Something that both residents and non-residents in Spain must once during their life in the country. The capital gains tax is one of the main taxes you will need to pay after obtaining a profit from an economic transaction. In this article, we are going to learn how does this tax work, which are the exact percentages to be paid, and how can you benefit from the existing bonifications and exemptions. Are you ready?
What exactly is the Capital Gains Tax?
The capital gains tax is the tax that is paid on the profits that you obtain once you sell any kind of asset like a property or land, or from an investment in the Spanish territory. Whenever the sale value is greater than the price you paid for the investment/asset for its acquisition, capital gains tax will be paid on that difference, the profit.
So we are talking about one of the main taxes when selling your house in Spain.
Unlike some countries like in the UK in which this tax works independently, in Spain we find it integrated within the personal income tax (IRPF). The Spanish tax system is really complex and different from the rest, so we will try to be as clear as possible.
Let’s use an example in order to better explain how does this tax work.
Imagine that you bought a property in Spain for 500.000€. Now, after several years, you are planning to sell it. You find a buyer, and after some negotiations, you both accept that the sale price will be 700.000€, as the Spanish Real Estate market has grown and properties are more expensive now. The resulting 200.000€ that you earn is the taxable amount to which you will apply the capital gains tax percentage.
But, how much will you pay precisely in this situation?
As always, the answer depends whether if you are a resident in Spain or not.
Capital Gains Tax for Spanish residents
Just as a reminder, you will be considered a tax resident in Spain if you stay in the country for more than 183 days per year (6 months).
In that sense, if you considered a resident, the capital gains tax to be paid will be:
- 19% for the first 6.000€ obtained as a profit
- From 6.000€ to 50.000€, the tax percentage is 21%
- From 50.000€ onwards, a 23%
Remember that this percentage will be applied to the difference between the price you paid to purchase the property (or any other asset) and the one you receive when you sell it.
Bonifications and how to avoid Capital Gains Tax
Let’s start now with the information you are more interested with. There are two different situations in which you won’t need to pay this tax, and one in which you will need to pay just a reduced percentage. Let’s go over them briefly.
1. The main home exemption
If the amount of money that you earn from the sale of the property will be reinvested into the purchase of a new one, and you will use this new house or flat as your new home, you don’t need to pay capital gains tax.
That simple. This is what we call the main home exemption.
Hence, what you need to consider here is that the property you are selling was your habitual residence, and the one you are acquiring will be too.
Nevertheless, there are some requirements here. It is crucial that this property is located inside the European Union and not outside for the exemption to be applicable.
2. Selling your property if you are older than 65
There is an even better situation than the one in the prior section for those wanting to save taxes.
If you are 65 years old or over, it does not matter if the amount of money you get from selling the property will be reinvested into your new home or not. You won’t need to pay this tax.
There is no denying then that if you are close to that age, it is much better to wait until you are 65 in order to conduct any asset sale.
Nevertheless, you must bear in mind that there is a crucial condition you must meet in order to benefit from the 65-year-old exemption. And that is that the property you are selling must be your habitual residence. In order words, a minimum of 3 years lived in the property before selling it is required in order to avoid paying capital gains tax.
3. Reduction on assets bough before 1995
If you bought the property you now want to sell before 1995, lucky you. You can enjoy a slight tax reduction.
This means that all the properties that were acquired until December of 1994 will be eligible for this bonification. Nevertheless, there are two things to consider:
- The bonification will be only applicable to the gains produced until January of 2006. Any increase in the asset value afterwards won’t include the tax reduction and will be taxed at the normal rate.
- In order for the property or asset to enjoy this bonification, it must have been purchased for more than 400.000€
Then, if the property or asset you want to sell meets these requirements, which is the exact reduction you will enjoy? An 11% on properties, 25% in company shares, and 14% on all the other assets.
Capital Gains Tax for non-residents in Spain
So far we have seen the situation for those staying in the country for more than 183 days per year, including the bonifications and reductions. But what happens for the non-resident taxpayers in Spain in regards to this tax?
Well, they are not that lucky.
Non-residents in Spain from outside the European Union will pay a fix 24% rate for their capital gains. Nevertheless, if they are from any other European country, from Norway or Island, that rate is reduced to just 19%.
Are there any reductions or exemptions for non-residents?
The answer is yes. But unlike in the resident case, there is just one possible case here.
Non-residents can enjoy a capital gains tax exemption provided that they are legally living in any other European Union country that has a tax agreement with Spain. If that condition holds, they will be able to also enjoy the main home exemption too.
Which are the assets that are liable for the Capital Gains Tax?
As we have previously mentioned, properties are not the only assets liable for the capital gains tax.
This tax applies mainly to company shares, buildings, lands, flats and houses, government bonds and precious metals, among other assets and investments.
Let us optimize your taxes!
Now you know the rules of the game. Nevertheless, you may still find it difficult to solve the puzzle.
There are several rules and exemptions regarding all the taxes you need to pay in Spain as an expat, and knowing them all can be nearly impossible. That is why we want to make your life easier.
Our tax lawyers are specialized on expat taxes. They will analyze your situation, answer all your doubts and manage all your taxes so you can pay just what you should.
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