What is the Capital Gains Tax in Spain?
Capital gains tax in Spain (CGT) is levied on the profit made from selling property or other significant assets. The rate of this tax varies depending on the amount of profit gained from the sale, starting at 19% and going up to 26% for higher gains. However, the actual payable amount can be influenced by various deductions related to the costs associated with both the purchase and the sale of the property.
Capital Gains Tax on Transfers and Donations
In addition to sales, capital gains tax in Spain is also applied to asset transfers and donations. This often-overlooked aspect means that any transfer of ownership or donation of assets, including economic rights, is subject to CGT. Understanding this can help you plan better for tax liabilities that arise not just from sales but also from gifting or transferring assets to others.
The capital gains tax brackets in Spain (2024)
| From (€) | To (€) | Rates (%) |
|---|---|---|
| 0.00 | 6,000.00 | 19% |
| 6,000.01 | 50,000.00 | 21% |
| 50,000.01 | 200,000.00 | 23% |
| 200,000.01 | 300,000.00 | 27% |
| 300,000.01 | Greater than | 28% |
Who Needs to Pay Capital Gains Tax in Spain?
Expatriates moving to Spain who sell a property in their home country and make a gain must pay capital gains tax in Spain if they become tax residents. Tax residency is established if one spends more than 183 days within the Spanish tax year (January to December), including days spent on vacation.
Planning for Tax Efficiency
Properly timing your move is crucial. For instance, if you plan to arrive in Spain later in the year and stay for fewer than 183 days within that tax year, you could potentially avoid becoming a tax resident for that year, thus sidestepping the requirement to pay Capital Gains Tax in Spain for that period.
Deductions and Losses
Spanish tax law allows for various deductions on capital gains tax. Expenses related to the acquisition and sale of the property, such as notary fees, legal fees, and taxes paid during the purchase, can all be deducted from the taxable gain. Additionally, if the sale results in a loss, this loss can be declared and offset against other capital gains in Spain.
Special Considerations for Reinvestment
A significant exemption exists if the profits from the sale are reinvested into a new main residence in Spain. If you reinvest all gains from the sale of your former main residence abroad into a new primary residence in Spain, these gains may be exempt from capital gains tax, provided the new property qualifies as your habitual residence.
Recent Updates on Municipal Capital Gains Tax
Significant changes have been made to the Municipal Capital Gains Tax, also known as ‘Plusvalía Municipal’. Following a Constitutional Court ruling, the new regulations allow taxpayers to choose between the Objective Estimation Method and the Real Estimation Method. This adjustment was made to ensure fairness, particularly in cases where no actual increase in land value occurs, or even losses are recorded. Understanding these options can significantly affect tax calculations on property transactions.
This ruling was issued on October 26, 2021, under case number 4433/2020. Following this decision, the new regulations were implemented through Royal Decree-Law 26/2021, which took effect on November 10, 2021.
Bonifications and How to Avoid Paying This Tax
In addition to reinvestment exemptions, there are specific bonifications that can significantly reduce capital gains tax liabilities. For instance, if you are over 65 and sell your habitual residence in Spain, you are exempt from capital gains tax, provided you have lived in the property for at least three years. Furthermore, for properties purchased before 1995, a substantial tax reduction applies, though it only covers gains accumulated until January 2006 and has a purchase price threshold of €400,000.
What if I Rent Before Buying?
If you choose to rent before purchasing a new home in Spain, you have a two-year window to reinvest the sale proceeds into a new property and still qualify for the capital gains tax exemption.
Additional Tips for Older Expatriates
For those over the age of 65, Spanish law offers a favorable provision: if you sell your habitual residence in Spain where you have lived for the last three years, you are exempt from paying capital gains tax, even if you do not reinvest the proceeds.
Capital Gains Tax for Non-Residents
Non-residents face different capital gains tax scenarios depending on their origin. Those from outside the EU are taxed at a higher rate of 24% on any capital gains, whereas EU, Norwegian, and Icelandic nationals benefit from a reduced rate of 19%. Notably, non-residents can also qualify for exemptions if they reside in an EU country that holds a tax treaty with Spain and meet specific conditions related to habitual residence.
Limitations on Loss Offsetting for Non-Residents
For non-resident taxpayers, an important restriction exists in the Spanish tax system regarding capital gains. Losses incurred from one real estate transaction cannot be offset against gains from another within the same fiscal year. This means that each transaction is taxed independently, potentially increasing the tax burden for non-residents who engage in multiple property deals.
Detailed Examples of Capital Gains Tax Calculations for Expatriates in Spain
Here are some scenarios to illustrate potential tax liabilities based on different outcomes from the sale of property in your home country before relocating to Spain.
Example 1: Basic Calculation of Capital Gains Tax
Scenario: Alex sells his home in the UK for €200,000, which he originally purchased for €150,000. He incurs €10,000 in legal and notary fees during the sale.
