Tax on Capital Gains on the Sale of Property in Spain

This summary analyses the general principles governing Spanish taxation of real estate disposals. In this respect, it should be noted that the analysis of the particular tax provisions that might be applicable in the different Spanish autonomous communities, and especially in the Basque Country, Navarre and the Canary Islands, are outside its scope.
What follows is no more than a summary of some of the key elements:

When it applies

Capital gains triggered by Spanish real estate properties are taxable in Spain, whether realised by a Spanish resident or non-resident. Moreover, Spanish law provides for the taxation in Spain of capital gains stemming from the sale, by a non-resident, of the shares of a company, whether or not Spanish, whose principal assets consist of Spanish properties.
The application of these provisions to non-residents depends on the contents of the tax treaty that binds Spain and the country of residence of the owner of the properties or shares of real estate companies.

Definition of a “gain”

A gain is equal to the difference between the purchase value and the sale value. Such difference will be the capital gain subject to taxation.

The Position of Spanish Tax Residents

If the taxpayer is resident in Spain for Spanish tax purposes the gain realised on the disposal of real estate will be subject to the Spanish Personal Income Tax and taxed as follows:
If the property has been owned for one year or less, the gain will be treated as a short term capital gain and be subject to tax at ordinary income tax rates ranging from 15 percent to 45 percent.
If the property has been owned for more than one year, the gain will be treated as a long term capital gain and be taxed at a flat capital gains tax rate of 15 percent.
Furthermore, the taxation of capital gains arising in connection with assets acquired before 31 December 1994 can be reduced or be zero depending on the acquisition date.

The Position of Non-Residents

A non-resident for Spanish tax purposes
The transfer of real estate property by a non-resident needs to meet the same conditions and formal requirements such as a transfer by a resident.
Regardless of whether a person is a resident of an EU member State or not, a gain realised on the disposal of real property is subject to the standard rate of 35 percent.
Please bear in mind that the application of these provisions to non-residents may be affected by the contents of the tax treaty that binds Spain and the country of residence of the owner of the properties or shares of real estate companies.
When a non-resident in Spain is transferring a property located in Spain, the purchaser, whether they are resident or not, is obliged to withhold and pay to the Treasury 5 percent of the agreed price. This payment normally is to be considered as an advance payment of the tax corresponding to the transaction by the vendor.

Reliefs or allowances

For Spanish resident taxpayers selling their principal residence in Spain any gain may be excluded from taxation if the property was their primary home provided that the total amount obtained in the transfer is reinvested in the acquisition of a new principal residence under the conditions determined by the Spanish Law.
When the amount reinvested is lower than the total amount received on the transfer, only the proportional part of the capital gain obtained that relates to the amount reinvested shall be excluded form taxation.
Furthermore, the transfer of their habitual home by Spanish resident taxpayer’s aged over 65 will be exempt from the tax.
If the property transferred was acquired prior to December 31, 1994, the capital gain that has been determined previously will be reduced by 11.11 percent annually for each year of ownership exceeding two years. In order to assess the period of ownership, the number of years between the date of purchase and December 31, 1996, has to be taken into account, and has to be rounded up.
There are other deductions and allowances that are applicable in limited circumstances that we have deliberately omitted from this general summary.
Please note: Taxation is a complex subject and steps should only be taken with full independent advice on the particular facts of a case. The content of this article is of a general nature and no liability is accepted in connection with it.

Disclaimer: Tax law is complex and every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of Spanish tax law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.