of Calculations

Owners Who Bought After The 9th of June, 1996

For owners that bought the property after the dividing date 9th of June 1996 and sell at any later time, the way of calculating the capital gains is the following:

First you do as explained under "Additions and Subtractions", adding to the value declared in your old escritura of purchase all costs you had in connection with the purchase, including the taxes paid.

Secondly you multiply the total costs of acquisition by the coefficient established for the year of purchase, also mentioned under "Additions and Subtractions", and you have the current value of your investment.

Thirdly you deduct the current value of your investment from the net sales price in the new escritura (after deducting the sales costs). The resulting figure is your capital gains on the transaction.

    Owners Before The Change

Owners Who Bought Before The 9th of June, 1996

Still for some years to come, the most common case will be that of an owner bought his property before 9th of June 1996. So, we have another and more complicated calculation to find the capital gains, for when that owner sells now.

Title Deeds Dated Before The 31st December, 1986

If your only title deed to the property dates from before 31st December 1986, meaning more than 10 year before the new legislation took fiscal effects, there are no capital gains. You need not bother with the calculations at all.

Title Deeds Dated After The 31st December, 1986

But if you bought (again meaning signed your purchasing escritura) after 31st December 1986, you have to suffer the following complicated calculation:

First you take the same 3 steps as explained under "New Set Of Calculations", and you have the current value of your original investment in the property and preliminary capital gains.

But if more than 2 years have passed between your purchase and 31st December 1996, you are also allowed an additional reduction in the capital gains of 11.11% for each year above the 2, up to that date.

    Change Of Permanent Dwelling

Resident Selling One Property To Buy Another

If you sell one permanent dwelling in order to buy another, you have some special advantages. But only if you are a resident, and have been one for at least 3 years. Because then you have the right to deduct the costs of buying the new permanent dwelling from the gains of selling the old one.

Complete Exemption On Two Conditions

You may have a complete exemption from paying capital gains taxes on two conditions:

1) if the total declared sales price of the old permanent dwelling is reinvested in the purchase (or purchase and renovation) of new permanent dwelling, and

2) that the reinvestment be done within a period of 2 years.

You will have a part exemption from capital gains taxes if the purchasing price of the new permanent dwelling is less than the declared sales price of the previous one, according to this formula:

    Taxes And Retention

Flat 35% Tax If Non Resident

If you are non resident in Spain, you pay a flat 35% tax on capital gains.

Advantages For Residents

Again, the residents have advantages: The capital gains become part of their income tax for the year of sale (unless the gains are used for reinvestment in a new permanent dwelling), with a roof of 20% tax on the gains.

Also, a resident will not suffer any retention in the sales price of a dwelling, while the buyer is obliged to retain 5% of the declared purchasing price if the vendor is a non-resident and if his escritura is not from before 31st of December 1986.

If the purchasing escritura of the non-resident vendor dates from before 31st December 1986, there are no capital gains taxes and subsequently no retention.

Retention By Buyer

If a retention of 5% from the declared sales price is made by the buyer, paying the retained sum on form 211 in a Spanish bank to the Hacienda, the non-resident vendor must make a calculation of his capital gains and the possible taxes to be paid.

If Vendor's Tax Is Equal To Or Higher Than 5%

Are the taxes eventually to be paid equal to or higher than the 5% retained, he should leave the money with Hacienda and do nothing.

If Vendor's Tax Is Equal Less Than 5%

Are the taxes to be paid substantially less than the sum retained, he must submit an application to the Hacienda to have the difference devolved. Your fiscal representative will assist you in preparing the application.

Important Documents To Have

It is important for you to have copies of both your purchasing and sales escrituras, as well as a carbon copy of form 211 that the buyer used for paying in the retention.

It may take some time before the money is returned!

NB: Make sure that the buyer really makes the 211, or you as the vendor may not present the 210.