How to Navigate Tax Issues in Real Estate Transactions?

24 July 2019

This post will give you a brief overview of what you can expect to pay in terms of taxes in real estate transactions in Spain.

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Are you a foreigner in Spain wondering how to navigate tax issues in real estate transactions in this new country? This guide will help you know what to expect from the Spanish tax system when buying, owning, or selling property.

The short and obvious answer to this question is also the best one, though. A qualified accountant, tax attorney or other professional is the best way to deal with taxes in real estate transactions, especially when you are trying to navigate foreign tax law in a foreign language.

In the meantime, this post will give you a brief overview of what you can expect to pay in terms of taxes in real estate transactions in Spain.

Real estate taxes for Spanish citizens and foreigners

This part of the tax system is simple, at least: whether you are a citizen of Spain or a foreign national, you will pay the same taxes when buying Spanish real estate. Buyers are usually responsible for paying the real estate transfer tax, or ITP in Spanish, if the property is not new construction (i.e. a resale). This tax is the same regardless of the buyer’s citizenship but does vary by region.

If you are selling, however, things start to get more complicated, and your residence status in Spain will affect the type and amount of taxes you pay. All sellers will have to pay a plusvalía tax, which is essentially a municipal VAT, and the property transfer tax if it is not being paid by the buyer. Where things start to change is the tax you must pay on any profit you gained from the sale of the property.

Profits from a real estate transaction are considered savings income and are subject to Spain’s capital gains tax. Spanish residents pay this tax on a progressive scale, starting at 19% for the first €6000, 21% up to €50,000, and then 23% for any profit above €50,000. In contrast, non-residents have a fixed rate for capital gains, which varies based on citizenship. Non-residents in Spain who are resident in some other EU country must pay 19%, while all others are taxed at a rate of 24%.

Exceptions to capital gains tax on real estate transactions

There are a couple of situations in which you might be exempt from paying capital gains tax on a property sale, but they are likely to only apply to Spanish residents. This is because they both require that the real estate transaction involve your habitual residence.

In the first case, you do not have to pay capital gains tax if you take the profits from selling your habitual residence and use them in buying your new habitual residence. The new residence does not have to be in Spain, however; it can be in any EU or EEA country.

The second situation applies only to sellers over age 65. Similar to the first exemption, it requires the sale to be of the seller’s habitual residence. But if the seller is over 65 years old, there is no requirement for them to use the profits to invest in a new habitual residence. Those profits are not subject to capital gains in any case.

Property taxes on your Spanish home

If you live in Spain, the only tax you need to worry about paying on your home is the IBI tax, essentially a municipal council tax, and possibly a waste collection tax. Any rental income you earn from your property must, of course, be reported on your annual tax declaration.

Since non-residents are not considered to use their Spanish property as a primary residence, they will have to pay non-resident income tax on either the actual rental income earned, or the imputed income if there are no renters.