Spanish Tax Reform and Selling my Property

Engel & Völkers Altea - Tax ReformThe Tax Reform presented by the Spanish Government removes the currency depreciation and offset coefficients applied in income tax on the capital gains from home sales. The measures make selling homes more expensive for taxpayers on the tax invoice from 2015, especially if the home were purchased before 1994.

In the case of property, a taxpayer’s capital gain gets corrected by the coefficients of currency depreciation included each year in the State Budget. In addition, those who purchased before the 31st of December 1994 are entitled to a reduction in the capital gain between the purchase date and the 19th of January 2006. The attributed gain during this period is reduced by the offset coefficients and may be exempted for homes purchased before the 31st of December 1986.

The reduction of tax rates on the section of savings does not compensate the increase that many taxpayers will suffer.

Thus, the offset coefficients and currency depreciation allow reducing the capital gains significantly for tax purposes. For example now, if a home was purchased in 1980, including management fees as notary and taxes, for 10,000 Euros and now is sold for 200,000 Euros, the capital gain amounts to 190,000 Euros. However, with the currency depreciation and offset coefficients, the gain for tax purposes is reduced to 47,730 Euros. From 2015 and continuing with this example, the entire capital gain (190,000 Euros) will be taxed.

So those who have purchased a property many years ago and is thinking of selling, should speed up the process to avoid the punishment the Spanish Government’s tax reform contains. The buyer, meanwhile, will with the tax reform have an additional weapon to pressure price reductions.

However it is true that the exemption for capital gains on the sale of a residence, in the case of taxpayers over 65, remains. Neither the exemption for reinvestment in a residence is removed.Engel & Völkers Altea - Asesoramiento

You are welcome to contact us if you need advise in the matter, or come in our office.