GAINS TAX TO PAY WHEN SELLING A PROPERTY IN SPAIN – IRPF ON THE SALE  – MODEL 210 & MODEL 100

As owner of a property in Spain, when SELLING, you have to pay what we call “Ganancia Patrimonial“, also known as “Capital Gains” in English, or “Plus-value” in French, “Meerwaarden” in Dutch, or “Kapitalgewinn” in German, etc. This tax on the sale is part of the general Income Tax.

In order to know about how this tax works, please, pay attention to the following concepts:

 1.- PRICE OF PROPERTY PURCHASE:  Total amount paid on the price of acquisiton when the property was bought. 

2.- EXPENSES AND TAXES JOINED TO THE PURCHASE:  This concept englobes the total amount on expenses and taxes that  paid which were connected to the purchase:

– Notary and land registry fees

– Amount paid on VAT  and Stamp Duty (in case of new properties) or Transfer Tax (in case of re-sales)  

– Profesional fees: Real Estate agent’s fees, lawyer’s fees, etc. 

 3.- REFORMS, WORKS AND IMPROVEMENTS  MADE ON THE PROPERTY:   It is very important to know that not all the reforms will be accepted as reduction on the Capital Gains Tax.  Purely, the Spanish administration will accept just those  reforms which are considered as «structural», like “rehabilitation” or “extensions” of constructions.  

Extensions made in the property can also be considered in order to obtain a reduction in  IRPF.  The Spanish tax office consideres  “extension” consists of a process by which new elements are incorporated into a property, obtaining as a work/construction in the property whcih gives a greater productive capacity. “In this concept will enter the new constructions, surface extensions, etc  made on the property. The cost of these extensions, likewise, could be computed as a higher acquisition value.

But, beware, the repair and conservation works that are done in the house can not be computed with the aim of reducing the amount of the capital gain, since they are not works aimed at improving the house or expanding it, but to keep it in perfect condition for use and enjoyment.

And to differentiate the “improvement works” from the “conservation works”, the Tax office  indicates that “repairs and conservations are those aimed to maintaining the useful life of the property and its productive or use capacity, while it is possible to consider as extensions or improvements those that result, either in an increase in the capacity or habitability of the property,  as well in an extension of its useful life. In case you have carried out renovation works , depending on the nature of these, they may be classified as improvements or extensions, in which case they must be taken into account when calculating the acquisition value of the transferred property, or conservation or repair expenses, which should not be taken into account in said calculation.

As conclusion, we are facing a question of evidence, which must be resolved on a case-by-case basis depending on the nature of the works carried out.

 4.- RETENTION FOR CAPITAL GAINS: In case the vendor is non tax resident in Spain, there is a retention from the price of the sale of 3 %. This amount is not paid to the vendor, and must be paid to the tax office as a “retention” for the upcoming Capital Gains declaration which will be presented after the sale. The buyer has the obligation to “retain” the 3 % from the price to pay and deposit it into the Spanish tax office, as a «payment in advance» of the Capital Gains to be paid from the vendor.

BASE OF THE TAX

The sale of Spanish properties derive in Capital Gains liability to vendors on the “Net profit” obtained from the sale with the following formula: 

Price of the sale – Price of acquisition – Expenses and Taxes on acquisition – Cost of «structural reforms» made on the property

TAX RATE

Once calculated the Base of this tax “Net profit”, you the tax rate to pay differs from your tax situation in Spain as Spanish RESIDENT or SPANISH NON RESIDENT: 

– Spanish Residents-MODEL 100:

In case that you are considered as «Spanish Tax Resident» (which means that you are paying your income tax in Spain as a Spanish resident), then, once calculated the Capital Gains, you will have the following benefits on the tax:

• NO CAPITAL GAINS FOR PERMANENT RESIDENCE: In case the property you are selling is your permanence residence (you have bee using it for more than 3 years as your «permanent home»), then you will have the following benefits:
  • If you are younger than 65 years old: You do not pay CG for the amounts of the sale obtained «reinvested» in the acquisition of a new property to be used as your permanent residence. You have 2 years to practice this «reinvestment» (passed 2 years without invest those amounts, you will be taxed in full).
  • If you are older than 65 years old: You do not pay CG for the amounts obtained on the sale. And this even if you do not «reinvest» in a new property.
• NO 3 % RETENTION: On completion of the sale, you receive the full amount of the price from the buyer with no retention applicable.

