Capital gains tax in Spain – part 2

The same treatment applies to gains made on the sale of property, but there are key exemptions

In Spain, capital gains tax is not applicable when you sell your primary residence | Photo: Alberto Ortega / Europa Press

Cathal Rochford, Partner Blevins FranksPalma21/02/2024 14:12

My last article looked at how Spanish capital gains tax is applied on gains made on the sale of shares (equities) and other securities. Treated as ‘savings income’, the gains are taxed at rates starting at 19% for income up to €6,000 and rising to 28% for income over €300,000. The same treatment applies to gains made on the sale of property, but there are key exemptions.

Primary residence exemption

In Spain, capital gains tax is not applicable when you sell your primary residence, provided the proceeds from the sale are reinvested into another property designated as your main home. Certain criteria must be met to avoid the standard capital gains tax liability.

The newly acquired property need not be situated within Spain; it can be located in any European Union (EU) or European Economic Area (EEA) country to be eligible. The replacement primary residence must also be within the EU/EEA, so UK property is no longer eligible for this relief.

If you sell any other worldwide property as a Spanish resident, you may be liable to tax in the country where it is located as well as in Spain. The UK-Spain double tax treaty mitigates potential double taxation issues on capital gains in such scenarios.

Other exemptions

Residents of Spain aged 65 and above are exempt from capital gains tax on property if it has served as your primary residence for over three years, even if you do not reinvest the proceeds. Qualifying conditions apply.

Furthermore, individuals in this age bracket may be exempted from capital gains tax on profits derived from the sale of assets, not limited to their primary residence, when they utilise the proceeds to establish a whole-of-life pension annuity (renta vitalicia) within six-months. Only the sum used for this purpose qualifies, up to a maximum of €240,000 (any surplus is subject to tax). Again, specific requirements must be met.

Non residents

When non-residents sell Spanish property, the capital gains are taxed at a fixed rate of 19%. Transfer tax, VAT and local land appreciation tax may also apply.

Take specialist advice to ensure you hold your assets, particularly your investment assets, in the most tax efficient way for Spain. A good adviser will help you manage your assets so that you do not pay more tax than you need to. Always seek professional advice before making any changes to your investments and tax planning.