Tax Liability

 

The seller is responsible for the payment of the capital gains tax; very rarely it is agreed that the buyer pays it. The seller is also responsible for any fees resulting from the cancellation of a mortgage. The buyer shall only pay these fees should he submit to the initial seller's mortgage.

 

In the past, sellers would declare the sale price much lower than the approximate market value, in order to save money on taxes. Things have changed somewhat; tax inspectors are checking more into selling prices. If a tax inspector claims that the selling price is too low then the seller will be charged heavy penalties. However, some sellers still would like to get part of the sale price? Outside of the contract? Even though the amounts have decreased significantly. Please be aware that this is illegal. Your lawyer should ask the tax office what is the market value of your property is, to avoid possible complications that could arise later.

 

Tax deposit on non-resident property sale

 

If you are non-resident looking to sell your property in Spain, keep in mind that you will have 5% of the declared sale price withheld by the buyer. This amount will be deposited with the Spanish Tax Office (Hacienda), on account of the capital gains tax.

 

Once your tax liability is assessed, you will either have to pay more to the Spanish Tax Office or you will get a refund of the portion deposited, depending on your profit. Your lawyer may advise you in detail on the circumstances regarding the non-resident tax.

 

Capital Gains Tax

 

If you sell a Spanish property more than one year after purchasing it, then you are liable to pay Spanish Capital Gains Tax (CGT.) This amount is based on the difference between the amount that you sell the property for, and the amount that you declared having purchased it for previously, minus any inflationary gain. A non-resident will pay Spanish CGT tax at 20% and residents will pay at a rate of 15%. A resident may have the option to ''roll'' the tax into another property, provided that it is a single main residence.

 

Although the figure of 35% for non-residents sounds high, CGT is subject to an annual "indexing" ("inflationary") tax relief. This means that an inflationary "index" allowance is subtracted from the profit before the CGT rate is applied. A Non-resident who purchased their property before 1986 actually has no CGT tax to pay on sale. Whereas non-residents who purchased their properties between 1986 and 1998 have a complicated tax position as both the old formula (an indexing allowance of about 11 % per annum) and the new formula (an indexing similar to the rate of inflation, recently about 1 %) are taken into consideration.