Tax Liability of the Seller
CAPITAL GAINS TAX
This tax is paid by residents in Spain for their properties worldwide and non-residents who own a property in Spain.
The seller will be responsible for payment of capital gains tax. This tax is levied on the increased value of the property, that is, the difference between the price at the time of the purchase and the sale price. From January 1 2012 capital gains tax increases from 19% to 21-27% (depending on the year). Any additional costs implicit in the purchase of the house can be deduced if accompanied by the relevant invoices. Therefore, all taxes inherent to the purchase, notary and legal costs as well as reforms and improvements of the house, etc. may be deducted in calculating the capital gains tax.
Example:
Original purchase price: 100.000 €
Taxes and fees inherent to the purchase: 10.000 €
Sale price: 160.000 €
160,000 – (100,000 + 10,000) = € 50,000
€ 50,000 x 21% = € 10,500 Capital Gain Tax
This amount may be reduced depending on whether the property was purchased and / or sold by certain dates.
Deductions and tax exemptions for Spanish residents:
Over 65 years and they have lived in the same property for at least three years before the sale. In this case the gains are exempt from tax even if a new house is not purchased.
Under 65 years may obtain a full or partial tax credit for reinvestment if the net income proceeded from the sale of your main residence is reinvested in the purchase of another property within two years. if the new house costs more than the old one the deduction is total. To claim this deduction, the taxable person must report the gain with the intention of reintegrating the benefit in a new habitual residence and be tax resident in Spain. However, neither the former habitual residence, nor the new, have to be located in Spain.
MUNICIPAL TAX – PLUSVALIA MUNICIPAL
The seller is responsible for paying the Plusvalia tax but sometimes he can reach an agreement with the buyer. This tax is levied by the local Council and is based on the value of the area where the property is located and NOT on the property price (the value of the house does not affect the capital gains tax). This tax is calculated based on the assessed value of the land and the number of years the seller has owned the house (take a maximum of 20 years).
Plusvalía Municipal = Asessed value of the land x Annual rate of increase x Number of years as owner x Tax rate
The annual % increases and tax rates depend on the municipalities locally established as:
Marbella: Annual rate of increase: 2.4% Tax rate: 30%
Benahavís: Annual rate of increase: 2.3% Tax rate: 20%
MORTGAGE
The seller is responsible for payment of any liens affecting the property, eg mortgage cancellation charges, unless otherwise agreed between buyer and seller.
If the buyer is going to purchase the property through a bank mortgage, he might consider to take the existing mortgage over (considering its terms and conditions ) because in this way it could be cheaper than applying for a new mortgage.
IMPORTANT FACTORS TO CONSIDER BEFORE SELLING A PROPERTY IN SPAIN:
RETENTION
If the seller is NO-resident and have owned a property for less than 10 years, it is important to know that the buyer is obliged to withhold 3% of the purchase price and deliver it to the tax authorities as an advance of the Tax Gain Capital. Once the exact amount has been calculated, the seller will receive a refund or will be required an additional fee to cover the total tax payment.
If the buyer does not retain this amount from the seller he becomes responsible for the payment of this tax and may be fined. The seller must file a refund request within 3 months after the transaction to request a refund, in the case that 3% withheld exceeds the amount payable.
Anyhow, as each case is different, it is highly recommended that you consult your specific case with your attorney or tax advisor.
DECLARATION OF THE PRICE OF SALE
Not long ago tax evasion was common in the Spanish society and real estate transactions were a clear example. The seller used to declare a selling price much lower than the real price to reduce the Capital gains/Plusvalia taxes. On the other side buyers, who were complicit in these agreements, benefited by paying less tax on the purchase of the property.
In the last 10 years this situation has changed and the Spanish Government lurks especially in regard to real estate transactions.
If appraisers estimate that the price of a property is too low may impose high penalties on the seller.
For these reasons deliberately devalue the value of a property has become a practice of the past and from here we recommend our clients not to be involved in such activities.