Important changes to the Capital Gains Tax in Spain

Future buyers of real estate in Spain should remember that the treatment of the Capital Gains Tax has experienced a radical change. The modification comes after the Constitutional Court ruling of 26th October 2021 (a judgment that concludes the appeal of previous judgments of the same body that declared determining elements of the treatment of said tax null and unconstitutional) and the Royal Decree-Law 26/2021 (which incorporates new rules to address this matter). These changes could affect the real estate market in Spain and even reduce property prices.

What does the Capital Gains Tax in Spain tax?

The Capital Gains Tax in Spain levies the increase in value experienced by property over time. The sellers of these properties, who are liable for their payment, usually pass on the settlement, either directly or indirectly, to the buyers by increasing the property’s price.

What changes?

As a brief explanation of the change, from 10th November 2021, two new features make up the aforementioned radical change.

Article 104

Article 104 of the Law Regulating Local Tax Office incorporates a new condition of not being subject to the Capital Gains Tax (Article 104.5) when there is no increase in value.

What may seem obvious or common sense to some, that the taxpayer is not liable to pay tax for the increase in value of their property if there is no such increase when transmitted to a third party, represented a point of contention for many sellers and inheritors. Amid the real estate crisis (2008-2014), they faced a substantial loss of property value, without the public administration giving in and demanding the payment of said taxes, through methods detached from the reality of the Spanish real estate market.

By introducing this change, taxpayers who transmit (or acquire within the context of an inheritance) a property with no increase in its value have a clear legal basis for not paying the Capital Gains Tax.

Requirements for not being subject to the Capital Gains Tax:

To prove the absence of an increase in value, it is necessary to:

  • Declare the transmission of the property
  • Provide the title deeds that document the transmission and acquisition.

Finally, the article offers a series of rules to fix the transmission and acquisition values and to determine whether there has been an increase in said value between the time of acquisition of the property and that of its transmission.

Article 107

Article 107 of the statute also establishes two new calculation methods for the tax base of the Capital Gains Tax in the cases in which there has been a capital gain. For this reason, it is possible that even if the tax is payable, its amount is lower.

The taxpayer can resort to two co-existing systems:

  • The pre/existing objective method, but with modified coefficients, to determine the tax base. It also grants city councils a limited authority to correct the reduction of these coefficients, to adjust them to the reality of the local real estate market.
  • However, now taxpayers can pay tax subject to the real increase in value (Article 107.5), provided this amount is less than the taxable base amount of the objective method.

We hope this article has shed some light on this legislative development that could allow sellers or inheritors of Spanish properties to reduce the amount to pay for Capital Gains Tax in Spain or even determine that the transaction is not subject to this tax.

This article is not considered legal advice

Nicolás Melchior

Having graduated with a Law degree, Nicolás Melchior specialises in real estate, commercial contracts and ICT law in Spain. Working languages: Spanish, German, English and French. For any query Contact Nicolás Melchior