Taxes Involved in the Sale
Non-residents BEFORE 2007
When you, as vendor, bought your property in Spain, you paid the taxes involved in the same transaction. These apart from other general expenses like notary, land registry or solicitor fees, the 7% for theTransfer Tax, and the 5 % for the Capital Gains retention (this last one, if the previous owners were non residents).
So, as buyers, you paid the 7 % of the price of the property as shown in the property deeds.
While you owned your property in Spain, you had to make the following declaration of taxes:
- After completion, the Spanish government considers that you, just for the reason to own a property in Spain, have to pay the 0.25 % of the official price of the property. It is paid only once, and specifically the year in which you bought the property. This tax is apart of the General Income Tax. You have to make the proper declarations of the Income Tax, and the Wealth Tax. These taxes are calculated over the general incomes received, and from the official value of the property. If you have not made any of these declarations, please, feel free to consult us in order to instruct you how to do it.
- You have to pay Capital Gains for the benefit obtained from buying-selling your property. Till 2007, the Capital Gains Tax was the 35 % of the net profit obtained from the price paid for buying the property, and the price obtained in the sale (considering “price”, as the one established in the deeds).
The system was even more complicated, because there was established a retention, or withholding, for the payment of this tax for the 5 % of the declared price in the sale.
Please, note the difference Now as this was in the past and Before 2007, the seller had to pay 35 % for CG, from the NET profit (which means Selling Price - Buying price – Less general expenses and taxes paid on the purchase- improvements in theproperty).
Please, pay attention to the following example:
Example 1:
You bought the property for an official price (Declared) of 100.000 EUR. You paid 7.000 EUR Transfer Tax (7% over the declared value), and 4.000 EUR in the rest of general expenses (notary, land registry,etc.), and you have reformed your property, the reform costs being12.000 EUR.
You are right now selling your property for 200.000 EUR.
The Net Benefit is :
200.000 – 100.000 = 100.000
Less 7.000
4.000
12.000
Net Benefit: 77.000 x 35 % = 26.950 EUR.
This figure had to be paid in the proper declaration after completion.
* As Before 2007, the Retention was 5 % OVER THE OFFICIAL PRICE OF THE PROPERTY (which is the price shown in the deeds). It seems that this 5 % is calculated, not over the net benefit obtained from the buying-selling of the property, just over the price for which you are selling. Following the previous example, the declared price from the selling of property is of 200.000 * 5 % = 10.000 EUR.
This system was acting in the following way:
Non-Resident Vendors were retained with the 5 % of the declared value on completion (10.000 EUR), being this payment a part of the rest to pay for the total CG (26.950 EUR). So, if the vendors, after completion, made their CG declarations, they were reduced the final CG payments with the retention paid on completion. So, following the example, they had to pay 16.950 EUR (26.950-10.000).
In the majority of cases, if the Non-resident vendor was returning to his country of origin, or to other country different from Spain, they never made the proper declaration of the CG, leaving the retention to the Spanish authorities. For
instance, the Spanish customs were satisfied with this retention, and they considered the case closed.
Sometimes, the retention could be higher than the same final figure to pay for CG.
Please, note the example:
Example 2 :
Vendor bought the property per an official price of 100.000 EUR.
He paid 7.000 EUR Transfer Tax, and 4.000 EUR in the rest of general expenses (notary, land registry, etc.), and he has reformed his property, being the reform costs of 12.000 EUR.
He is now selling his property in 125.000 EUR.
The Net Benefit is :
125.000 – 100.000 = 25.000
Less 7.000
4.000
12.000
Net Benefit: 2.000 x 35 % = 700 EUR.
This figure has to be paid in the proper declaration after completion.
- The Retention was of 5 % OVER THE OFFICIAL PRICE OF THE PROPERTY. Following the previous example, the declared price of the property was 125.000 * 5 % = 6.250 EUR.
As you can see, there was a retention from the vendor of (6.250 EUR) higher than the one he had to pay for CG (700 EUR). In this case, vendors were making the proper CG declarations in order to obtain the difference back. So, if they were retained with 6.250 EUR, and they had to pay just 700 EUR, they had to be refunded with the difference (5.550 EUR). In order to apply for this refund,the vendor had to make the proper CG declaration after completion.
