Selling your property in Spain? You have to read this!

Selling a property in Spain can be a complex process, particularly if you do not have the right information in advance. If you are planning to sell your property in Spain, the following information will help you prepare for the sale and avoid unpleasant last-minute surprises.

Taxes When Selling a Property in Spain as a Non-Resident

Firstly, let’s look at the main TAXES you may have to pay when selling a property in Spain as a non-resident:

Plusvalía. This is a municipal tax payable to the local council (Ayuntamiento) and relates to the increase in the value of the land during the period in which you have owned the property. The calculation takes into account the cadastral value of the land and the applicable rules and coefficients established for this tax.

When the seller is a non-resident individual, although the Plusvalía corresponds to the seller, the buyer acts as substitute taxpayer and is responsible for paying it to the Town Hall. For this reason, the buyer will normally retain the amount calculated for this tax from the purchase price. Of course, we can calculate this for you. We will need the latest IBI (Council Property Tax) receipt and a copy of your title deeds.

Capital Gains Tax (CGT). This tax is collected by the Spanish Tax Office (Agencia Tributaria). Unlike the Plusvalía, it is based on the actual capital gain obtained from the sale. Currently, non-residents are generally subject to a 19% tax rate on the taxable gain, and the acquisition and sale costs that are legally deductible can be taken into account when calculating it.

However, it is important to know that even if you make no profit at all, if you are a non-resident the buyer will normally be obliged to retain 3% of the sale price and pay that amount to the Tax Office on account of your possible tax liability.

If you have no Capital Gains Tax liability because there is no taxable gain, or if your final liability is lower than the 3% retained, you can apply for a total or partial refund, depending on the case. Bear in mind that refunds can take several months and the Tax Office may check that your other tax obligations in Spain, including your Non-Resident Income Tax, are up to date.

If you make a substantial profit from selling the property, the 3% retention may not be enough to cover your final tax liability. In that case, you will have to pay the balance when filing the corresponding Non-Resident Income Tax return.

It is important to understand that the tax is not 3% of the sale price plus 19% of the profit. The tax is calculated on the taxable capital gain; the 3% retention is simply a payment on account of that tax.

An Example of the 3% Retention and Capital Gains Tax

Let’s see how it works with an example:

You bought an apartment for 300.000,00 Euros and you sell it a few years later for 450.000,00 Euros.

The buyer will retain 9.000,00 Euros (3% of the sale price) and will pay this to the Tax Office.

Once we add the relevant purchase costs to the purchase price and deduct the relevant sale costs from the sale price, the final taxable profit is, say, 80.000,00 Euros. Your Capital Gains Tax would therefore be 15.200,00 Euros (19% of the profit).

As 9.000,00 Euros (the 3%) have already been paid to the Tax Office on account of this tax, you would still have to pay a further 6.200 Euros to complete your Capital Gains Tax liability.

A common mistake is to believe that a non-resident seller will always get the full 3% back. As you can see from the example above, this is not necessarily the case. If your Capital Gains Tax liability is higher than the amount retained, you will receive no refund and will have to pay the difference.

Finally, please note the following:

1. The age of the seller does not, by itself, provide a general Capital Gains Tax exemption for non-residents.
2. The reinvestment exemptions available in certain circumstances are subject to specific residence and legal requirements and should be checked individually.
3. Ordinary repairs and maintenance cannot generally be added to the acquisition value simply because money was spent on the property. Certain properly documented investments and improvements may be taken into account, depending on their nature and the supporting documentation available. We therefore recommend keeping invoices, licences and other evidence relating to substantial works carried out on the property.

Other Costs When Selling Property in Spain

Estate Agency fee. Most property agents on the Costa del Sol charge a commission of between 4% and 6% + IVA. This will normally be deducted from the sale proceeds, so you will not usually be requested to make any payment on account, although some agencies may have different arrangements.

Lawyer fee. The standard fee charged by many lawyers for advising clients throughout the process of selling a property in Spain is around 1% + IVA of the sale price, often subject to minimum fees and, in some cases, maximums. Some law firms, including ourselves, offer better rates when the sale price is high. It is advisable to contact a lawyer at an early stage. Apart from confirming the legal fees, your lawyer can calculate or estimate the taxes and other costs before you commit to the sale.

Energy Performance Certificate. An Energy Performance Certificate is required when selling a property in Spain and should be arranged before the property is marketed. You can normally ask your estate agent to organise this for you.

Mortgage cancellation costs. If there is a mortgage charge registered against the property you want to sell, even if you paid the mortgage off years ago, you need to make sure that the charge has been removed from the Property Registry. This involves Notary and Land Registry fees and, where applicable, administration costs. Remember: even if the mortgage has been fully repaid, the mortgage charge does not automatically disappear from the Land Registry.

Tips Before Selling Your Property in Spain

Finally, some tips from Bravo Legal for anyone thinking of selling their property in Spain:

1. Prepare the property documentation in advance. This should include, at least, a copy of the title deeds (escritura de compraventa), a recent IBI receipt and the Energy Performance Certificate. Don’t wait until the estate agent phones you to say that there is a buyer. If documents are missing, it can take time to obtain them and unnecessary delays may make a buyer nervous. The best time to prepare everything is when you put the property on the market.
2. Make sure you are up to date with the Council Taxes (IBI and BASURA), Community of Property Owners fees, where applicable, and your Non-Resident Income Tax.
3. If you have a mortgage, find out how much is still outstanding and check whether the mortgage charge will need to be cancelled at the Property Registry.
4. Speak to a lawyer who specialises in property conveyancing and ask for an estimate of your costs and taxes. This will help you understand the net amount you are likely to receive from the sale and avoid unpleasant surprises later on. Your lawyer will normally need a copy of the title deeds and the latest IBI receipt to prepare these calculations.
5. Once you receive an offer that you are happy with, do not sign anything before speaking to your lawyer. Otherwise, you may commit yourself without being fully aware of the consequences. Remember also that agreements in Spain do not necessarily have to be contained in a formal written contract to have legal effects.

Legal Advice for Selling Property on the Costa del Sol

At Bravo Legal, we regularly assist international and non-resident owners with selling property on the Costa del Sol, from the initial calculation of taxes and costs to the preparation of the sale and completion before the Notary.

If you would like to receive a no-obligation quotation for our services in relation to the sale of your property in Spain, please fill out the following form and provide us with some information about the proposed sale (price, location of the property, resident/non-resident status, mortgage, etc.). We will get back to you as soon as possible.

The head of the Conveyancing Department at Bravo Legal is Miguel Angel Bravo, Lawyer, registered with the Malaga Bar Association (Colegio de Abogados de Málaga) under number 8.410.