Whether resident in Spain or not, if you sell a property you may be liable to Spanish capital gains tax.
If you are a Spanish tax resident, you will be liable to Spanish capital gains tax on your worldwide gains, whether in or outside of Spain.
In the past, non-residents had been charged at a tax rate of 35 per cent on the sale of a Spanish property. However, from the 1 January 2007, this rate has been reduced to 18 per cent.
Property Acquired on or before December 31, 1986
There is no Spanish tax payable on the disposal of such assets.
Principal private residence exemption
In Britain, as we all know, if you sell your own home it is tax free.
That is only the case in Spain if you sell a property when you are 65 years or over and it qualifies as your habitual main residence i.e. you have lived there for more than three years.
If you are under 65, and you have lived in the house for at least three years, then you can roll over your gain into the acquisition of a new home as long as you are Spanish tax resident. The tax relief is based on the proportion of the total sale proceeds reinvested into the new home. If the new home costs more than the sale price of the old home, then all of the tax is deferred.
If only half of the sale proceeds are reinvested, then only half of the gain is deferred.
Disposal of investments
Gains made on the sale of investments are taxed at the rate of 18 per cent. For assets held before December 31, 1994, there was an indexation relief of 14.28 per cent so that after owning the assets for eight years up to (but not after) December 31, 1994, this relief would be given (even if you were today to dispose of such assets).
If you gift an asset that has a disposal market value in excess of your original cost, then you will be liable to Spanish capital gains tax. This may be in addition to any succession tax payable on the gift.
Short term losses may be offset against short term gains, but not against long term gains. Likewise, long term losses can only be offset against long term gains. Spain makes the distinction between short term gains (which are added to income and taxed as income, rather than the fixed rate of 18 per cent), and long term gains were the asset has been owned for at least 12 months.
There is specifically no capital gains tax on death, but there is likely to be Spanish succession tax and possibly also British inheritance tax.
Prize winnings etc
Most prize winnings are liable to capital gains tax. Losses on gains however are not allowable as a deduction.
Assets divided on divorce or the dissolution of a community marriage regime are exempt from capital gains tax, as are gifts to certain charities and non-profit making entities. For family companies (and the definitions are very tight), it is possible to pass the asset to the next generation without paying capital gains tax, but it is simply deferred (or rolled-over) into the cost base of the next generations. Thus tax will eventually be payable on the gain.
Life insurance bonds
Single premium life assurance bonds with Spanish-approved assurers are liable to no tax unless there is a withdrawal, and even then the tax is limited simply to the element of gain included in the withdrawal.
There are now a few bonds approved in Spain that permit the investor, not the insurance company, to select the investments and to have them ringfenced from the insurers own assets.
The tax payable on the element of gain in a withdrawal is fixed at 18 per cent. This is very beneficial. If an investor withdraws, say, €5,000 (£3,400) from a policy which commenced at €150,000 (£102,000) and has increased to €200,000 (£136,000), then 25 per cent of the withdrawal represents gain. The tax is 18 per cent of €1,250 (£850), which is less than €250 (£170) even though the withdrawal as far as the investor is concerned is all gain. By placing these policies in an appropriate trust, Spanish succession tax can also be avoided.
Some information contained within this article may have changed since it was first published. HomesOverseas strongly advises you to seek current legal and financial advise from a qualified professional.