Capital gains tax changes effective Jan 1st 2007
Here follows an extract from the latest edition of "You and the law in Spain" by David Searl (Santana Books - “You & the Law in Spain” 2006/2007 Edition – ISBN: 84-89954-54-2) which explains the changes that came into effect on Jan 1st 2007. Although not mentioned here the fiscal retention for CGT payable by non resident vendors has also decreased from 5% to 3%:
P166 - CAPITAL GAINS TAX
For 2006 and 2007 there is bad news and good news and bad news for property owners. Spanish lawmakers have been busy.
The bad news for long-term property owners in Spain is that they are no longer free of capital gains tax when they sell their Spanish property. Those who bought before December 31, 1986 applied a reduction factor and had no capital gains tax at all.
This total exemption was annulled on January 20 of 2006. Now the long-term owners must pay. Their original reduction is still in force, so they will pay only for the percentage of profits gained after January 20, 2006, but they must pay something.
The government’s proposed tax law for 2007 plans drastic changes in Spain’s capital gains tax that will affect every property owner. These measures will almost certainly be passed into law and one of them is already in effect. Nevertheless, be alert for possible last-minute changes.
The good news for non-resident foreign property owners is that non-resident capital gains tax will be slashed in 2007 from its present 35 per cent to a less painful] 18 per cent. This means that, as of January 1, 2007, non-resident sellers will face only half as much tax when they sell their property. Non-residents are the great majority of holiday homeowners on the Spanish costas.
The tax cut comes in response to a sharp reprimand from the European Union that the rate of 35 per cent discriminated against non-resident EU property owners in Spain, when residents were taxed only 15 per cent.
Resident Sellers Will Pay More
The bad news is that resident property owners will be subject to the same 18 per cent tax on capital gains instead of their former 15 per cent, also starting in 2007. Further, the 15 per cent presently in effect is the maximum rate. Resident sellers can pay even less if their incomes are modest because the capital gains tax is charged as part of a resident’s income tax.
Under the 2007 plan, all residents will pay a flat rate of 18 per cent. The 18 per cent also affects all income from capital assets, such as the interest on bank accounts, dividends and profits from sale of stocks and shares. For residents this means that the bank will withhold 18 per cent from their miserable interest payments on their current accounts in Spanish banks. These measures are contained in Spain’s proposed budget for 2007. The budget has not yet been enacted but no one expects the Congress to vote any major changes in the government’s plan.
Since publication of the book the changes have been confirmed and this is likely to make properties on the hillside here very interesting from an investment standpoint for non residents. Although there is a general oversupply of properties for sale in many parts of Spain there will continue to be a limited supply of properties on the hillside overlooking Salobreña. When the motorways reach us and awareness of this area increases the normal factors of supply and demand will no doubt result in increasing values for the kind of properties that we specialise in. The new CGT rules will help make the villas we sell even better investments as well as being enjoyable places to spend time in!
Return to our introduction about procedures and costs for Spanish Property Sales
Spanish Property Buyers Guide 1
Spanish Property Buyers Guide 2
Spanish Property Sales - Purchase Costs
Spanish Property Sales - Procedures