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Article updated to the new 2010 tax regulations

At this time of economical unrest many people are trying to sell their second homes or holiday homes and in Spain and as in most places the procedure is complicated.  You should be aware of the legal considerations and tax issues to avoid complications later on.  The best way to make sure that you have all your bases covered is by having a competent lawyer.

One of the easiest ways to find out how much your property could be worth is asking your lawyer to find out from a valuation company.  The certificates that you receive are especially practical for determining the price of properties not only for selling but also in divorce cases.

As the vendor you will have various costs to pay when you sell your property.  These include the municipal capital gains on the property or ‘plusvalia’.  This is calculated by the town hall and is based on the increased value of the land since it last changed hands.  Normally the vendor pays the estate agent, but this can vary depending on the agreement made by the buyer and vendor in the private sales purchase contract.  The vendor has to pay his lawyers fees.  You also have to pay Capital Gains Tax on the difference between the amount that you bought the property for and the amount that you are selling it for.  This profit is adjusted depending on the time that you have owned the property.  As from the first of January 2010 the taxation of capital gain for residents will move to a progressive system from the previous 18% flat rate. For the first 6,000€ taxation will increase from 18% to 19% and for the following 6,000€ taxation will increase from 18% to 21%. For non-residents the taxation will move from 18% to 19% flat. Of this amount non residents will have to pay 3% directly to the tax office at the time of selling the property. The buyers retain this amount (3%) from the sales price and pay the tax office by completing a form 211.  Your lawyer will be able to advise you on this procedure.  You should keep in mind that your yearly non resident’s tax has to be paid up to date when selling your property.

Normally when the buyer and vendor have come to an agreement on the price of the sale, a private sales purchase contract is drawn up and a deposit of 10% is paid.  Although there is also the possibility of reaching an agreement by signing an option to buy contract and paying amounts of less than 10%.  Another possibility is to sign a rental agreement with an option to buy, which is a common formula amongst our clients who have problems trying to get the financing to buy and for the vendors trying to find a buyer.  The contract shows that the buyer is serious and allows time to take the property off the market for the searches to be done.  The contract will also contain clauses stating how the payments are to be made, where the deeds are to be signed and the timescale for the completion.  You will usually find that around six weeks are enough for completion especially if a mortgage is involved.

If there is a mortgage on the property being sold, it has to be cancelled at the time of signing the sales purchase deeds, unless it is being taken over by the new owners.  Most banks have a clause in their contracts saying how much has to be paid as a penalisation for early repayment and this is normally 1%.  Other costs that have to be paid are for the economic cancellation which is around 50 euros, registry certificate around 30 euros, and the notary and registry fees for the cancellation of the mortgage.  These costs depend on the amount of the mortgage at the time of the cancellation and the registry where the mortgage is inscribed, but for a mortgage of 150,000 euros the notary fees will be around 75 euros and the registry fees around 150 euros.  Your lawyer will help you with the cancellation of the mortgage at the notary and the land registry along with the pertinent forms.  There are no taxes to be paid for the cancellation of the mortgage but the form 600 has to be presented with the corresponding deeds at the land registry.  If the money for the cancellation of the mortgage comes from a tax haven, then the notary has to be given a copy of the form DP2 once it has been presented at the corresponding tax office.  Again your lawyer will be able to help you with this.

Sell privately or through a real estate.

A new Decree (Decree 218/2005) has recently be passed in Andalucía regarding consumer information regarding rental and purchasing of real estate in Andalucía applied to commercial and professional activity of brokering, promoting and advertising of property.  It does not include either judicial or administrative sales by public auction.  These regulations are as follows:

  • The consumer has to be provided with the information regarding the different transmissions of the building and for the renting of real estate.
  • Before signing the contract they have to be provided with the pertinent licenses, resident’s association statutes, insurance and guarantees, building certificates, evacuation instructions, municipal tax payments certificate, etc.
  • The buyers have to have the “Brief Informative Document” ( Documento Informativo Abreviado- DIA) made available to them which has the most important basic data: identification of developer and agent, building company and works director, identification of the house, house plans, description of the building, specifications, full price, method of payment, amounts paid in advance
  • This DIA document is also needed for renting and has to show the description of the house, identification of the landlord, furniture inventory, description of the building, rental amount, expenses, deposits, charges and/or encumbrances…
  • The DIA is free – It has to specify the price and method of payment.
  • The estate agent has to have a sign stating the availability of the Brief Informative Document and this sign has to be alongside the sign regarding the existence of complaint forms.

If you use an Estate Agent you will probably be asked to sign an agreement for commissions and how these payments will be made.
As the vendor you will have to provide the following documents:  a copy of the title deeds; a copy of the latest “nota simple” or certificate from the land registry; a copy of your passport and NIE; a copy of the latest IBI, or municipal tax; if you are resident you will have to provide a fiscal residence certificate from the tax office; a copy of the last payment of the community fees; and a copy of the power of attorney, if your lawyer will be signing on your behalf.

