The Latest News on Property Taxes

Good news … regarding property taxes in Spain for U.K. citizens selling their Spanish property. Non-residents will now come away with more cash in their pockets … thanks to the new Income Tax Act.

As from January of 2007, Spain is now in line with the rest of Europe regarding property taxes. The huge 35% Capital Gains Tax for non- residents has been lowered to 18%! This is now the same rate which is applied to residents when putting their Spanish property for sale.

These changes are due to pressure from foreigners and Spanish non- residents complaining to the European Parliament about the high property taxes in the former system. This system discriminated against them for being non-residents.

However a non-resident who purchased Spanish property before 1986 remains unaffected. They still have no Capital Gains Tax to pay when selling property.

At the same time the with-holding tax of 5% for foreigners has also now been reduced to 3%. This cautionary retention tax of 3% takes affect when a non-resident sells their Spanish property.

In practice the buyer retains 3% of the sales price, and pays this directly to the Spanish tax authorities. This retention tax is kept on account whilst the non-residents Capital Gains Tax is being considered.

Once the capital gain is determined and the appropriate CGT is calculated, the Spanish tax-man will subtract the 3% retention tax from the Capital Gains Tax that is liable.

If the CGT due is more than the 3% tax that is held on account then the non-resident will pay the remainder.

If, however, the Capital Gains Tax due on the sale is less than the 3% retention tax held on account, and then the non-resident can claim reimbursement of the difference.

If the difference is thousands of euros then it might be worth employing a lawyer to do this for you. My lawyer currently charges around 400 euros for the work involved.

But … before you head off on your bike to the Hacienda offices demanding your money back … please note that prior to handing over one euro the Tax authorities will check back four or five years to confirm that all your tax payments are up to date. Never easy is it?

New … another property tax has just been abolished. The "Impuesto sobre el Patrimonio" (the annual wealth tax based on the net value of assets in Spain) This was a temporary tax (!) introduced over thirty years ago and now no longer applies to residents or non-residents who own property here.

The main reason for the government’s generosity on this occasion is to give the economy a boost particularly the real estate sector which has been struggling along for the last few years.

Some may not have considered this a huge tax (around the thousand euro mark per year for a property worth 350.000 euros) but nevertheless it´s elimination is very welcome when all other expenses seem to be on the up and up.

Although this is back-dated to January, 2008 property owners won’t see the benefit until 2009 as tax returns being filed presently cover the year 2007. But as they say at Tesco “every little helps”.

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