Capital Gains Tax in Spain – A Comprehensive Guide For Expats

At Private Client Consultancy our objective is to provide our clients with financial advice and solutions with clarity, consistency and excellence.

We often notice and receive questions about Capital Gains Tax in Spain and we wanted to take this opportunity to ask our expert advisor and CEO Andy Oliver on CGT in Spain to provide you with a guide on this tax and what you can start doing to mitigate its impact on you.

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Table of Contents

Introduction:

As a financial adviser, the main part of the value that I try to give is ensuring that people’s overall financial position improves over the short, medium, and long term by doing two things.

1. Minimising Tax Liabilities for Expats in Spain

The first is to ensure that tax is reduced to its bare minimum, and that the nasties (such as Capital Gains Tax and Inheritance Tax) are mitigated or eradicated. This is easier said than done, especially when an individual has just arrived from another country or still has assets in that other country. What works in Spain may have the opposite effect in the original country – which if got wrong creates a Pyrrhic Victory somewhere with a mass of unintended consequences.

As a financial adviser, the main part of the value that I try to give is ensuring that people’s overall financial position improves over the short, medium, and long term by doing two things.

2. Effective Investment Strategies for Expats

The second is to recommend funds and investments to achieve future growth and income streams for an individual. Again, easier said than done, although the key principles here are to understand that it’s impossible to time the market and we need to trust time spent in the market.

Do you Need Expert Capital Gains Tax Advice?

Case Study - Neil and Wendy’s Capital Gains Tax Journey in Spain

The best way to study and understand how CGT in Spain operates is throught the lense of a recent case study.

Neil and Wendys Capital Gains Tax Journey in Spain

Case Facts

One of the most intricate tax problems I get faced with, and one which often crops up on expat Facebook groups, is that of Capital Gains Tax. Let me tell you a story about Neil and Wendy.

Neil and Wendy had their lives changed by both BREXIT and COVID-19. At that time they were in their late 50s and had decided to buy a property in Spain to eventually retire to. They purchased just outside of Marbella in 2019 for €450,000 and had no mortgage as they had just downsized their main home in the UK as they suddenly found themselves as “empty-nesters”. No CGT in the UK as it was their main residence and no tax consequences in Spain as they weren’t residents in Spain at that point. They got stuck in Spain during lockdown, became automatic residents of Spain at that point (as they surpassed the 183-day threshold), and decided to stay in Spain permanently. They also owned a small buy-to-let in the UK which they bought in 2002.

Implications

Roll on time! It’s now 2024, Neil has had enough of Zoom and remote working and has decided to call it a day and retire. Neil is aged 64 and Wendy 63 (almost 64) and they have decided to stay in Spain and downsize their villa to a smaller apartment. Their original intention was to have somewhere big enough for the family to visit and whilst for 2-3 weeks of the year that was ideal it was now surplus to their needs.

My Advice

They came to me at Private Client Consultancy about Capital Gains Tax in Spain.

I explained to Neil that Spain’s CGT rates are progressive and can be quite high compared to other countries:

  • 19% on the first €6,000
  • 21% on gains between €6,000 and €50,000
  • 23% on gains between €50,000 and €200,000
  • 28% on gains over €200,000

However, Spain also offers certain allowances and exemptions that can help reduce taxable gains. For instance, if the proceeds from the sale of an asset are reinvested in another primary residence, CGT liability can potentially be deferred.

My Proposed Solution - Utilising The Main Residence Exemption

They had bought their house for €450,000 and were now intending to sell it for €800,000. The property had been purchased in Neil’s name and it meant that all liability fell on him with €350,000 potentially subject to tax at the above rates. They also intended to sell the UK properties they had held (jointly) which had a combined gain of €450,000.

The Benefits of Reinvesting in a Primary Residence

Because they wanted to sell for €800,000 and wished to purchase a new property for about €500,000. I advised them that they could take advantage of the main residence exemption which effectively means that if the capital gain from the sale of their main habitual residence was reinvested to purchase a further main residence in Spain, then the gain is exempt.

Sighs of relief later and not a penny of tax to pay.

Another Potential Hurdle - Addressing UK Property Capital Gains Tax

They also wanted to know what tax to pay on the properties in the UK.

The UK claimed taxing rights on UK property on 6 April 2015. Notwithstanding, the UK forgave all gains made prior to that date. This exemption severely reduced the UK bill. Spain doesn’t forgive that gain and would tax it accordingly. I then advised that they wait until they were over the age of 65 to sell their UK properties.

The CGT Exemption for Over-65s

Why? To take advantage of the Capital Gains Tax in Spain exemption given to people aged over 65. If someone aged 65+ sells their main residence, then no CGT is applied at all. If the gain comes from any other asset sale, then gains of up to €240,000 per person are exempt as long as within a period of 6 months those gains are re-invested into an insurance-based income plan and the investor is a Spanish resident. No gains to be payable on that one then.

Boom – no tax there either!

Case Study - Highlights

Neil and Wendy’s case highlights the complexities of CGT for expats in Spain but also demonstrates the potential for significant tax savings through strategic planning with right advisor at your side. By utilising Spain’s main residence exemption and the CGT exemption for over-65s, Neil and Wendy were able to avoid substantial tax liabilities, ensuring a smoother financial transition into retirement and them achieving their financial goals with peace of mind.

Still confused about capital gains tax in spain?

Other Capital Gains Tax in Spain Considerations

Non-Residents and CGT in Spain

It’s worthy to note that the above is for Spanish residents. Non-residents aren’t that lucky.

Non-residents in Spain from outside the European Union will pay a fixed 24% rate for their capital gains. Nevertheless, if they are from any other European country, from Norway or Iceland, that rate is reduced to just 19%.

Exemptions for Non-Residents

Are there any reductions or exemptions for non-residents?

The answer is yes. But unlike in the resident case, there is just one possible case here.

Non-residents can enjoy a capital gains tax exemption provided that they are legally living in any other European Union country that has a tax agreement with Spain. If that condition holds, they will be able to also enjoy the main home exemption too.

In Conclusion

As it is made apparent in our case study, there is no one size fit all when it comes to Capital Gains Tax in Spain. It’s important to carefully study each case and see the unique opportunities and limitations of each financial situation.

At Private Client Consultancy, our process allows to get the right information to provide you with the most optimise solutions, awarding your the financial freedom you deserve.

If you would like further assistance with your capital gains tax in Spain feel free to get in touch with us. You are a form submission away from a personalised solution to your situation.

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