When selling a property in Spain, one of the primary concerns for sellers is the amount of tax they will have to pay. Typically, if you sell your property in Spain, you will face two main taxes: Plusvalía Tax and Capital Gains Tax. In this article, we focus on the latter, specifically the Capital Gains Tax Deductions available to sellers.
What is exactly Capital Gains Tax?
Capital gains are calculated as the difference between the sale price and the acquisition price, adjusted for certain expenses and investments. This tax applies to both residents and Non-Residents. The deadlines for paying the tax vary. On one hand, Non Residents must submit the declaration within four months of the sale. On the other hand, Spanish Tax Residents report it in their Personal Income Tax, the year following the property sale.
Exemptions. Vendors over 65 years old. Main residence. Reinvestment.
Certain circumstances allow for exemptions from capital gains tax. For instance, sellers over 65 years old selling their main residence are fully exempt. Likewise, reinvesting the proceeds from the sale of your habitual domicile, into another primary residence may also reduce taxation. In all cases, provided the legal requirements are strictly met.
Capital Gains Tax Deductions.
The acquisition and transfer values can be adjusted with specific deductible expenses.
Expenses deductible from the acquisition price.
These include Notary Public and Land Registry fees. Legal fees of solicitors or advisors. The taxes paid on the purchase (e.g., Transfer Tax, VAT, Stamp Duty Tax, etc. depending on the case). Keeping invoices and supporting documentation for these expenses is essential.
Expenses deductible from the transfer value.
When selling Notary and Legal fees linked to the sale can also be used to reduce your tax liability. Likewise, the Plusvalia Tax or the legal fees of the architect (to prepare the Energy Efficiency Certificate) are also deductible. The same happens with the Habitation Certificate or the fees of the administrator of your community of owners, to issue the certificate confirming outstanding debts, special levies, etc.
What happens with Investments and Improvements done in the property?.
Article 35.1.b) of the Spanish Personal Income Tax Law allows sellers to add the cost of “investments and improvements made to the acquired property” to the acquisition value. Hence reducing the tax liability. This often causes confusion in practice regarding which expenses qualify. In general, only works that genuinely improve the property and increase its value are deductible. Repairs, maintenance, or replacement of existing elements are not deductible.
Painting the property is not considered an investment or improvement. Replacing existing elements, such as doors or windows, or renewing electrical or plumbing systems, is also not deductible. Conversely, works that increase usable space—provided they have the necessary building permits, approved project, etc.—are usually accepted. Likewise, works that add new elements or installations not previously present, such as installing a heating system in a property that lacked one, should be deductible.
Conclusion.
At White Baos Lawyers, we are experts in property law. We have nearly 20 years of experience assisting clients in selling their properties in Spain, reviewing Capital Gains Tax Deductions, etc. Contact us now, for personalised advice.
The information provided in this article is not intended to be legal advice but merely conveys information relating to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
E-mail: info@white-baos.com
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