In this article in collaboration with lawyer Michael Davies we explain the tax situation in which a fiscal resident qualifies for non-payment of capital gains tax:
The first thing is to be able to prove to the notary prior to sale (via your lawyer) is that you are a Spanish tax (fiscal) resident. It is important to differentiate between being a tax resident and having residencia. These are two entirely separate entities, as the residencia which is issued by the police and does not prove that you are a tax resident of Spain. If you only supply a residencia at the notary, they will consider you to be non-fiscal resident and charge you 3% of the sales price as a retention tax. This is time consuming and somewhat confusing to reclaim and can take anywhere between 6-18 months to reclaim.
In order to prove your fiscal residency your lawyer will contact the tax authorities and request a document, which confirms your fiscal residency. This document can then be used at the notary and you will not be charged retention tax. The tax office in Spain will only issue this document if you have been declaring your taxes in Spain each year. Even if your income is too low to pay taxes, you still need to declare this to somebody. Remember if you live in Spain for 183 days or more you should declare taxes in Spain.
It is advisable when meeting your lawyer prior to even selling your property to be aware of the tax implications, as this will have a bearing on the costs of selling your property.
There is an exception where a total or partial exemption from capital gains tax is possible:
If you sell one property to purchase another of the same or higher then you can claim 100% exemption from capital gains tax. In order to benefit you need to have been a fiscal resident for the last 3 years and filed returns. If the property you are purchasing is lower in price you can claim an exemption percentage of the capital gains back.
If you are aged over 65 years of age and you sell you main home where you have lived for the last 3 years you can claim back 100% even if you do not reinvest. If one partner is 65+ and the other younger then you can claim the exemption in relation to half the price.
You will be surprised how many vendors we visit who are not aware of the tax implications of selling their property. Regardless of your income, you are still legally obliged to make a return each year.
This article is for information only and should you be concerned with your fiscal situation pertaining to the sale of the property, we strongly advise that you seek the assistance of a qualified lawyer or gestor.
Michael Davies can be contacted on firstname.lastname@example.org