Taxes when selling a property
There are mainly two taxes involved when selling a property in Spain: Capital Gain Tax and Plusvalia (Council) Tax.
CAPITAL GAIN TAX: Spanish capital gains tax is complex. It is paid by residents of Spain on their worldwide assets and by non-residents on property that they own in Spain. The main home of Spanish residents can be exempt depending on your situation.
Capital Gains Tax Rates
From 2007, gains made on the sale or transfer of assets, whether moveable or immovable assets, are taxed as “savings income” – so gains are added to your other savings income for the year and then taxed accordingly. From 1st January 2010 the tax was 19% on the first €6,000 of savings income and 21% thereafter. As part of Spain’s austerity measures an additional contribution has been added to the tax rates for 2012 and 2013. The total savings income (including gains) tax rates for 2012 are therefore: up to 6.000 € the rate is 21%, from 6.000 € to 24.000 € the rate is 25% and over 24.000 € the rate is 27%.
Capital Gains on the Sale of Property
In addition to the cost of acquisition, lawyer and real estate agent invoices, expenditure on improving or enhancing the property are allowable as a deduction when calculating the net gain (selling price minus acquisition cost), and there is an "indexation co-efficient" that increases the allowable costs for inflation, based on how long the property has been owned.
Main home relief/exemption if under 65
Reinvestment relief is available to Spanish residents when they sell their main home and invest in a new one. To qualify for this relief, the property must be your main residence and you must have lived in it continuously for at least three years (less if you had to sell because of a change of job, marriage etc.) from the date of sale or completion. You must then buy a new main residence within two years, starting two years before the sale. The tax relief is based on the proportion of the sale proceeds reinvested into the new home. If the new home costs more than the sale price of the old home, then all of the gain is exempt. If only 50% of the sale proceeds are reinvested, then only half of the gain is exempt.
If the property being sold has a mortgage on it, then it is the net sale proceeds that need to be fully reinvested to escape capital gains tax. In order for the reinvestment relief to apply, the taxpayer must declare the gain on their Spanish tax return together with their intention to reinvest the proceeds into a new main home. If the required declarations are not made, the relief is likely to be denied by the Spanish tax authorities. Note that reinvestment relief is only available to Spanish tax residents (you will need to have registered as a resident and be paying tax locally). However the main residence does not need to be in Spain to qualify for the relief, nor does the new home.
Main home exemption if over 65
If, as above, you have lived in the property as your main home for three years or more, if you are over 65 years old when you sell it, the gains are exempt from capital gains tax even if you do not buy a new property. Again, you must be able to show you have been tax resident in Spain.
Sale of property by non-residents
When property is sold by a non-resident of Spain, purchasers must withhold 3% of the purchase price (not the gain) and pay it over to the Spanish tax authorities as an advance payment of capital gains tax on behalf of the vendor. If this is not paid, the purchaser can be fined and the unpaid tax becomes a charge over the property itself. If this 3% exceeds the tax due on the gain, a repayment will be made of the excess; however, if the tax due is more than the retained amount, further tax will be due in Spain. The vendor must file a Spanish tax return on the transaction within three months of the sale before any repayment can be made. If a person is not resident in Spain, tax may also be due in the country where they are resident, subject to any Double Taxation Treaty Relief.
PLUSVALIA TAX: It's a local tax in urban areas levied by Spanish Town Halls on property transactions (houses, commercials, plots, etc.) of whatever type (sale, inheritance, donation, etc.) based on the growth in the value of urban land. By law, the tax is payable by the vendor although in some cases, and by mutual agreement, the buyer may pay it.
The Plusvalia is a tax that requires an agreement of the Plenary Session of the Town Hall where applicable coefficients, tax rates, reductions, exceptions will be fixed inside certain margins established by law (Ley Reguladora de Haciendas Locales). On Inheritances and donations, it is the beneficiary the one obliged to pay while, in sale transactions, it is the seller (if the seller is non-resident in Spain, it is recommended that the buyer retains the Plusvalia tax amount that will be required to him if the seller does not pay) the liable party.
The Plusvalia is calculated as a function of the catastral value of the land and the number of years of ownership (up to a maximum of 20 years). The higher the catastral value and the number of years of ownership, the higher the tax.
Plusvalia tax = Catastral value of the land x Yearly percentage of value’s increase x Number of years of ownership x Tax rate
The yearly percentage of value’s increase and the tax rate are fixed by the Town Halls. They are established locally as:
Marbella: Yearly percentage of value’s increase: 2,4% Tax rate: 30%
Benahavís: Yearly percentage of value’s increase: 2,3% Tax rate: 20%
Up to now, when a Town Hall had updated the catastral values, usually with really high increases of the values compared to the existing ones, article 107.3 of the Law had established that on the following five years after the revision of the values, the Town Halls had to apply a deduction of 40 to 60 % to the catastral value. If a Town Hall had not that deduction established, 60% will be applied. Marbella’s Town Hall was exactly in this situation. However, a new Law passed in 2012 changed that situation allowing the Town Halls to eliminate those deductions. We will see how Marbella reacts to that new option.