If you're considering selling your home, you should know that selling a property involves some associated costs, both for the buyer and the seller. If you're wondering what the taxes on selling a home, keep reading. In this article, we're going to explain what costs you'll incur when selling your house in Spain, who is responsible for those costs, and how to pay them.
What are the taxes on selling a home?
A sale transaction always involves extra costs, and taxes are probably the largest of these. For the seller, the sum of all the taxes applicable to selling a home can be around 8-10% of the sale price.
Taxes on selling a home for the seller
It's very important to be aware of these taxes on selling a home, as it can help us set an appropriate sale price. Taking into account the amount of these costs, and others not related to taxation, when putting our house up for sale can help us get the most out of it.
Broadly speaking, for the seller, these taxes are three:
IRPF
PlusvalÃa
IBI
Let's delve a little deeper into each of them.
Personal Income Tax (IRPF)
Selling a home implies, for legal purposes, a capital gain. This means that when you sell a property, you are increasing your assets; in other words, after the sale, you have more assets than before.
That's not always true, because you might have sold your home for less than its value. But you must always declare any gains and pay the corresponding taxes.
This tax is paid during the year following the transaction, by declaring it in your IRPF tax return.
Municipal Capital Gains Tax
Municipal capital gains tax (plusvalÃa municipal) is levied on the increase in land value between the time of purchase and sale. It is usually paid within 30 business days following the formalization of the sale, although the deadline may vary.
It's best to inquire directly with the local council where the property is located to confirm the correct deadline and amount, as this is a municipal tax.
Property Tax (IBI)
Unlike the previous taxes, IBI is not strictly one of the taxes on the sale of a property, as it is paid annually whether the property is sold or not. At the time of sale, the tax must be paid, as the property should ideally be free of encumbrances.
Calculating Taxes on the Sale of a Property
Now that we've identified the taxes you'll need to pay when selling a property, let's look at the potential amounts and how to calculate them.
Personal Income Tax (IRPF)
Calculating the IRPF amount is the most complex part when it comes to the expenses of selling a house. We'll try to summarize the process for you in a few steps:
Calculate the acquisition value. This is made up of the house's purchase price, taxes (VAT for new builds, Property Transfer Tax for second-hand properties), and the cost of subsequent renovations.
Calculate the transfer value, which is the sale price after deducting taxes, mortgage cancellation fees, and real estate agent commissions.
Subtract the acquisition value from the transfer value to determine the capital gain, which is what you'll need to declare on your IRPF tax return, except in cases where both values are identical.
Apply the corresponding tax rates to the capital gain: for gains up to €6,000, 19%; for gains between €6,000 and €50,000, 21%; for gains between €50,000 and €200,000, 23%; and for gains over €200,000, 26%. These rates are applied progressively. For example, for a gain of €10,000, 19% would be applied to the first €6,000 and 21% to the remaining €4,000.
Practical Example of IRPF Calculation
Let's imagine a property with an acquisition value of €100,000 that is sold for a transfer value of €160,000. The capital gain is €60,000, so three tax rates must be applied:
The first €6,000 is taxed at 19%: €1,140
The amount between €6,000 and €50,000 is taxed at 21%: €9,240
The amount between €50,000 and €60,000 is taxed at 23%: €2,300
What the seller will have to pay for the sale of their property when declaring IRPF will be €12,680, approximately 21% of the gains.
Municipal Capital Gains Tax
To calculate the municipal capital gains tax, you should contact the relevant local council, as each municipality applies different tax rates and value increment coefficients.
Additionally, it has recently been determined that the calculation system for this tax violated citizens' rights, and now there are two ways to calculate the amount:
Based on cadastral value
Starting from the value of the land at the time of acquisition, a multiplying coefficient is applied, which depends on the number of years passed and the municipality where the property is located (between 0.8 and 0.45). Example:
If a property with a cadastral value of €100,000 at the time of purchase, of which 60% (€60,000) was the land value, were sold after 8 years, those €60,000 would be multiplied by 0.10 (Coefficient).
The result, €6,000, would be the taxable base for the municipal capital gains tax, which can be up to 15%.
According to actual capital gain
With this second method, the actual purchase and sale price is taken into account. Let's imagine a property with a cadastral value of €100,000 at the time of acquisition, of which 60% (€60,000) was the land value.