Calculation:
- Sale Price: €200,000
- Purchase Price: €150,000
- Expenses: €10,000
- Net Gain: €200,000 – €150,000 – €10,000 = €40,000
Tax Liability:
- The first €6,000 of the gain is taxed at 19%, and the remaining gain is taxed according to the applicable bracket (up to €50,000 at 21%).
- Tax on first €6,000: €6,000 × 19% = €1,140
- Tax on remaining €34,000: €34,000 × 21% = €7,140
- Total CGT Due: €1,140 + €7,140 = €8,280
Example 2: Reinvestment Exemption Scenario
Scenario: Maria sells her primary residence in the USA for €300,000, making a gain of €120,000. She moves to Spain and invests the entire €300,000 in purchasing a new main residence.
Calculation:
- Gain from Sale: €120,000
- Since Maria reinvests the entire sale amount into her new main residence in Spain, she qualifies for a reinvestment exemption.
Tax Liability:
- CGT Due: €0 (due to full reinvestment into a new habitual residence)
Example 3: Calculation with No Gain
Scenario: John sells his house in Canada for €250,000, which is exactly what he paid for it. He also incurs €15,000 in fees associated with the sale.
Calculation:
- Sale Price: €250,000
- Purchase Price and Costs: €250,000 + €15,000 (fees) = €265,000
- Net Gain: €250,000 – €265,000 = -€15,000 (a loss)
Tax Liability:
- CGT Due: €0 (no tax on losses, but loss can be carried forward to offset future gains)
Example 4: Older Expatriate Selling in Spain
Scenario: Emma, who is over 65 years old, sells her habitual residence in Spain, where she has lived for the past four years. She purchased her home for €200,000 and sells it for €350,000.
Calculation:
- Gain from Sale: €350,000 – €200,000 = €150,000
Tax Liability:
- CGT Due: €0 (due to exemption for seniors selling their habitual residence)
Implications of Double Taxation Agreements
The Double Taxation Agreements between Spain and other countries, such as the UK or the United States, affects how capital gains are taxed for residents of Spain who sell property located abroad. These agreements may allow taxpayers to claim deductions for taxes paid in one country when filing their taxes in another, preventing double taxation. This is particularly relevant for expatriates and should be considered when planning property sales in different countries.
Strategies to Avoid CGT on Foreign Property Sales Before Moving to Spain
When selling a house in the UK or the United States and then moving to Spain, capital gains tax implications requires careful planning and strategic timing. Here’s how you might avoid or minimize capital gains tax liabilities under these circumstances:
1. Understand Your Tax Residency
- Determine Tax Residency: In Spain, you become a tax resident if you spend more than 183 days within the country during a calendar year. As a tax resident, you are required to report and potentially pay taxes on your worldwide income, which includes capital gains from the sale of property in the UK or the US.
2. Timing the Sale and Your Move
- Strategically Plan Your Sale and Relocation: To avoid becoming a Spanish tax resident in the year you sell your property, consider selling your property in the UK or the US early in the year and delaying your move to Spain until after the 183-day threshold within the same year. This can help ensure that you do not trigger Spanish tax residency for that year, and consequently, the capital gains from the sale may not need to be declared in Spain for that tax period.
3. Leverage Tax Treaties
- Utilize Double Taxation Agreements: Spain has double taxation agreements with both the UK and the US, which can prevent double taxation on the same income. For capital gains tax, these agreements generally allow the country where the property is located to tax the gain. Therefore, Spain should not tax you again on the sale of property in the UK or the US. However, if you are a tax resident in Spain, you must still declare this gain and can claim a credit for any taxes paid in the country of the property’s location.
4. Spanish Tax Rules on Reinvestment
- Reinvestment Relief in Spain: Spain offers a tax relief if you reinvest the proceeds from the sale of your primary residence into another primary residence within Spain. If, after selling your primary home in the UK or the US, you use those proceeds to buy a new main residence in Spain, you may qualify for this exemption, provided specific conditions are met and the reinvestment occurs within a set timeframe.
5. Consult Tax Professionals
- Get Expert Advice: Due to the complexities involved in international tax laws and potential financial impacts, it is advisable to seek guidance from tax professionals who specialize in both Spanish and either UK or US tax laws. They can offer tailored advice based on your specific circumstances, including how to optimize the timing of your sale and move, and how to effectively apply tax treaty benefits.
6. Maintain Comprehensive Records
- Document Everything Thoroughly: Keep detailed records of all transactions and movements, including documentation related to the sale of your property and any related tax payments in the UK or the US. These documents will be crucial for verifying the sale timing, establishing your residency status, and supporting any claims for tax credits or exemptions in Spain.
By meticulously planning your property sale and subsequent move to Spain, and by understanding how different tax jurisdictions interact, you can effectively manage your tax obligations and potentially reduce your capital gains tax exposure.
This article is not tax advice. Make sure to consult with our recommended tax advisors.
