What is Capital Gains Tax (CGT)

Capital Gains Tax is the tax that is paid on the profit on any sale of a property or other asset in Spain. Whenever the sale value is greater than the price you paid for the investment/asset, capital gains tax will be paid on the difference, i.e. the profit.

One of the main taxes when selling your home in Spain

Unlike some countries such as the UK where this tax is separate from Personal taxes, in Spain, Capital Gains Tax is integrated into Personal Income Tax (IRPF), with the calculation including the Purchase Price plus purchase costs (taxes and fees) deducted from, the Sale Price (less Estate Agent commission and Plus Valia). The Spanish tax system is complex and quite different from other countries, so this article is intended to be as clear as possible.

For example, Imagine that you bought a property in Spain for €200,000 with €20k expenses. Now, after several years, you are planning to sell it. You find a buyer, and after some negotiations, you both accept that the sale price will be €400,000 (nett of Plus Valia and E/A commission). The resulting €180,000 profit is the figure on which Capital Gains Tax will be calculated.

So, how much will you pay in this situation?

As always, the answer depends whether if you are a resident in Spain or not.

Capital Gains Tax for Spanish residents

Just as a reminder, you will be considered a tax resident in Spain if you stay in the country for more than 183 days per year (6 months).

In our example above, if you are considered a resident, the Capital Gains Tax payable on the profit is:

19%On profits up to €6,000
21%On profits between €6,000 and €50,000
23%On profits over €50,000
Improvements and how to avoid Capital Gains Tax

Let's look now at the information you are more interested in. There are two different situations in which you won't need to pay Capital Gains Tax, and one where you will pay a reduced percentage.

1) The Main Home exemption

If the full proceeds from the sale of your main home are to be reinvested into the purchase of a new property (within two years of sale this is called 'Rollover Relief'), and you will use this as your new home: There is NO Capital Gains Tax payable. This is what is called the Main Home Exemption.

The main point here is that the property you are selling was your habitual residence, and the one you are acquiring will be too. The principal requirement in this case is that this new property is located inside the European Union for the exemption to apply.

2) Reduction on assets bought before 1995

If you bought the property you now wish to sell before 1995, you may be able to enjoy a slight tax reduction. This means that all the properties that were acquired up to December 1994 will be eligible for this bonus. Please note that there are two things to consider:

  • The bonus will only applicable to gains made up to January 2006. Any increase in the asset value after this date will be taxed at the normal rate.
  • In order for the property or asset to enjoy this bonus, the purchase price must have exceeded €400,000.

If the property or asset you wish to sell meets these requirements, the appropriate Tax Rate will be:

  • 11% on the property
  • 25% on company shares
  • 14% for all other assets.
Capital Gains Tax for NON-RESIDENTS of Spain

So far we have looked at the situation for those people staying in Spain for more than 183 days each year, including bonuses and reductions. We shall now look at the position regarding Capital Gains Tax as regards non-resident taxpayers in Spain.

  • Non-residents of Spain from outside the European Union will pay a fixed rate of 24% on Capital Gains.
  • If they are from any other European country, or from Norway or Ireland, this rate is reduced to 19%.
Reductions or exemptions for non-residents

Non-residents can enjoy a Capital Gains Tax exemption provided that they are legally resident in any other European Union country that has a tax agreement with Spain. If that condition exists, they will be able to also enjoy the main home exemption too.

Assets subject to Capital Gains Tax

As previously mentioned, property is not the only asset subject to Capital Gains Tax. This tax also includes company shares, commercial buildings, land, government bonds and precious metals, and any other type of asset or investment.