If this property had been bought 15 years ago for €100,000 and were sold now for €120,000, the actual capital gain would be €20,000. Of that €20,000, 60% would be calculated, in this case €12,000, and that would be the taxable base on which the municipality will calculate the tax.
Real Estate Tax (IBI)
Property tax is paid annually, so you probably don't need to calculate it; you're already very familiar with it. But it's worth explaining what it's for.
The IBI is calculated based on the cadastral value of the property, to which a multiplying coefficient is applied, which in urban areas is usually between 0.4% and 1.3%. Each municipality applies different coefficients, so the final amount can vary greatly.
For example, a property with a cadastral value of €100,000 would pay between €400 and €1,300 depending on the municipality where it is located.
Additionally, different municipalities can apply discounts on this tax depending on various circumstances.
What do you think of these taxes? Were you familiar with them? Â Leave us your comments at the end of the post.
How to avoid or reduce taxes on the sale of a home
Taxes on the sale of a home can represent a significant expense, so it's logical for many sellers to wonder if it's possible to avoid or reduce them in some way. The answer is that it's difficult to avoid paying taxes when selling a house, though it's not always impossible.
Cases in which some of the taxes can be avoided
There are two cases in which you could avoid paying some of the taxes on the sale of a home:
If the seller's annual income does not exceed €22,000, they will not be obliged to file an IRPF declaration and, therefore, will not need to declare the sale of the home. However, be aware! The sale amount is taken into account when calculating that minimum. In other words, if a person has no income and sells a property with a capital gain of €20,000, they are not obliged to pay tax. However, if the sale is made with a capital gain of  €25,000, they will be.
IRPF will also not be declared for the sale of a home if the seller is over 65 years old and sells their main residence. Nor when it concerns a seller over 65 years old who sells a second home to obtain a lifetime annuity.
If the sale price is lower than the acquisition cost, it will be declared as a loss. This means it will not only be exempt from tax, but declaring it will likely reduce your total income tax (IRPF) liability for that year.
If it can be proven that the cadastral value of a property has not increased during the years it was owned, municipal capital gains tax will not need to be paid.
Situations where taxes can be reduced
The current year's IBI (Property Tax) is payable by the person registered as the property owner on January 1st. Therefore, even if you sell your house in February, you are still responsible for that year's IBI. However, you can propose splitting the payment with the buyer so they cover the tax burden for the months they will own the property. This isn't a tax reduction per se, but rather a private agreement with the buyer, who is not obligated to accept it.
Income tax (IRPF) is calculated based on the difference between the property's acquisition cost and its sale price. Therefore, the "trick" to saving money is to reduce this difference. This is achieved by increasing the acquisition cost and reducing the sale price. You can add all paid taxes and subsequent renovation expenses to the acquisition cost, and subtract the taxes you will pay from the sale price.
When the capital gain from a property sale is reinvested in buying another home, the reinvested portion does not need to be declared as a gain. For example, if you make a €50,000 gain from selling a property and use that €50,000 to buy a smaller one, you don't need to declare that gain. However, if the new house cost €30,000, the remaining €20,000 would still need to be declared.
How to get tax exemptions when selling a house?
In Spain, there are several ways to obtain tax exemptions or reduce the tax burden when selling a house. The most common exemptions apply to Personal Income Tax (IRPF) on capital gains obtained from the sale. The main exemptions and conditions are detailed below:
1. Exemption for Reinvestment in a Primary Residence
If you sell your primary residence and reinvest the proceeds in buying another primary residence, you may be exempt from paying taxes on the capital gain.
Requirements:
The property sold must have been your primary residence for at least three years.
You must reinvest the total or partial proceeds from the sale in the purchase of a new primary residence within two years of the sale.
If you do not reinvest the total amount, the exemption will only apply to the proportional part of the reinvested gain.
2. Exemption for Individuals Over 65
If you are over 65 years old, you may be exempt from paying taxes on the capital gain obtained from the sale of any property (whether it's your primary residence or not).
Requirements:
You must have turned 65 at the time of the sale.
There is no need to reinvest the funds in another property.
3. Exemption for Individuals with Severe or High Dependency
Individuals with severe or high dependency may also be exempt from paying taxes on capital gains from the sale of their primary residence.
