What is Capital Gains Tax When Selling a Property?

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Research by volunteer Philip Carroll.

The following information relates to the sale of a property located in Spain, as well as anywhere else in the world by a tax resident of Spain. There may also be capital gains to pay in the country where the property is situated. This is determined by the Double Taxation Agreement (DTA) between Spain the the country, and generally any tax payable abroad may be claimed as relief in Spain, but only upto the amount due on the same asset in Spain.

Specifically with regard to the sale of a residential property in UK by a non-resident, Capital Gains tax is payable on any gain made after the 6th April 2015. Relief is available in the form of Private Residence Relief, i.e the days when you live there are excluded from the calcualtion, plus you recieve relief on the last 18 months of the period. In addition you can claim the Capital Gains Allowance which in 2017/8 is £11,300. There is an online calculator here to give you an idea of the amount yu will have to pay.

The capital gains tax rates in Spain are the same as for savings income :

Upto €6,000 – 19%, €6,001 – € 50,000 – 21%, over €50,000 – 23%, over 200,000 – 26%.

If it is your habitual residence (for at least 3 years) and you are over 65 there is no capital gains to pay. Note: if you move to Spain and set up your habitual residency here, in a rented or purchased property,  your UK property will no longer be considered your habitual residence (even though you might have lived there for many years) and thus does not meet the requisite for exemption of Capital Gains when you eventually sell it.

Brexit. Reinvestment reductions is between EU countries. We are waiting for any updates. Sellers should speak to an accountant.

If you are over 65 but haven´t lived in the property for the minimum of 3 years before selling, you can normally claim relief for professional and legal fees and taxes for both the purchase and sale. So these would include agent fees, notary, lawyer etc. plus transfer tax on purchase, and plus valia if paid. In addition you can claim for improvements, so additions to the property rather than maintenance. However in respect of all claims for relief you will need invoices to support your claim, and these must include IVA where applicable. In addition, in respect of invoices for the last 5 years you need evidence of payment through the bank where the invoice exceeds the limit for cash payments ( 2.500 euros).

If you are under 65, and you bought the property after the 1st January 1994, then there are no allowances unless you are reinvesting the proceeds in another main home, and even then it’s complicated if you are not reinvesting the total sale proceeds. If you bought the property before the 1st Janaury 1994, then you may qualify for relief on the gain made between the 1st Janaury 1994 and 1st January 2006, providing the sale price does not exceed €400,000.

In terms of reinvestment the rules are, that providing the property is your main residence, and you have lived there for over 3 years, then you qualify for reinvestment relief. The reinvestment can be 2 years before or after the date of the sale, and includes purchase in an EU member state. To receive full relief the total amount of the net proceeds received must be reinvested. NB if you purchase a new property before selling your old one, then you can only claim the reinvestment relief by repaying a mortgage raised to purchase the new property.
Note re COVID-19 and the suspension of administrative deadlines. The Tax Office has confirmed that the 2 years as mentioned above, is suspended for the duration of the State of Alarm in 2020.

So, if you receive a net €150k (and the capital gain is €100k) and you reinvest €150k, you receive full relief and no capital gains to pay. However if you reinvest only €100k, that is only 66.66% reinvestment, so capital gains is due on 33.33%, so taxed on €33,333 (tax of circa €7k).

You must report the sale on your tax return for the year of sale, and claim relief at the time of reporting.

Info from the Agencia Tributaria.

HMRC changes 2020

NB

Capital gains tax on the sale of your main residence only applies if you are under 65. If the property is in joint names, and one is under 65, it is only payable on your share i.e 50%

Capital gains to pay for non-residents is 19%, if you are a EU or EEA citizen.

Another possible scenario:
If you are over 65, and the property is NOT your domicile, you can avoid paying capital gains tax by putting the whole of the sale price (not the profit) into a “renta Vitalicia”/ annuity providing you invest it within 6 months of the sale. This was introduced in 2015. There is a maximum investment amount of €240,000, and it doesn’t have to be the the whole of the proceeds, but any you don’t invest will be taxable. Same scenario is possible for any other assets on which capital gains would have to paid after selling.

Before deciding on any investment please seek advice on possible risks and expected benefits from a professional in this field.

Please note: The information provided is based upon our understanding of current legislation. It is not legal advice but is provided freely to enable you to be properly informed. We recommend that if you are considering taking action, you should seek professional advice.