Spanish capital gains tax – learn about the intricate tax rates, exemptions, reliefs and allowances applicable to both Spanish residents and non residents when encountering capital gains from the sale of real estate, quoted shares or other assets situated in Spain.
When relocating to Spain, or acquiring property within the country, you should familiarise yourself with the Spanish tax framework and proactively devise strategies to mitigate your tax obligations. One aspect to consider is how capital gains tax (CGT) is calculated, allowing you to assess the tax liability when selling property and investments in Spain.
Capital gains tax in Spain for residents
In Spain, income is categorised into two distinct classifications: general income, known as “renta general”, and savings income, referred to as “renta del ahorro”. Notably, capital gains arising from investments and property transactions fall under savings income.
In 2023, residents pay tax on savings income progressively at the following rates:
- 19% on savings between €0 – €6,000
- 21% on savings between €6,000 – €50,000
- 23% on savings between €50,000 – €200,000
- 27% on savings between €200,000 – €300,000
- 28% on savings over €300,000
Capital gains tax in Spain as a resident on shares and other investments
Gains made on the sale or transfer of shares (equities) and other securities are added to any other savings income you made that year (from dividends, interest, income from life assurance contracts, purchased annuities) and taxed at the rates above.
You can offset capital losses against other capital gains or savings income of the current year, but there are limitations. Net losses for a year can be carried forward for the next four years.
Holding shares directly in Spain is not necessarily the most tax-efficient option, and there are compliant arrangements available in Spain that enable you to hold your investments in a very tax-efficient manner.
Capital gains tax in Spain on property – how is it calculated?
In the context of real estate transactions, the calculation of capital gains when selling property in Spain follows a simple structure:
1. Disposal Price: This is based on the actual selling price, which must not fall below the prevailing market value, and is adjusted by subtracting any associated disposal expenses, notably the ‘plusvalía municipal’ tax.
2. Acquisition Price: The acquisition price is determined by considering the genuine cost of acquiring the property. This includes expenses incurred during the acquisition process such as notary fees, land registry fees, solicitor’s fees, and any taxes related to the acquisition. Furthermore, the cost of improvements made to the property is factored into the equation. However, any applicable depreciation will be deducted from this amount.
It is worth noting that expenses directed towards enhancing or improving the property, such as extensions, tennis courts, swimming pools, garages, and similar investments, are taken into account for calculating the acquisition price. Conversely, expenditures associated with standard repairs and routine maintenance are excluded from the capital gains tax calculation, as they are exclusively deductible against rental income, if applicable.
Furthermore, you should consider the customary practice in Spain, where notary fees and land registry fees are typically borne by the property purchaser, unless an alternative arrangement has been mutually agreed upon by all parties. These are considered against the acquisition price, but not against the disposal price.
Finally, taxes linked to the acquisition of the Spanish property will either be the ‘Impuesto sobre Transmisiones Patrimoniales’ (ITP) or the ‘Impuesto sobre el Valor Añadido’ (IVA), contingent upon the specific circumstances of the transaction.
What is ITP in Spain (Impuesto sobre Transmisiones Patrimoniales)?
ITP is a tax in Spain that applies when you buy things like property or other assets from individuals or organisations.
What is IVA in Spain (Impuesto sobre el Valor Añadido)?
IVA is the Spanish equivalent of Value Added Tax (VAT) in the UK. If you buy a ‘new build’ in Spain and are the property’s first registered owner, the sale will be subject to this tax. The percentage of IVA is usually 10% of the property value but can be as high as 21% in special circumstances.
Primary residence capital gains tax exemption
In Spain, a significant tax advantage is extended to individuals when they sell their primary residence. Specifically, capital gains tax is not applicable in such instances, provided that the proceeds from the sale are reinvested into another property designated as your main home. However, certain criteria must be met for both properties to avoid the standard capital gains tax liability.
Capital gains tax in Spain after Brexit
One notable feature of the main home exemption is that the newly acquired property need not be situated within Spain; it can be located in any European Union (EU) or European Economic Area (EEA) country to be eligible. Conversely, the replacement primary residence must also be within the EU/EEA. In light of Brexit, the UK is no longer part of the European Union, meaning that residents of the UK now forfeit this tax relief in Spain.
Spanish residents should be aware that capital gains tax is applicable to the sale of any other property, irrespective of its location worldwide, at the progressive rates above. In some instances, individuals may also be liable to pay taxes in the country where the property is situated. The UK-Spain double tax treaty was established to mitigate potential double taxation issues on capital gains in such scenarios, but seeking personalised advice tailored to your specific circumstances is advisable.
Capital gains tax exemptions for taxpayers aged 65 and above
Residents of Spain aged 65 and above are eligible for specific privileges concerning capital gains tax. If you decide to sell a property that has served as your primary residence for a duration exceeding three years, you are exempt from capital gains tax on the profit generated from the sale, even if you choose not to reinvest the proceeds. However, certain qualifying conditions apply.
Furthermore, individuals in this age bracket are exempted from capital gains tax on profits derived from the sale of any other assets, not limited to their primary residence. This exemption is contingent upon utilising a portion, or the entirety, of the sale proceeds to establish a whole-of-life pension annuity, commonly referred to as “renta vitalicia,” within a six-month timeframe. Only the sum used for this purpose qualifies for the exemption. The maximum amount that can be reinvested in a whole-of-life annuity is €240,000; any surplus amount, if applicable, becomes subject to capital gains tax. Again, specific requirements must be met to benefit from these exemptions.
Selling property in Spain as a non resident
For a UK resident selling property in Spain, capital gains on the sale or transfer of assets located in Spain is taxed at a fixed rate of 19%.
For non resident property sellers, buyers withhold 3% of the property purchase price, which serves as an advance payment for the seller’s capital gains tax. Failure to do so may result in fines and property liens and sellers should file their tax return within three months of sale for a potential tax reimbursement. Transfer tax, VAT, and local land appreciation tax may also apply.
Spanish capital gains tax on Spanish investments for non residents
EU residents (who do not live in Spain) who invest in assets and companies located in Spain are generally exempt from capital gains tax on non-real estate gains, with exceptions for gains from tax havens, shares in real estate-rich companies, and ownership of at least 25% within the previous year. Double Tax Treaties may reduce or eliminate these taxes.
Take specialist advice to ensure you hold your assets, particularly your investment assets, in the most tax-efficient way for Spain. Our advisers live locally in Spain and will help you manage your assets so that you do not pay more tax than you need to. Always seek professional advice before making any changes to your investments and tax planning.
Contact Blevins Franks today.