At the notary

Completion of sale will take place when the Deed or ‘ Escritura de Compraventa ‘ is signed before the Notary Public. Both the vendor and purchaser, or their representatives need to be present to sign the sales documentation to complete the sale. At this stage the buyer will pay over the outstanding balance of the purchase price, get the keys to the property and take vacant possession of it; whilst the seller receives the balance of monies, thus concluding the transaction.
The documents that you will need are:

  • Residence card or residence certificate from the Police Station if he is resident.
  • Passport.
  • NIE
  • P.O.A. (if applicable).
  • Title deeds
  • Lastest I.B.I receipt (council tax)
  • Certificate from the residents association showing there are no amounts owing for community fees.
  • “Certificado de deuda” from the bank (in cases of a pre-existing mortgage).
  • Fiscal Residence certificate from the Tax office.
  • Latest electricity/water/gas receipts to transfer the utility contracts into the buyer´s name.

Property taxation for sellers

  • Tax rate: As from the first of January 2010 capital gain tax for residents will move to a progressive system from the previous 18% flat rate. For the first 6,000€ taxation will increase from 18% to 19% and for the following 6,000€ taxation will increase from 18% to 21%. For non-residents the taxation will move from 18% to 19% flat.
  • Form: 211 (Deadline: 1 month after the date of transfer of the property).
  • Place: The tax office corresponding to the place where the property is situated.
  • Withholding of tax by the buyer
  • By law the buyer has to withhold and pay an amount of 3% of the agreed purchase price to the Public Treasury (for acquisitions made from 1 January 2007).
  • Then the buyer has to provide the non-resident vendor with a form 211
  • Form: 212 (Deadline: Two months counting from the end of the period that the new owner has to deposit the withheld tax).
  • Refund of excess  amount withheld
  • In the case of capital losses or when the withheld amount is higher than the tax due, the taxpayer is entitled to a refund of the excess amount. The procedure is initiated by filling in the tax return Form 212.
  • The refund is made by bank transfer to the Spanish account indicated on the tax return.
  • If the withheld amount is lower than the tax due, the taxpayer will pay the rest up to the full capital gain tax amount.
  • Residents over 65 years of age and who have lived in the property for more than 3 years are not subject to capital gains tax at all when they sell their property. Residents and non-residents, including those over 65 years of age, living in the property for less than 3 years are liable for the full capital gains tax.
  • The exemption is applicable to residents who are under 65 years of age who have a recognized major disability.

Do I have to pay Capital Gains Tax if I am going to reinvest the gain?

No, as long as the whole amount that you obtain form the sale of your principal residence is reinvested in the acquisition of a new principal residence within a period of 2 years counting from the date on which the first property was sold until the date on which the new property was bought.
The exemption for the payment of CGT also applies when the new principal residence had been acquired 2 years before selling the first, but only if the amount obtained by this transmission is to pay for the new house.

If you are a fiscal resident in Spain you do not have to pay CGT if you are going to reinvest the gain, as long as the whole amount obtained from the sale of your principal residence is reinvested in the acquisition of a new principal residence within a maximum period of 2 years counting from the date on which the property was sold until the date of the purchase of the new property.
The exemption for the payment of CGT also applies when the new principal residence had been acquired 2 years before selling the first, but only if the amount obtained by this transmission is to pay for the new house.

Example:

  • Mr and Ms. White, residents in U.K, bought an apartment in Salobreña  on 1 January 1991 for an amount equivalent to 100,000 Euro :
  • On 1 January 2007, they sold the apartment for 200,000 Euro.
  • The buyer Ms. Pedersen retained the amount of 6,000 Euro ( 3% of the purchase price).

How do you work out the amount of Capital Gains which should be paid?

Solution:

Transfer value: 200.000 Euro.
Updated acquisition value: 100,000 x 1.2162 = 121,620 Euro.
Capital gain: 78,380 Euro. Number of days between the dates of purchase and 19/01/2006 (date the law changed): 5498 days

  • Gain to be reduced (3): 73.726,82 euros.
  • Nº of years of ownership to 31/12/1996: 6 years.
  • Reduction by abatement coefficients (4): 32,764.20 Euro.
  • Reduced capital gain (5): 45,615.80 Euro.
  • (1) In the solution, expenses and taxes inherent in the acquisition and transfer have not been taken into account, which generally are also included in the acquisition and transfer values.
  • (2) This updating coefficient of the acquisition value is established in section 60 of the General State Budget Act 42/2006, of 28 December (Official State Bulletin of 29 December), for the year 2007.
  • (3) (5,498 / 5,845) x 78,380 = 73,726.82 Euro.
  • (4) 73,726.82 x 11.11% x 4 = 32,764.20 Euro.
  • (5) 78,380 – 32,764.20 = 45,615.80 Euro.
  • Tax rate 19% (they are non residents)  = 45,615.80 x19% = 8,667.00 Euro.
  • Tax payable 8,210.84 Euro
  • Withholding 3% 6,000.00 Euro
  • Differential charge (8,210.84 – 6,000.00) 2,210.84 Euro

As we mentioned at the beginning, the procedure can be complicated and it is always best to use the services of a competent lawyer to make sure that the transactions go smoothly.