When you sell or donate a property in Spain, as an individual you pay capital gains tax on the actual capital gain. For non-residents, there is a flat rate of 19%. For residents, there is a progressive rate of up to 23%.
The national capital gains tax is not to be confused with the plusvalia muncipal. This tax is a municipal capital gains tax on cadastral capital gains.
This article will discuss how to reduce national capital gains tax in Spain.
Reduce the taxable base
The traditional way to reduce capital gains tax in Spain is cost deduction. You can deduct purchase and sale costs from the realised capital gain. These costs are:
- fees of lawyers or jurists;
- notaries' fees;
- cost of land registry;
- registration fees or VAT;
- plusvalia muncipal;
- brokerage commissions.
Costs concerning a mortgage or loan are in principle not deductible.
What about renovations and conversions?
Suppose you converted a Spanish property, increasing its value. You may deduct these costs provided you can submit invoices and that you reported the (authorised) extensions to the land registry.
If you have carried out renovation or improvement works, you can deduct these costs if you have the invoices. These costs include, for example, new kitchen, new floor, renewed roof, installation of an air conditioner, etc.
Note: if you buying with a non-Spanish company in principle, the same cost deduction applies.
Tip: Make sure all invoices mention your NIE number.
Read more about capital gains tax when self-building in Spain.
Full exemption for over-65s
As a person over 65, you are fully exempt from capital gains tax provided you are a resident in Spain. The exemption applies on the sale of your family home (vivienda habitual), namely the property you occupied during the past three years.
The 3-year period may be waived if you demonstrate exceptional circumstances, such as divorce, accident, precarious health, change of professional activity, etc.
65-plus residents are also eligible for a full exemption from capital gains tax on a property other than the family home. You have been a tax resident in Spain for at least three years and you invest the proceeds in a pension plan within six months. However, there is a limit of €240,000.
Full exemption for other Spanish residents
If you are a Spanish resident under the age of 65, you can also claim a full exemption from capital gains tax. However, there are a number of conditions.
Thus, the sale relates to your family home in which you resided for a period of at least 3 years. Moreover, you must invest the sale proceeds in a new family home within 2 years. That new family home may be located anywhere in the EU, such as Belgium. You must also occupy the new family home for at least three years.
The exemption is not complete if you invest your sale proceeds are only partially invested in a new family home.
Again, the three-year period can be waived if you demonstrate that there is an exceptional situation.