tax rate in case of tax residents
Net profit	Tax Rate
Up to 6000 €	19 %
6000 – 49.999 €	21 %
50.000 – 199.999 €	23 %
+ 200.000 €	26 %

– Spanish NON Residents -Model 210:   Fix Tax Rate: 19 %

Example of Capital Gains calculation: 

• You bought a resale property in 2015 for a price of 200.000 EUR.
• On that moment, you paid 24.000 EUR, which is the 12 % of expenses: 10 % Transfer tax  + 2 % notary, land registry, solicitor fees, etc.
• Then, you made internal reforms for 17.000 EUR (change of tilling of the floor, repairing the pool, and new windows).
• Some years later you built a garage for a value of 20.000 EUR

Then, you decided to sale now for a price of 260.000 EUR.

What is the Capital Gains derived from this sale?

NOTE: Before we make the calculation, we need to inform that the Spanish administration will consider all the above concepts to reduce the tax, except the  one for «internal reforms» for 17.000 EUR value. The reason of this is because «internal» reforms which are not «structural» reforms are not considered for tax benefits.

We use the formula:

260.000 (Price of the sale) – 200.000 (Price of acquisition) – 24.000 (Expenses and taxes on acquisition) – 20.000 (New Garage) =

16.000 EUR

This is the «Net profit» to be obtained with the sale

As the rate for Capital Gains is 19%, then, the amount of the tax for Capital Gains will be:

16.000 * 19 % = 3.040 EUR

 WAY OF PAYMENT OF THE TAX

In case of Spanish tax RESIDENTS, the tax is declared together with the rest of incomes, pensions, salary, etc  as part of the global Income Tax declaration to be presented before the end of June of the following year.

  In case of NON tax residents in Spain, the way to pay Capital Gains is the following:

• ON COMPLETION OF THE SALE: 3 % RETENTION: On completion of the sale, the Spanish administration forces the buyer to make a RETENTION of the 3 % from the value of the Price of the sale. So, you do not receive the full agreed price. The buyer keeps the 3 % of the total price and he has the obligation to deposit it at the Tax office. This is done «the same day of completion of the sale».

NOTE: Following the above example, in case the price of the sale was 260.000 EUR, the retention tlo be made by the buyer would be 260.000 * 3 % = 7.800 EUR.

• BEFORE 4 MONTHS AFTER COMPLETION OF THE SALE: DECLARATION OF CAPITAL GAINS 19% applicable to both, EU and NON EU nationals): After completion of the sale, you have 6 months to present the «Capital Gains Declaration» to the Spanish tax office.  In this declaration, you (or your lawyer), must calculate the tax following the above example. In this case, the amount that you have to pay is of 3.040 EUR.

NOTE: As explained here, the Capital Gains derived from this transaction is of 3.040 EUR. As you were retained with a higher amount (7.800 EUR), then, you have a «credit» with the Spanish administration for the difference.

So, if the Spanish administration holds from you 7.800 EUR for CG Tax, as the final result of the tax is only 3.040 EUR, then, the Spanish administration must «refund» you the difference: 7.800-3.040 = 4.760 EUR.

How to claim for this refund? Your lawyer has to include this fact on the same Capital Gains Declaration, to present to the Tax office.

 NOTE: Usually owners confuse the “Spanish Tax Residence”, with the “Spanish Residence”.

In other words, people think that the «Spanish Residence Card, or «Residence Certificate» obtained in the Spanish National Police, is enough to demonstrate that they are «Spanish Residents for Taxes», and, unfortunately, this is not the case.

The “Spanish Residence Card” (or “Spanish Residence Certification“), is not the valid document to change your Tax consideration as «Tax Resident».

The Spanish Residence Card (or Certificate) only serves to declare that you are “living” in Spain, in order to facilitate the Police to have a better control over the residents in a determinate area.

In order to become Spanish resident for taxes, and then start to pay your Taxes in Spain as a normal Spanish citizen, you must obtain the SPANISH  RESIDENT TAX CERTIFICATION issued by the Spanish Tax Office or Spanish Customs, and then you will start to pay your taxes in Spain, and not in your country of origin.

