Tax on property

jpeg wrote:22 April 2019,
Larraín Nesbitt Abogados

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On selling property in Spain, you are liable for two taxes: plusvalía and capital gains tax (CGT). In this short article on Spanish tax, we will focus on four strategies to mitigate a seller’s exposure to CGT, which range from completely negating it to reducing it significantly.
The following has been summarised to avoid unnecessary tax technicalities. You are advised to seek professional legal advice on your particular matter.

1. Absolute relief

All tax residents over 65-years-old in Spain are exempt from paying CGT on selling their main abode (vivienda habitual, in Spanish legal jargon).

2. Rollover relief

Any resident seller under 65-years-old is exempt from paying CGT on selling their main home providing the following conditions are met:

• Seller is under sixty-five years old

• Seller is a (tax) resident in Spain

• The property must be their main home (main abode and they must have lived in it permanently for the 3 previous years). It may be less than three years under exceptional circumstances i.e. job change, marriage or separation

• The proceeds from the sale are reinvested in a new main home (in Spain or elsewhere in the EEA/EU, including the United Kingdom in a pre‐Brexit world). Any sales proceeds not reinvested will be taxed pro rata

• There is a 2‐year deadline to reinvest the sales proceeds in a new main home

3. P[b]ension annuities[/b]

This third tax relief is in addition to the above two main home tax reliefs. Any capital gains made by resident taxpayers over 65-years-old will go untaxed provided the following conditions are met:

• Sales proceeds are reinvested in pension annuities

• Capped at 240,000 euro

• Six-month deadline starting from the date of the sale

4. Traditional method: capital gains tax mitigation

Your lawyer can offset from your CGT liability on selling all expenses that went towards buying the property plus any refurbishment costs, provided you have VAT invoices to back them up. These include:

• Lawyer’s fees (on buying)

• Notary fees (on buying)

• Land Registry fees (on buying)

• Taxes (on buying)

• All property-related improvements (not maintenance costs) e.g. glass curtains, refitted kitchen, roof retiling, wood flooring, A/C, house alarm etc.