This guide sets out a summary of all the taxes and costs involved when selling a property in Spain.
The main tax applicable to property sales in Spain is the plusvalia municipal sales tax, also formally known as the “tax on the increase of value of urban land”. Although the name implies that it is a sort of capital gains tax calculated on a percentage basis, in reality it a fixed amount calculated on a series of indexes and rates set by local authorities.
Given that the plusvalia applied irrespective of a capital gain, there has been a considerable criticism over the past years because it was deemed a form of double taxation and owners had to pay it even if selling for a loss. In view of this, a 2019 judgment from Spain´s superior tribunal declared that the plusvalia does not apply if there is no capital gain. This has resulted in numerous claims against the tax office from owners affected by the global financial crisis who sold at a loss when property prices dropped considerably in Spain.
The amount payable of plusvalia can be estimated by contacting the local tax office. In the case of Costa del Sol, the Malaga Province Tax Office (Patronato de Recaudacion Provincial) has an online calculator that can determine the value by entering the tax reference and the relevant transaction dates.
After completing the sale at the notary, resident owners have 30 days to submit the plusvalia payment application in their local tax office. The actual payment letter is issued circa 1 to 3 months thereafter.
In the case of sellers who are not tax-resident in Spain, it should be noted that buyers have the obligation to retain the plusvalia irrespective of whether there is a loss or gain (see details in section 3 below).
2. Capital Gains Tax
The rates of capital gains tax (CGT) applicable to real estate transactions in Spain depends on the tax-residence and nationality of the seller as follows:
(i) Sellers who are tax-resident in Spain irrespective of nationality pay a 19% CGT. It should be noted that if the sale concerns the primary residence and the seller then buys another property within two years or is retired, no CGT applies.
(ii) Non-resident sellers from the EU and some EEA countries also pay 19% CGT.
(ii) Non-resident sellers from third countries pay 24% CGT.
With regards to the latter, British owners who are not tax-resident in Spain should be aware that they may be subject to a higher rate of tax due to Brexit, if the UK and Spanish government do not enter into a specific arrangement. This is not a retaliatory measure by Spain, but these pre-existing rates could apply because the UK unilaterally opted to become a third country by leaving the EU.
3. Retentions applicable to non-resident sellers
If a seller is not tax-resident in Spain, which is the case for holiday home owners who reside more than half the year outside the country, the buyer has the legal obligation to retain 3% of the purchase price. This main retention levy is known as the 211 retention (per the tax form number) and consists of a security levy paid to the tax office.
The 211 retention is made at source; this means that in practice the seller receives 97% of the purchase price and the buyer pays the 3% retention to the tax office “on behalf of the seller”. Failure to retain or to pay the taxes under form 211 to the tax office would result in penalty for the buyer.
This retention is not a tax as such, but a security levy paid to the tax office to guarantee the payment of any tax debts and liabilities of the seller. As a result, it can be recovered in full in the event that:
(i) The property is sold at a loss (so no CGT applies); and
(ii) the seller has no tax liabilities with the tax office (namely, no debts in regards to IBI council tax or the non-resident owner´s tax known as the form 210 tax).
Unfortunately, the recovery of the 211 retention can take a couple of months or even years, but it is advisable for sellers to request it, because it can be a significant amount. The recovery process of the 3% retention is administrative in nature, so owners or their representatives need to file the relevant form and supporting documents.
In addition to the 211 retentions, buyers have the obligation to retain the plusvalia municipal sales tax when the seller is not tax-domiciled in Spain. The value of the plusvalia retention is the same as the estimate of the tax office. In the event that the seller sold at a loos, the plusvalia is also recoverable pursuant to the 2019 judgement mentioned in section 1 above.
The commission payable to estate agents in Costa del Sol tends to be 5% of the purchase price plus VAT in most instances. This rate of commission is paid by the seller and forms part of the price. The best practice is for the commission to be shared between the listing agency and the buyer´s agency if there are multiple agents involved (this increases the chance of selling the property considerably).
In some instances, an owner would pay a higher rate of commission such as 6 or 7% plus VAT in order to incentivise agents to push for their property, especially if there is a market downturn or many competing properties in the area.
These rates of commission are justified on the basis that the market in Costa del Sol is one of the most competitive in the world and agencies have to invest considerably in marketing in Spain and abroad, because most buyers are not locals. In addition, it is not a very “liquid” market with lots of activity as in large cities like London, New York, Singapore, etc. Therefore, it is important to attract as many potential buyers as possible because most properties simply “do not sell themselves”.
5. Other costs to consider
Notary: The Spanish Civil Code states that the seller is liable for the costs of the notary “unless the parties agree otherwise”. However, 99% of the time, parties agree for the buyer to pay for the notary costs, because it is standard practice and it is best for the buyer to choose the notary to protect his interests.
Legal fees: In view of the applicable retentions, non-resident sellers are generally benefitted to instruct a local lawyer to advise them. The applicable rates should be in the region of 1% of the sale price + VAT in accordance with the recommended rates of the Malaga Bar Association (although in some instances lawyers can offer a discount based on the scope of work and property price).
Certificates: Some minor costs could apply if owners need to obtain an energy certificate (this may require a site visit by a certified architect) or if the community administrator charges to issue a community certificate of no-debts. These costs are minimal but should also be taken in consideration.
Warning: Please note that this article is a general guide on costs and taxes. If you require specialist advice or require clarifications, please feel free to contact us.