And, also, once you need to declare to the Tax of office from your country that you are Spanish Tax Resident, and that you do not wish to continue as Tax Residence on your country-

So, please, check with your tax adviser  the taxes that you are currently paying because, even if you are not Spanish Resident, you should be declaring and paying the INCOME TAX NON RESIDENTS.

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Why to practice the 3% retention from the seller?

Because it represents a guarantee for the Spanish administration that the taxes derived from the capital gain obtained by the seller will be paid in Spain.

 

What happens if the 3% retention is not paid? 

In the event that the retention is not practiced by the buyer, the Spanish administration may execute the debt for said payment in the goods or properties object of the sale.

With which, in the event that the buyer does not make the payment, nor does he withhold the seller, he may suffer the eventual processes of execution of the debt, and in his case, seizure of the acquired property.

 

Once the 3% retention has been applied, what does the seller have to do?

 

You will have to present the tax declaration, that model 210, within a period of four months from the date of signing the sale.

 

In this case, in the event that less than the amount resulting from the calculation of the capital gain has been withheld, that is, if €10,000 has been withheld from the seller, and the result of the calculation of the capital gain is €15,000. , you will have to contribute the remaining €5,000 with the presentation of the 210 model, within four months after the date of sale.

 

Otherwise, if the seller has withheld an amount greater than the amount resulting from the payment of capital gains tax, he will have the right to have that amount returned. This must be presented within four months from the date of sale.

 

It is important at this point, that is, in the event that there is a right of return of 3%, or part of said retention to the Spanish administration, this will require the seller to have previously complied with the tax obligations to which that he was obliged as an owner in Spain in his concept of non-resident. That is, to the presentation of the annual imputed income tax of the IRPFNR, of second residence, to which all property owners in Spain are obliged as non-residents. Normally, this obligation will be required for a period of four years. In other words, the Spanish administration will not demand that imputed income taxes be regularized, not paid beyond the last four years prior to the date of sale.

 

How much time does the Spanish administration have to return the excess of 3% withheld?

 

The administration has 6 months to return the excess retention made. After 6 months, the administration will be obliged to return said amount together with late-payment interest.

 

Special care must be taken with the term of the return since the Spanish administration can take in some cases more than a year to carry out the return.

 

It must also be taken into account that the administration has up to FOUR YEARS to practice the return or reimbursement. Therefore, in the event that it takes you more than a year to obtain a refund, you will need to hire the services of a specialist to paralyze the expiration periods of the right to obtain a refund.

 

Is there an obligation to practice retention of 3%, in the case of donations of properties in Spain?

 

In the case of donations of properties located in Spain, since these are free, there is no price to pay for them, that is, there is no consideration, there is no obligation to withhold 3% of the value of the donation or entering it through model 211.

 

In the case of condominium dissolution, or extinction of co-ownership, is it mandatory to withhold 3%?

 

Not normally . In other words, the dissolution of the condominium is a neutral dispositive act, which does not generate a patrimonial transfer for any of the parties. Therefore, it is not considered that there is a profit.

 

However , in the event that one of the co-owners is awarded a part greater than the one that belongs to him , in this case, it will be considered that said part constitutes a capital gain for the co-owner, with which, retention must be practiced. of 3% on said excess part . 

In other words, for example, let’s imagine that there is a case in which “A” and “B” have a property in Spain in which 65% is shared for “A” and 35% for “B”. In this case, if a condominium dissolution occurs in which it is established that each one keeps 50% of the property, it will be considered that “B” has obtained 15% more than what he has contributed. That is, contributing a value of 35% obtained a result of 50 %, with which, that 15% surplus will be considered as a capital gain, and “A” will be forced to retain 3% of the value of that 15% to ” B”.

In the same way, let’s imagine that there is another example in which ” B” receives, in addition to his 35% of the property, a cash conversation of €50,000. In the same way, said compensation in cash would be subject to 3% retention, because it represents one of the existing assets of “B”.

 

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OTHER TAXES FOR VENDORS-PLUSVALÍA

Mainly, the PLUSVALÍA, is a tax over the increase of the value of the land in which  your property is, from  the buying and the selling time. It is the sole tax that  we  are  not  in  the  position  to  calculate  previously  to  the  sale,  because depends on specific criteria from the Town Hall.

In these cases, a retention from the buyer to the seller is enough to cover the payment of this tax. Overall when seller is leaving the country after the sale.