A Synopsis of the Spanish capital gains tax retention on property sales by non-residents.
When a non-resident sells property in Spain, they buyer is obliged to retain 3% of the price and pay it to the tax authorities to cover the vendor’s tax liabilities. If the vendor is due a refund after the tax has been paid, it can take years to get money back. And if the vendor’s tax bill is greater than the 3% retention, the Spanish tax authorities may chase the vendor back home.
Various terms in English and Spanish are used to identify this procedure. In Spanish it is known as the ‘retención (sobre la venta de inmuebles) a cuenta del impuesto de la renta de los no-residentes’, whilst in English it is referred to as the capital gains tax retention on property sales. Some people also talk about a withholding tax (no strictly true) or money withheld, deducted, or kept back on a property sale in Spain.
If the Spanish tax authorities consider a vendor non-resident in Spain for tax purposes, the buyer has to withhold 3% of the sale price to cover the vendor’s tax liabilities resulting from the sale. The taxman wants the money in case the vendor does a runner without paying his taxes, something that almost all non-resident vendors have done in the past.
The tax in question is the vendor’s capital gains tax, which has to be declared in his or her annual income tax returns (known in Spain as La Renta), and is taxed at 21%. Non-residents used to be taxed on capital gains at 25% but this was reduced to 18% (same as residents) as of 01/01/08, then put up to 19% on 01/01/10, and finally raised to 21% in 2012.
This retention does not cover the vendor’s ‘plusvalia’ tax liability, which is paid to the town hall and is a separate matter.
After the sale, the buyer has one month from the date of sale to pay the 3% retention to the local tax office using the form (modelo) 211. A copy of the submitted form should then be given to the vendor or his lawyer, so a refund can be claimed.
If the vendor believes he is owed a refund (that the tax liability is less than the 3% retention), he has 3 months to present form 212 requesting a refund. This step is done at the local tax office (delegación de hacienda).
If a refund is due, how long does it take? It depends upon the tax office; some are quicker than others. In theory it shouldn’t take more than a few months, though some people report it taking up to 16 months. Around a year seems to be quite common according to comments in our Spanish property forum.
Be warned that if there are any minor errors in the documentation the tax authorities will jump on them as a reason to delay any refund. So make sure all the information in your 212 reclaim form is correct.
In some cases, the vendor’s tax liability is greater than the retention. What then? Depending upon the size of the liability, the Spanish taxman may try and come after you for it back home.
So, for example, if a British person living in London sells a holiday home in Spain for 200,000 Euros, the vendor will retain 6,000 Euros and pay it to the tax office. Say the vendor originally bought the home for 100,000 Euros, meaning a capital gain of 100,000 Euros, and a capital gains tax of something in the region of 18,000 Euros (there will be some relief for inflation). In this case the vendor will not be entitled to a refund, and may be pursued for 12,000 Euros back home by the Spanish taxman.
But if you don’t hear from them within 4 years you know you’re safe, as that is the legal deadline for the tax authorities to take action.
Note: This issue only applies to vendors who are considered non-resident by the Spanish tax authorities, i.e. fiscal non-residents. To be considered a fiscal resident you have to get a certificate from the tax office (hacienda) certifying that you are a fiscal resident. You will get this if you have been doing tax returns (declaración de la renta) for several years. Do not make the mistake of thinking you are fiscally resident just because you have an NIE number, or once had a residency card (tarjeta de la residencia). A notary will only accept a certificate from the tax office.