Some more on CGT from an ebook I bought. If anyone wants the web address, send me a PM.
Capital Gains Tax
A quick summary:
When you sell, 5% of the total agreed declared price is paid direct to the Spanish Tax Authority (Hacienda). This is to cover any potential liability to CGT if you made a profit on the sale. This all happens in front of the Notary.
The only exception is if you have owned the property for 10 or more years prior to December 31 1996.The rate of tax is 35%, and when you submit your tax return the authorities will take into account the 5% of the total sale price you’ve already paid.
In fact if you’ve paid too much you can claim a refund, which they’ll send you…eventually.
For them the tax rate is 15% if they’ve owned the property for at least a year. If they haven’t, then any profit will be treated as income, and they’ll pay income tax on it, up to 45%.
If it’s been their principal private residence for more than two years, they can choose to roll over the profit into another principal private residence, as long as they buy the new one within two years.
Effectively they can keep on doing this until they’re 65, after which they won’t ever have to pay Capital Gains Tax on any principal private residence, unless they sell within two years of buying.
It all looks nice and easy on paper, doesn’t it? Don’t forget though, this is Spain…
I bought an apartment on the coast as an investment, both for rental and hopefully to make a profit if and when I wanted to sell.
When I bought it I wasn’t resident in Spain, but when I decided to sell it two years later, I was. And I had a shiny new identity card to prove it. I wasn’t however living in the same province where the apartment was.
Unfortunately there are two meanings of residence in Spain:
1. Resident, ie living there permanently and registered as such with the National Police
2. Resident for tax ie having registered with the taxman AND submitted a tax return. This is what caught me out.
Now, whilst I am registered with the taxman, I haven’t yet submitted a tax return. So when I came to sell the apartment the 5% retention came into play, even though I had lived in Spain for nearly two years and had had an identity card for 15 months!
The problem is that if you sell and you’re not resident in Spain, then the spanish taxman will automatically take 5% of the total sale price and trouser it, whether or not you’ve made any money. This is handed over on the day you sign at the Notary.
It’s up to you to apply for any refund if your capital gains tax is less than the amount he’s pocketed. Allow a year for this process!
In my case the amount he took was three times what the actual tax should have been!
There’s more though. What confused me was that I’d never had this problem before at the Notary in my home province. All she required was production of your residents’ card, none of this Tax Certificate rigmarole. So when my lawyer on the coast said I needed one if I didn’t want to lose the 5%, I was not only perplexed but also sure that she had got it wrong!
With a bit of asking around I eventually discovered the answer; in some provinces some Notaries are more strict on this rule than others. Although sooner or later ALL Notaries will enforce the regulation, at the moment there are gaps in its application.
So if you do become resident and want to save yourself some money, time and hassle, don’t be caught out like I was. Either get that tax return in, or check what your local Notary’s policy is. More on the Notary under N.