In our last article, we were talking about main costs while buying Spanish property. This article we want to dedicate to main taxes nonresidents should pay in case of sale of their house located in Spain.
Nonresidents should pay two main taxes if they sale Spanish property: Capital Gain Tax (CGT), Impuesto sobre la Renta de No residentes (IRNR), and, so called, Plusvalía Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU), a tax over the increase of the value of the ground the property is on.
Capital Gain Tax (CGT)
In this article, we will be talking about general rules of CGT application in case of sales starting from 2015 and for the properties bought by nonresidents, physical persons and companies. All other cases require analysis that is more detailed.
Therefore, general rule is that nonresident will pay 19% of the benefits obtained in the sale transaction. As a simple example, if you had bought your house for 120.000 Euros and now sold it for 200.000, Spanish tax authorities will consider you should pay 15.200 Euros of CGT (19% over 80.000 Euros income).
In this stage, it is important to mention that during sale transaction the purchaser will retain 3% of the house’s price and will pay it to Spanish tax authorities within a month after Notary deed. Within following three months, the seller should declare the transaction and, as in accordance to the example mentioned above, pay the rest of money, 9.200 Euros, since the purchaser has already paid 3% that were retained (6.000 Euros).
The main question is what happens in case selling price is less comparing to the purchase price. Let us say we bought the house for 200.000 Euros and are selling it now for 120.000 Euros.
Although we are selling with loss, the buyer will retain 3% (3.600 Euros for our example) in any case. So how to do now? In that case, the seller has a right to ask for a devolution of paid founds, Spanish Tax Authorities will reimburse that within a year after transaction. That is why we do not recommend closing you Spanish bank account immediately after your property sold or at least name a legal representative and get your money back.
Plusvalía, the tax over the increase of the value of the ground the property is built on, paid to the local town hall, and how to return it in case you sold with loss?
Plusvalia is another Tax nonresident owner will pay selling Spanish property. This Tax should be paid to the Town Hall where property is located. The Tax represents the value local authority gives to the ground the house is on and its calculation is the prerogative of local authority. Although the taxpayer is the seller, in case the seller is a non-Spanish resident, the buyer should retain this money and pay it to the Town Hall.
The most interesting point that all non-Spanish residents are worrying about now is what to do in case the property has been sold with loss? The question arises because of May 11 of 2017 Spanish Constitutional Court Decision that declares unconstitutional to collect Plusvalia in case of losses in selling transaction. Constitutional Court Decision is the supreme power for Spanish national legislation body, but that Decision has not a direct forth. That means a modification of law about Plusvalia will take place. Until that moment, non-Spanish residents should pay the tax, but at the same time we recommend to apply for devolution of paid sum in case they sell property with loss. Currently, local authorities in Spain accept application forms. However, they will wait until final indications of Spanish Government, in form of law modification, on the procedure of reimbursement and its terms. We are expecting the law to be modified by the end of 2018.