THINKING ABOUT SELLING YOUR PROPERTY IN SPAIN? DO IT IN 2014 TO AVOID PAYING MORE TAXES
Next 1st of January 2015, a new tax reform will come into effect. This reform was approved in August by the Spanish Government and, among other measures, it will affect taxation of capital gains obtained as a result of a property sale in Spain:
1) Tax reduction from 21 % to 20 % for capital gains earned by a sale if the seller is non-tax resident in Spain.
2) Tax reduction from 21 %-27 % to 20 %-24 % for capital gains earned by a sale if the seller is a tax resident in Spain.
In these terms, it may seem that, from the 1st of January 2015, taxes for capital gains earned by a property sale will be reduced. However, you should be careful with this reform, since from the 1st of January 2015 sellers of a property may not be enable to apply reducing and updating coefficients of the purchase value when the property was bought.
You may wonder what it means; and it means that heretofore if you bought a property and then you sold it, when calculating the capital gain from the sale, you could update the price paid when you bought the property a few years ago, however, from 2015, this purchase value will not be allowed to be updated. For example:
You bought a property by public deed for 150,000 Euros in 2003 and now it is on sale for 200,000 Euros.
1 ) IF YOU ARE NON-TAX RESIDENT IN SPAIN
- if you sell your property in 2014: the updated purchase value would be 177,540.00 Euros and 4,716.60 Euros should be paid for taxes as a result of a capital gain of 22,460.00 Euros taxed at 21 % rate.
- If you sell your property in 2015: the purchase value would be 150,000 Euros (no update is allowed) and 10,000 Euros should be paid for taxes as a result of the capital gain of 50,000 Euros taxed at 20 % rate.
2) IF YOU ARE TAX RESIDENT IN SPAIN
- If you sell your property in 2014: the updated purchase value would be 177,540.00 Euros and 5,375.00 Euros should be paid for taxes as a result of the capital gain of 22,460.00 Euros obtained.
- If you sell your property in 2015: the purchase value would be 150.000 Euros (no update is allowed) and 10,880.95 Euros should be paid for taxes as a result of the capital gain of 50,000 Euros.
As shown by these examples, tax savings when selling your property in 2014 or from the 1st of January 2015 may be worthy of consideration.
Other examples of updated values with the same prices above: if you bought the property in 1995, the updated value in 2014 would be 210,750.00 Euros; then, you should not pay taxes for capital gain if it is sold in 2014 and you should pay 10,000 Euros for taxes if it is sold in 2015.
If you bought the property in 2013, the updated value in 2014 would be 154,454.00 Euros, then if you sell it in 2015, you would pay less taxes than selling it in 2014; however, this a small saving between 400-700 Euros according to whether the seller is a non-tax resident or tax resident in Spain.
In these examples, neither deductible expenditures (taxes, notary, registry and estate agent fees, etc.) have been taken into account, nor other possible deductions to which fiscal residents may be entitled.
CONCLUSION: if you are thinking about selling your property in Spain, you will probably be interested in doing it before the end of 2014, you will avoid paying more taxes for the profit obtained on the sale.
If you have recently bought a property or the sale price is very similar to the purchase price, you may be interested in selling it from 2015, as there is not a great difference regarding taxation. If you are selling at a loss, that is, you obtain no profit, it makes no difference whether selling it this year or the following.
Nevertheless, the most coherent decision is to make your own tax estimation for your particular case in order to know whether it is more convenient to sell this year 2014 or not, so you will have a clear idea of your possible tax savings.
Author: Gustavo Calero Monereo, C&D Solicitors (lawyer)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)