Most people who buy property in Spain do so knowing the tax implications of their purchase, namely that they will have purchase taxes to pay and subsequent annual income tax returns to submit, and, when they sell, Capital Gains Tax (CGT) to pay.
CGT is a complicated calculation, with tax levels and reductions determined in large part by the date of purchase and sale, and deductions allowed for certain validated and demonstrable expenditures and improvements, but assume 21% on any taxable profit if a non-resident; residents pay somewhat more, with the rate graded up to 27% depending on the size of the gain.
Fiscal residents are granted reinvestment relief if they buy another property with the proceeds of a sale, provided that the property sold was their main home in which they had lived for at least three years prior to selling, and provided that the new property is purchased within two years of the sale of the former. This reinvestment relief is calculated according to how much of the sale proceeds are spent on the new property: if the purchase price of the new property exceeds the sale price of the old one, the gain is completely exempt from CGT. For those who are downsizing, say, and spend half of the sale proceeds on a new property, then that half is all that’s exempt. If there is a mortgage to be paid off with the proceeds, the calculation is based on whatever is left over as capital after the mortgage is cleared. To be entitled to this relief, the capital gain must be declared at the time of sale, together with the intention to reinvest. Fiscal residents over 65 who are selling a main home in which they’ve lived for more than three years are exempt from CGT without the requirement to reinvest.
The rules are different, however, for non-residents. When a non-resident sells a property, CGT is not the main immediate issue because non-residents are required to leave a 3% retention at the point of signing in lieu of final settlement of any CGT due. This 3% non-resident retention is payable at notary and is deducted off the whole sale price. It can be recovered, but requires an application to the tax authorities, and of course, requires also that all tax affairs are up to date, including the CGT against which the retention was made – in other words you pay the CGT on top of the 3% before claiming the retention back. These factors are why so many sellers just leave the 3% retention and never try to claim it back. If you wish to do so, you will need to submit an application, and for this you will need the original seller’s copy of the tax form paying the retention. This receipt is the seller’s property by right and something that s/he should have in any case, whether or not the retention is being reclaimed.
Special thanks to Janet Anscombe for the information on taxes.