Selling Your Property in Spain as a Resident? Here’s the Tax Breakdown You Need to Know!
If you’re a Spanish tax resident and planning to sell your property, it’s essential to understand the taxes involved and how you might reduce your taxable gain. Today, I’m joined by my colleague Pedro, a tax expert from our Ciudad Quesada office, to explain the process.
Capital Gains Tax for Spanish Residents
As a Spanish tax resident, when you sell your property, the capital gains tax (CGT) is declared in your annual income tax return. The tax is based on the profit made from the sale of the property, which is the difference between the original purchase price and the final sale price.
You will declare the income the following year. For example, if you sell your property in 2024, you will report it in your tax return between April and June 2025.
Capital Gains Tax Rates for Residents
The capital gains tax rate in Spain is applied on a sliding scale, based on the amount of profit made:
19% on profits up to €6,000
21% on profits from €6,001 to €50,000
23% on profits from €50,001 to €200,000
27% on profits over €200,000
So, if you make a significant profit, such as from selling your main residence, you could pay up to 27% in CGT. But there are ways to lower your taxable profit through deductible costs.
Deductible Costs for Capital Gains Tax
Pedro explains that there are five main categories of costs that can be deducted to reduce your taxable gain:
- Notary and Land Registry Fees: These can be deducted from both the purchase and sale of the property. Keep receipts from both transactions for these costs.
- Lawyer’s Fees: Any legal fees you pay for assistance in buying or selling your property are deductible.
- Estate Agent Fees: If you used an estate agent to help sell your property, their fees are deductible.
- Taxes Paid During the Purchase and Sale: For purchases, deductible taxes include Transfer Tax (Impuesto de Transmisiones Patrimoniales – ITP), VAT (IVA), and Stamp Duty (Actos Jurídicos Documentados – AJD). For sales, the Plusvalía Tax (a municipal tax based on land value increase) is deductible.
- Extensions and Improvements: Large-scale improvements or extensions, such as adding a terrace or pool, are deductible.
However, Pedro warns that simple renovations (like painting or installing a new kitchen or bathroom) are not typically considered improvements unless higher-quality materials were used, which could lead to disputes with the tax authorities.
More information about improvements can be found in our earlier blog here
Exemptions from Capital Gains Tax
Pedro highlights several situations where capital gains tax might be reduced or exempted:
1. Over 65 and Selling Your Main Residence
If you’re over 65 years old and selling your main residence, you won’t need to pay capital gains tax, provided it has been your primary home for at least the past three years. For example, if you’re 66 years old and have lived in the house for three years or more, you will be exempt from paying CGT on the sale.
2. Reinvesting in a New Primary Residence (Under 65)
If you are under 65 years old, there’s still a way to reduce your tax liability. If you reinvest the proceeds from the sale of your primary residence into another primary residence, the capital gain from the sale could be exempt from CGT. The exemption is proportional to the amount reinvested.
For example:
If you sell a property for €200,000 and reinvest €300,000 into a new home, you won’t pay any CGT on the sale.
If you only reinvest €100,000, then 50% of the capital gain will be exempt, and the other 50% will be taxable.
When Do I Pay Capital Gains Tax in Spain?
As a resident, you need to submit your annual tax return between April and June of the year following the sale. Failing to meet this deadline can result in penalties, so it’s important to be timely with your declaration.
For more in-depth guidance or personalised legal advice, contact My Lawyer in Spain today.
