They say that there are only two things guaranteed in life; death and taxes. If you are living in Spain, it's no different, although you could also add sunshine to that list.
When it comes to personal taxes, capital gains is one that you should be aware of, especially if you are a property owner, resident or non-resident.
Important tax reforms have been proposed for 2015, which will have a dramatic effect on the amount of capital gains you will have to pay on the sale of your property. It's important to note though that at the moment they are only draft proposals and will need to be passed by government before coming into force.
As you know, Spain like many other countries has been through a rollercoaster ride since the crash of 2006. As a result, property prices have been plummeting meaning that many owners who purchased in the last few years will have very little equity in their homes and hence will not be liable to pay much capital gains tax.
However, if you purchased many years ago and prior to 31st of December 1994, you need to be aware that the two main discount 'coefficients' which were previously available, will be removed under the new proposals. This will mean that your tax liabilities may increase significantly.
Two Tax Reductions May Be Removed
Capital gains is currently based on the difference between the original purchase price (less expenses, taxes and other costs) and the transfer/sale price (less taxes, expenses and other costs).
At present, capital gains tax is calculated using two rates of correction, which are Abatement or Reduction Coefficient (Coeficientes de Abatimiento) and an Updating Coefficient (Coeficientes de Actualización).
The abatement coefficient discount means that any property purchased prior to 1995 would be discounted for capital gains tax purposes by 11.11% for each year owned up until 1995 (not including the first three years of ownership).
There is an updating or inflationary coefficient where the original purchase price is multiplied by a predetermined figure. So for example, if you purchased in 1988, the updating coefficient would be 1.3299. This is used to calculate the real value of the property taking into account of rise in the cost of living. So the original value that you purchased at would be increased, reducing the amount of tax you would pay.
The proposed new tax reforms mean that both of these discounts may no longer be available, meaning that anyone selling their property after 1st January 2015, would see a significant rise in capital gains tax. Those who purchased many years ago and who have the most profit, will be hit hardest.
As an example, someone buying for 250,000 in 1988 and selling for around 400,000 at the end of December 2014 would pay a little over 8,000 Euros in CGT. If sold after 1st January 2015, the tax liability would rise to a whopping 16,000 Euros. A difference of 8,000 Euros!
You can use the calculator at the following address to get your own figures. http://cincodias.com/cincodias/2014/11/04/..
Capital Gains Tax Rates 2015
For 2015, capital gains tax rates are based on the savings rates below.
Currently, income up to €6,000 is taxed at 21%, between €6,000 and €24,000 taxed at 25%, and the excess at 27%.
In 2015, the rate for the first tax band will be reduced to 20% and then to 19% in 2016; income between €6,000 and €50,000 will be taxed at the rate of 22% and 21% respectively, and anything over €50,000 at 24% and 23% in 2016.
Who Will Not Be Affected?
Anyone over the age of 65 will not be liable for capital gains tax as long as the gain is used to purchase a pension annuity.
If you are under 65 and resident in Spain, you will not have to pay capital gains tax if:-
- You are selling your main residence and invest the proceeds into another property
- You must have lived in the property for at least 3 years
- You must invest the proceeds of the sale into a new property within 4 years of the sale
- You must declare your intention of reinvesting the proceeds into a new home on your Spanish tax return
Non-residents will be taxed using the 2015 rates mentioned above.
So although the new tax reforms in regard to allowances and reductions have not yet been passed, there is a good chance that they will be.
If you are thinking of selling a property here (especially if non-resident) doing it by the 1st of January 2015, may be a good option, although you don't have much time...
Disclaimer: Please note that the above does not constitute any form of financial advice and you are encouraged to speak with a fully qualified tax specialist who will be able to advise you based on your own personal circumstances.