16 Dec 2015

Property Tax Changes in Spain and Their Effects (Part II)

Published in Legal & Tax

Tax reforms that came into effect in Spain in 2015 had wide-ranging effects for non-resident property buyers. We covered some of the most important points in this post.

Here are the details of the remaining effects of the recent Spanish tax reform.

Incentives for persons over 65 years

Persons over 65 years or about to reach that age must take into account that the tax reform includes a new exemption for capital gains from the sale of assets other than real estate.

As from January 2015, people over 65 will not be taxed either for the capital gains they obtain from the sale of shares or even from the sale of a property other than the main residence, PROVIDED the product of the sale is invested in a life annuity.

For the exemption to be applied the requirements are the age, and that the amount obtained is reinvested in a maximum delay of 6 months in life annuities serving as a complement of the old-age pension, and that up to a maximum of 240.000 €.

Compensation of income from investment with capital gains and losses

Another of the big tax novelties as from 2015 related to the Capital Gains from the sale of assets is the possibility to compensate income from investment with capital gains and losses, which means that a possible loss from the sale of a property could be compensated against income from investment, and so diminish the tax bill for incomes of another kind.

Sale of the main residence of a non-resident in Spain

As from 1st January 2015 the general tax rate for non-residents will be reduced from 24,75 to 24% and to 20 % and 19 % in 2016 in the case of residents in other EU member states or residents in a member state of the European Economic Area, with which there is an effective exchange of tax information.

The rates applicable to capital gains from the sale of assets will be reduced as well from 21 % to 20 % in 2015 and to 19 % in 2016 (the latter independently from the residence in other member states of the EU or the European Economic Area).

But the major novelty of the law project is that the capital gain that a resident in another member state of the EU - or in an EEA member state with which there is an effective exchange of tax information - obtains from the transmission of a property that he/she has been using as “permanent” domicile in Spain will be exempt from tax provided the total amount obtained from the sale is invested again in another permanent home in Spain, under the same conditions as those applicable to tax residents in Spain.

The amount must be re-invested within a term of 2 years prior to or following the sale, the transmitted property must have been the “principal” residence of the taxpayer for a continuous period of at least 3 years and he/she must start living effectively and permanently in the new home within 12 months from the date of purchase or the date of completion of the works, as the case maybe.

Nevertheless, the buyer’s obligation to retain 3% of the property price when the seller is a non resident, remains unchanged as well as the seller’s obligation to present a capital gain tax return with the amount payable - or refundable in the case of loss; however in the next future, if the reinvestment has taken place prior to the transmission, it may be taken into account to calculate the corresponding tax amount.

Same tax rules for residents and non-residents on Wealth, Donation and Inheritance tax

As regards Wealth Tax and the Donation and Inheritance tax, resident and non-residents taxpayers will receive equal treatment as from 1st January 2015, so that non-residents too will be able to take advantage from the tax benefits the autonomous region has established, where the deceased person lived or where most of the properties are situated.

So far, many tax benefits were not applicable to non-residents, which led to a judgment of the European Court of Justice against Spain on the grounds of discrimination. Moreover under the new tax law, residents who inherit property abroad will be able to take advantage of the relevant regional legislation instead of the states.

If you are on an inheritance process, or you are planning to sell your property, we at Cardenas Real Estate can offer you a fully comprehensive legal and fiscal service, we will value your property and the real-time possibilities to sell it through an individualised market study, we will calculate prior to the sale all the taxes and expenses, and carry out an intensive marketing plan with novel elements such as the “home staging”, in order to achieve the sale of your property within the time you wish.

Do you know any other Real Estate agent that can offer you such a comprehensive service?