Continuing with last week's article (Taxes on buying property in Spain), in today’s article, we focus on the taxes sellers need to face.
Capital Gains Tax
This tax is paid to the central government, to the Spanish Tax Office (AEAT).
CGT is taxed on the profit (*) derived from selling a property.
- E.E.A. and EU-resident: 19%
- Rest of the world: 24%
(*) Profit is defined as the difference between what you paid for a property and what you sold it for (minus all property-related improvements, and less all the associated expenses incurred on buying the property).
Non-residents in Spain have a 3% retention practised by a buyer on account of a seller’s CGT liability. This 3% is withheld by the buyer and paid directly to the Spanish Tax Office.
Depending on whether a seller makes a profit, or not, they may be entitled to a total (or partial) tax rebate of 3% of the sales proceeds:
- Seller breaks even or sells at a loss: entitled to a full (or partial) 3% tax rebate
- Seller makes a profit on selling: must pay CGT (the 3% withheld goes towards it).
CGT can be greatly mitigated by a lawyer when selling or gifting a property. For reference, our taxation articles:
- How to mitigate Capital Gains Tax on selling property in Spain.
- Taxation on gifting property in Spain
A lawyer can greatly mitigate your tax bill on selling; in fact, so much so that you may even qualify for a full tax rebate on the 3% withheld by the buyer. The tax rebate procedure is explained in detail in our taxation article: Did you know most non-resident sellers are entitled to a tax rebate on the 3% retention?
If done right and all expenses and taxes are offset, the actual CGT on selling is closer to 7% of the profit. The tax mitigation procedure is technical and can only be done by a lawyer.
We offer a 3% tax rebate service for a competitive fee. In 3 months, you get a refund of the 3% retention, plus any legal interest (if refunded belatedly).
Plusvalia Tax
Sellers pay this tax to the town hall where the property is located. Town halls calculate the applicable tax following a sliding scale.
Some town halls are notoriously slow and post their tax invoice late, often exceeding a year. Buyers normally practice a retention on the sales price at completion. Meaning the buyer, or their legal representative, will pay for the seller’s tax using part of the withheld sales price (the retention).
The reason why retentions are practised (by the buyer) is because if a seller walks away after completion - without paying said tax - the buyer automatically becomes liable for it.
The golden rule in Spain is that debts and arrears always follow the property, not the seller. So, whoever becomes the new owner ‘inherits’ all previous debts, taxes, liabilities, and even ongoing court proceedings. This is one of many reasons to instruct a lawyer on selling (or buying) property in Spain to avoid tax and legal problems. Your conveyance lawyer will run a due diligence on the title.
A gentle reminder that banks and public notaries do NOT carry out background checks on a title. All they do is ensure the paperwork is legal and that taxes are paid. At no time do they act as a substitute for a lawyer’s due diligence.
Related LNA services (we act nationwide):
At Larrain Nesbitt Abogados (LNA) we have over 21 years of experience specializing in taxation, and property conveyance. We also assist clients with immigration & residency visas and inheritance procedures (probate). You can contact us by e-mail at info@larrainnesbitt.com, by telephone on our UK line (+44) 0754 3838 218 or Spanish line (+34) 952 19 22 88, or by completing our contact form.
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Ní neart go cur le chéile. VOV.
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