R 2007
I.- From 01-01-2007, the Capital Gains system for non-Resident vendors is the same, but with the following modifications:
- Capital Gains is now 18 %, instead if the previous 35 %.
- Retention is 3 %, instead of the previous 5 %.
II.- In the past, the control for the Capital Gains from the part of the government was weak. It resulted in that hundred and thousands of transactions in the area were made with official prices reduced from the real ones, with the intention to reduce the Capital Gains payments from the vendors, and the Transfer Tax, from the buyers. In order to control transactions which could result in illegal reductions of prices, between buyers and vendors. It means that the control is extremely higher than in the past. For instance, taxes are reduced for non-residents from 35% to 18%.
III.- Sometimes, non-resident vendors refuse to declare the real Price of the sale, Arguing that, when they bought, the previous owners reduced the official price of the property, and that they are loosing money from it now as the declared value is high. Unfortunate or not this situation must be re-considered now for four main reasons:
(18 % Benefit CG, and 3 % Declared Value Retention for CG).
-It i s true that, as the previous vendors sold the property to the current owners at a low declared value, and they have to support a higher CG.
But is also true that…………………………. the current owners saved
Also taxes with that reduction.
Please, follow the next example:
Example 4:
You bought the property per an official price of 100.000 EUR. The Real price was 150.000 EUR. You paid 7.000 EUR Transfer Tax, and 4.000 EUR in the rest of general expenses (notary, landregistry, etc.), and you have reformed your property, being the reform costs of 12.000 EUR.
You are right now selling your property in 200.000 EUR.
The Net Benefit is :
200.000 – 100.000 = 100.000
Less 7.000
4.000
12.000
Net Benefit: 77.000 x 18 % = 13.860 EUR.
In the previous example, vendor pays 13.860 EUR for CG, but, as the property was declared in 100.000 EUR, when it was really paid for 150.000 EUR, the vendors has saved at least 3.500EUR in Transfer Tax, because:
· He paid 7.000 EUR for transfer Tax (100.000 * 7%).
· Ha had to pay 10.500 EUR (150.000*7%).
10.500-7.000= 3.500 EUR
So, right now, what the vendor has to really pay for CG is 13.860EUR, this amount less 3.500 EUR from the saving he had fromTransfer Tax, makes a total of 10.360 EUR.
Also, the rest of taxes involved in the property after completion (like Wealth tax and Income Tax) are considered over the declared value base. So, as the base of the tax is lower, another 2-3.000EUR are saved by the non-resident vendor.
Thus, 10.360 EUR less 3.000 EUR=7.360 EUR.
-If the Spanish customs detect a non-declared value, from the past, and, in some situations vendors and buyers could be denounced and or fined not only for fiscal actions, also for money laundering.
VENDORS SPANISH RESIDENTS
- FOR CAPITAL GAINS:
- They pay 18 % of the net benefit.
- They do not have the 3 % Retention.
- If they are selling their main residence, and they invest in another main residence in Spain in less than 2 years, they have 100% exemption of CG tax for the sale of the property.
- If they are aged than 65 years old, they have 100 %exemption for CG tax for the sale of the property.
- “MAIN RESIDENCE” this is considered when the vendors can demonstrate that they are living in the property for at least 3years. The way of proof this can be the Padron, water and electric consumptions, etc.
- Also, the “Spanish fiscal residence” can be obtained in the Spanish Customs just showing the Padron, the escritura, thePassport, and the NIE number. This is important for EU nationals, because they will not be forced to get the old “Residence Card” (Tarjeta de Residencia), to demonstrate that they are Spanish residents. They can demonstrate that they are residents with the Padron, or with the Spanish Fiscal Residence.
- 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 it depends on specific criteria from the town hall. And only after completion they quote it in some municipalities.
In these cases, a retention from the buyer to the seller is enough to cover the payment of this tax. Especially when seller is leaving the country after the sale.
- LAND REGISTRY INFORMATION
From September 2006, buildings or extension of buildings younger than 6 years will not be passed to the land registry.
For more information, please, feel free to contact us in the following address:
Corredera, 37
03202 Elche (Alicante) SPAIN
TLF:+34 966 614 384
FAX: +34 965 420 960