In my work as a lawyer specializing in property conveyancing, I frequently encounter a situation where the seller of a property discovers the taxes that have to be paid after agreeing the sale price, and on many occasions this leads to unpleasant surprises. It seems that, unlike buyers, that normally ask many questions about the costs and taxes involved before making any decision, sellers do not realize their full obligations when it comes to the sale and sometimes are based on the false belief that when no profit is obtained, no tax must be paid.
So, first let’s see what TAXES you will have to pay when selling a property in Spain, as non resident:
Plusvalía. This is a municipal tax payable to the local council, based on the increase of the official value of the land between the purchase and the sale dates. Believe it or not, the official price of the land always increases in Spain. It is advisable to ask your lawyer to calculate this from the beginning, and depending on this, you may have more or less room for price negotiations, and it may even affect your asking sale price. Note: Several Spanish Court Decisions have ruled that the way this tax is calculated in not legal, particularly in cases where the sale price is lower than the purchase price, and therefore the Spanish government is expected to pass a new law modifying this tax. However, this legal modification is not in force yet, so at present, (September 2018), and particularly if you are Non Resident, the Plusvalia needs to be paid as it has been up to now, although in some cases a refund can be requested afterwards. Please ask your lawyer about this.
Capital Gains Tax (CGT). Unlike the plusvalia, this tax is fairer because it is based on the actual profit obtained. Currently, Non Residents in Spain (but residents in EU countries) have to pay 19% on the profit. However it is important to know that even if you are making no profit at all, and due to you being a Non Resident, the buyer of your property will be obliged to retain 3% of the sale price on account of your possible tax liability. Of course, if you have no tax liability at all because you are losing money with the sale, or your liability if less than the 3% retained, you will be entitled to a total or partial tax rebate, depending on the case.
Please note that the tax is not 3% of the sale price + 19% on the profit. The tax is only the latter; the retention is a payment on account of the tax.
And now, let’s see the COSTS
Estate Agency fee. Most of the property agents in the Costa del Sol charge a commission between 4% and 6% + IVA. This will come off the sale price, so you won’t be requested to make any payment on account (only a few Agencies will ask you to pay some money to list your property in their magazines).
Lawyer fee. The standard fee that most lawyers charge for advising clients during the entire process of selling a properly in Spain is 1% + IVA on the sale price, but law firms usually offer better rates when the sale price is high. It is advisable to contact a lawyer at the early stages of a sale. They will confirm their fees and will also inform you about taxes, etc.
Certificate of Energy Performance. This has been compulsory in Spain since 2013, this is something you need to arrange BEFORE you put your property on the market. You can be fined for advertising your property for sale (or long term rent) without this Certificate. It can cost between 80 and 180 Euros. You can ask your property agent to organise this for you.
Mortgage cancellation costs. If there is a mortgage charge on the property that you want to sell, even it you paid it off years ago, you need to make sure that the charge has been lifted from the Property Registry. This involves Notary and Land Registry fees, and you should allocate approximately 800,00 Euros for this. Remember: even if you have paid the mortgage totally, you still need to remove the charge from the property in the Land Registry, and unless you instruct the bank to do it, that will not be done.
Finally, some tips from Bravo Legal, for those thinking of selling their property in Spain:
- Prepare a set of documentation for the property that must, at least, include: A copy of the title deeds (escritura de compraventa), a recent receipt of the Council Property Tax (IBI) and the Certificate of Energy Performance. Don’t wait until the estate agent phones you to say that he has a buyer for your property! If you don’t have any of these documents, it might take weeks to gather everything together and delays may cause the buyer to feel anxious. The time to prepare all this is when you put your property on the market.
- Make sure you are up to date with: the Council Taxes (IBI and BASURA), the contributions to the Community of Property Owners (if applicable), and with the Income Tax for Non Residents.
- If you have a mortgage, find out how much is still pending and remember what we said above about lifting the charge in the Land Registry.
- Ask for an appointment with a lawyer that specialises in Conveyance and ask for an estimate of your costs and taxes. This will help you to set your sale price and will avoid unpleasant surprises later on. You will need to produce a copy of your title deeds and the receipt of the Council Property Tax (IBI).
- Finally, once you have an offer that you are happy with, don’t sign anything until talking to your lawyer, otherwise you might be committing yourself without being aware of all the consequences and risks involved. And remember: in Spain verbal contracts are as binding as written ones, although obviously more difficult to enforce.
Please visit our CONVEYANCING service page to discover how Bravo Legal can help you with all the above.
Miguel Angel Bravo
Abogado – Lawyer