What is capital gains tax and when is it applicable?

By 15 octubre, 2015spanish tax

capital gains taxThis question usually arises after the sale of a property/asset. There are many doubts about when this tax should be paid. Also when a profit is made on the sale of a property/asset there can be uncertainty about the amount due to be paid.

The name itself reflects the implications of this tax, capital gains are the amounts received when a profit is made in any transaction involving an increase in a person’s assets, i.e. through

-Profit from property sales,
-Inheritances,
-Bequests or gifts
-Awards or grants
-Exchanges of properties or rights

In general, the capital gains generated by the sale of a property/asset, is taxed similarly to your annual personal income tax in Spain.

Before the latest change on January 1st this year the tax was calculated in the following manner: –

. The first 6,000 euro profit would be taxed at the rate of 21%
. Profit between 6,000 and 24,000 euro at 25%
. Profit between 24,000 and 50,000 euro at 27%
. Profit more than 50,000 at 27%

Since the latest change on January 1st this year the tax is calculated in the following manner: –

. The first 6,000 euro profit would be taxed at the rate of 20%
. Profit between 6,000 and 24,000 euro at 22%
. Profit between 24,000 and 50,000 euro at 22%
. Profit more than 50,000 at 24%

We should mention that if a person reinvests all of the profit gained from the sale of their principal residence to buy another home, the amount reinvested is exempt from tax. However, if only part of the profit is reinvested in a new home, then the amount remaining after the purchase is still taxable.

This obligation to reinvest the profit in a new home in order to benefit from the tax exemption does not apply to people over 65 years old.

Although the new regulation has reduced the percentage of tax applicable it does not usually mean that you will pay less Capital Gains Tax as it also effects the calculations regarding the figure upon which the tax is based. Before this modification in the law the tax was calculated by taking the value of the property/asset when purchased and then updating it to a current value. The difference between this revised, higher valuation, and the sale price was then the base figure upon which the above percentages were applied.

According to the new regulation if a property/asset was purchased after 1994 this adjustment in the valuation no longer applies. Now the difference between the declared value at the time of purchase and the actual sale price is the base figure upon which the Capital Gains Tax is calculated using the new lower percentages. For example: –

A tax payer who purchased a home for 230,000 euro in 2001 and sells now for 300,000 euro would be liable to pay 15,682 euro in Capital Gains Tax. Whereas, if the same sale had been completed last year they would have been obliged to pay only 3,955 euro. So you can see that although the actual percentages of the tax have been reduced, the base figure upon which they are applied has increased considerably due to the fact that the actual value of the property/asset is not updated.

Melanie Elst
Paralegal Department – Axarquía Office

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