A special reference should be made to a type of local or municipal capital gains tax on property in Spain – known as the Plusvalía.
What is the plusvalia tax in Spain?
The plusvalía is a local (municipal) tax charged by the town hall on properties when they are sold. It is calculated on the rateable value of property and the number of years that have passed since the property last changed hands. The objective is to tax the increase in the value of the land on which the property stands, some of which is due to improvements to the area carried out by the local government and the community at large.
The base for this tax is the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) of the property. The amount due in tax will depend on how long the seller has owned the property: the longer the period, the higher the amount of tax.
Who pays the plusvalia tax in Spain?
By law the vendor, though both parties are free to negotiate who pays it. During boom times (like the years 2000 to 2007), in a vendor’s market when vendors have a stronger negotiating position, buyers sometimes agree to pay it, but in normal times, and especially in a buyer’s market like the one after 2008, vendors are rarely in a position to ask the buyer to pay this tax.
If you are a vendor, and you are resident in Spain, you are better off paying this tax yourself, as if the buyer fails to pay it, the tax authorities will come after the vendor.
If you are a buyer, and the vendor does not live in Spain, you are better off paying this tax on behalf of the vendor using funds withheld from the property price. That way you can be sure the tax has been paid. Because if the vendor doesn’t pay, and doesn’t live in Spain, the tax authorities will come after the new owner.
How do you pay the plusvalia tax in Spain?
You have 30 days from the date of sale to pay the plusvalia to the town hall.
If you (the vendor), are not resident in Spain (whatever your nationality), the buyer may insist on withholding funds to pay the plusvalía on your behalf, as the new owner would become liable for the plusvalía in the event of non-payment (i.e. if a non- resident does a runner without paying).
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. Laws and tax rates change over time, so this information may be out of date. Please consult a tax specialist or the tax authorities for the latest information. There are no guarantees that this information is correct and up-to-date, so you use this information at your own risk.