Spanish Villa Sales - Capital Gains Tax
The sale of a Spanish villa or any other type of property in Spain can be a complicated business so it’s a good idea to employ a financial adviser to guide you through the process.
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A fiscal adviser in Spain is known as an asesor fiscal or gestor and you’ll find at least one in every major town. In areas popular with tourists and ex-pat residents you can normally take your pick of English-speaking financial advisers who specialise in cutting through the mire of Spanish bureaucracy.
Even if you decide you don’t need a financial adviser, make sure you employ the services of a good lawyer to protect your interests up until the completion of the sale. It’s not only the language that’s different in Spain – the culture and way of doing business are also completely different than in most northern European countries.
Take for example the widespread practice of under declaring the true value of the property in order to pay less “plus valia” - a local municipal tax based on the increase in land value since the property was last sold. Depending on the sales contract, this plus valia can be the responsibility of either the buyer or the seller. Either way, both parties might agree to declare a false sale price with a view to reducing this tax burden (in which case the buyer pays the vendor the difference in black money). The Spanish authorities are starting to crack down on this common practice, particularly in cases where the declared price is less than 80% of the property’s true market value.
Spanish Property and Captial Gains Tax
The plus valia shouldn’t be confused with capital gains tax which is the sole responsibility of the vendor. Calculating this tax can be incredibly complicated as all sorts of different factors are involved. How much capital gains you pay will depend on what year you bought the property, whether or not you’re a resident, whether you intend to invest in another Spanish property, allowances for inflation and any improvements you’ve made to the property.
If you’re still not convinced that you need the help of a financial expert, consider the Spanish law which allows for 5% of the sale price to be retained until the “hacienda” (Spanish tax office) is satisfied that you’ve paid all the necessary taxes relating to the property. This law applies to foreign owners (i.e. those without “residencia”) and it can take months of battling to retrieve this money, even after you’ve paid your taxes.
It’s normal practice, when selling a Spanish property, to have a pre-sales contract whereby the buyer pays a 10% deposit into a secure account at which point the vendor withdraws the property from the market. If the buyer then pulls out, he or she loses the 10% and if the seller reneges on the deal he or she pays the buyer 20% by way of compensation. It’s called an “arras agreement” and as long as it’s drawn up by lawyers representing the interests of both parties, it’s a sensible arrangement which prevents the insidious practice of gazumping (so common in some countries including the UK).
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