Taxes to be paid when selling a home
In the Spanish tax system, real estate and acts derived from real estate transactions are taxed with the following taxes, which may be direct or indirect and which undoubtedly must be taken into account as expenses in the sale of a property:
Local Taxes
It should be mentioned that of the three local taxes that we contemplate, only the IBI is obligatory. The other two will only be enforceable if the City Council agrees to claim them and prepares the corresponding ordinances:
- Real Estate Tax (IBI)
It does not need ordinances to regulate it. The taxable base will be the Cadastral Value, in this tax the State is responsible for the valuation and the tax is fixed by the Town Councils. That is to say, the Town Councils will be the ones to fix the percentage applicable to the valuation made by the State through organisms such as the Cadastre. - Tax on the Increase in Value of Urban Land
As mentioned above, it is not obligatory, but must be agreed by the Town Council Plenary. In the case of transfers, it must be paid by the person who transfers the property. In the case of successions (inheritances) or donations, it will be paid by the one who receives it. - Tax on Construction, Installations and Works (ICIO)
It is collected by the City Council every time a license is granted. The amount to be paid depends on the budget of the work.
Taxes ceded to the Autonomous Communities
- Transfer Tax and Stamp Duty
- Inheritance and Gift Tax (ISD)
Taxes managed by the State
- Personal Income Tax (IRPF)
- Corporate income tax (IS)
- Value Added Tax (VAT)
- Special Tax on Real Estate Property of Non-Resident Entities
Not all these taxes to pay for the sale of a property are the same, nor do they affect in the same way the purchase or sale of a property, that is why it is always necessary to have the advice of a specialist, who will tell us in each specific case how they affect us.
How to declare the sale of a property for personal income tax purposes
A few years ago, no one hesitated to accept a good offer when putting their house up for sale. Nowadays, with prices in full recovery, there are many who wonder whether it would be better to wait for the situation to improve or to jump into the pool. To make this decision, it is good to study how the capital gain on the sale of a property is calculated.
If your clients are considering selling their house, it is important to know how to get the right advice.
How does the sale of a property affect our income tax return?
The first thing you should know is that the sale of a property is declared the following year.
Capital gain or loss
How much personal income tax do I have to pay?
The first thing you should know is that it is not the same to earn money with the sale of a house than to lose it. Logically, it will not be the same if that money is invested in a habitual residence or if that increase of patrimony is destined for other purposes. Therefore, how much capital gain is paid when selling a house depends on several factors. Let’s go by parts:
The first issue requires knowing whether there has been a capital gain or loss in order to determine the taxes payable on the sale of a home.
In case you have earned money with the sale of a property, you should know how the difference is calculated. To begin with, the purchase price includes the taxes paid at the time (VAT if it was a new property, ITPV in the case of a second-hand property), as well as the improvements you have made to the property.
In case the house has been sold, the taxes paid are also included. Obviously, if the price for which we have sold the house is lower than the purchase price (something not very strange in these times), it is considered that there has been a loss of patrimony and therefore, we should not pay taxes.
Moreover, these losses can be offset against earnings over the next four years.
And what rate applies in these cases?
There are several circumstances and tables to calculate, such as the correction for inflation, but gains from the sale of a home are usually taxed as income from savings, which are lower than the general rate.
Only if less than 12 months elapse between the sale of the house and the purchase of another residence will the general rate be applied.
Reinvestment in primary residence
In the vast majority of cases, people who sell their primary residence then buy a house. In this case, the profits obtained from the sale of a property do not pay the same taxes as if we have invested that money in the purchase of a new home. They would be exempt from taxation, although we must specify it expressly in the declaration.
Seniors over 65 years old
The taxes payable on the sale of a home differ if the owners are over 65 years of age.
In this case, they do not have to pay taxes or justify that they are going to invest that money in the purchase of a new home.
Taxes by Autonomous Community
In addition to declaring the sale of a property in next year’s income tax, there are other taxes to be paid on the sale of a property that may affect you, depending on the autonomous community in which you live. Below, we list some of the most well-known in depth:
Real Estate Tax
As mentioned above, this is a tax levied by the City Councils of the localities where the property is located, although for the payment of this tax, the City Council collects data from a state agency, the Cadastre.
As is to be expected, each municipality dictates its own rules, which affect the rate applied to this tax, as well as exemptions and other regulations.
To give you a case in point, the Madrid City Council has introduced important innovations in the application of this type of tax, with exemptions for some types of income, and increases for others, such as those belonging to the higher income brackets.
VAT, value added tax
Although this tax does not affect those who have sold a property, but those who have bought it, we would like to detail what it entails.
As you know, VAT is applied to first-hand homes, that is, those acquired from real estate developers.
The VAT applied to new homes is 10% throughout Spain, as opposed to the transfer tax, which is levied on second-hand homes. Depending on the autonomous community in which the transaction is carried out, one rate or another must be applied.
Transfer Tax, ITP (Impuesto de Transmisiones Patrimoniales)
The last of the taxes to pay for the sale of a property that we are going to analyze is the ITP. It will depend on the autonomous community in which you live, since the fluctuations can vary between the maximum 10% that is paid in Catalonia to 4% in the Basque Country.
The difference is remarkable, making it one of the most important considerations when considering selling a house.
As you will undoubtedly know, it corresponds to the new owner, and is framed within the taxes to be paid in the purchase of a house. It must be paid within the following 30 working days from the date of execution of the public deed.
To pay this tax, you must take into account that it is paid in the autonomous community where the property is located, not where the real estate transaction takes place.
For some time now, the ITP can be paid by the notary who is in charge of the deed, although it can also be done personally, through a self-assessment form provided by the tax authorities, so that it is the user himself who calculates the amount to be paid.
Finally, it should be noted that the ITP is also not only one of the taxes on the sale of a property, it is also paid on rentals, and it corresponds to the tenants. A rental is also considered to be an onerous acquisition and therefore subject to ITP.
Until relatively recently, this tax was not collected in many communities. In Madrid, it has recently begun to be levied, with a view to alleviating the economic burden on the coffers.
If you would like the advice of a Keller Williams Imperium Tarragona Agent, please contact us.
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