Requirements:
The property sold must have been the taxpayer's primary residence.
The severe or high dependency status must be officially recognized.
4. Partial Exemption for Expenses and Improvements
When calculating capital gains, you can deduct certain expenses and improvements made to the property, which can reduce the tax burden.
Investments and improvements to the property (renovations and upgrades).
5. Application of Regional Reductions and Bonuses
Some autonomous communities in Spain offer specific reductions and bonuses for certain cases, such as the sale of a first home or home purchases by young people, etc.
Requirements:
These vary by autonomous community.
Consult local regulations to find out about possible applicable reductions.
Example Calculation of Reinvestment Exemption
Sale Price: 300,000 euros
Original Purchase Price: 200,000 euros
Deductible Expenses and Improvements: 20,000 euros
Capital Gain: 300,000 - 200,000 - 20,000 = 80,000 euros
Amount Reinvested in New Home: 300,000 euros (total reinvestment)
In this case, the entire capital gain (80,000 euros) would be exempt from taxes due to the total reinvestment in a new primary residence.
Procedure to Apply for the Exemption
Documentation: Gather all necessary documentation to justify the sale, deductible expenses, and reinvestment (if applicable).
Income Tax Return: In the corresponding income tax return, you must include the sale of the property and apply the corresponding exemption.
Form 100: Use Form 100 from the Tax Agency to declare the sale and apply the exemptions.
Recommendations
Professional Advice: Consult with a tax advisor or a specialized lawyer to ensure you meet all requirements and maximize exemptions.
Advance Planning: Plan the sale and reinvestment in advance to ensure you meet the deadlines and requirements for exemptions.
With these strategies, you can reduce or eliminate the tax burden when selling a house in Spain, taking advantage of the available exemptions according to your personal situation and current regulations.
What is ITI and when is it paid?
ITI (Impuesto sobre Transmisiones Patrimoniales y Actos JurÃdicos Documentados) is a tax in Spain that applies to the transfer of assets and rights. This tax is divided into three categories:
Onerous Property Transfers (TPO): It applies to the purchase and sale of real estate and other movable assets when the transaction is not subject to VAT.
Documented Legal Acts (AJD): It applies to the formalization of notarial, commercial, and administrative documents.
Corporate Operations (OS): It applies to the incorporation, capital increases and reductions, mergers, and spin-offs of companies.
When ITI is Paid
ITI must be paid in the following cases:
Purchase and Sale of Real Estate:
When buying a used home (second-hand) and the transaction is not subject to VAT.
The tax is paid by the buyer.
The deadline to pay ITI is 30 business days from the date of the public deed.
Rentals:
In some cases, ITI applies to rental agreements.
The tax is paid by the tenant.
The deadline for paying ITI is 30 business days from the signing of the contract.
Transfer of Movable Property:
When movable property (such as a second-hand car) is sold and the transaction is not subject to VAT.
The tax is paid by the buyer.
The deadline for paying ITI is 30 business days from the transaction date.
Establishment of Real Rights:
When real rights are established over real estate (e.g., usufruct, mortgage).
The tax is paid by the person acquiring the real right.
The deadline for paying ITI is 30 business days from the date of the public deed.
Documented Legal Acts (AJD):
It applies to notarial documents, such as mortgages and purchase deeds.
The tax is paid by the borrower (in the case of mortgages) or the acquirer (in the case of a purchase).
The deadline for paying AJD is 30 business days from the date of the public deed.
ITI Rates
ITI rates vary depending on the autonomous community and the type of transaction. Generally, rates for property transfers can range from 6% to 10% of the transaction value. For documented legal acts, rates typically range from 0.5% to 1.5%.
How to Pay ITI
Form: Complete Form 600 from the Tax Agency, which is the specific form for ITI payment.
Payment: Payment can be made at collaborating banks.
Submission: Submit the form along with a copy of the public deed or other document justifying the transaction at the relevant Tax Agency office.
Deductions and Exemptions
There are some specific deductions and exemptions depending on the autonomous community and the taxpayer's personal situation. For example, the purchase of a primary residence by young people or individuals with disabilities may qualify for reductions in the ITI rate.
It is advisable to consult with a tax advisor or specialized lawyer to obtain accurate and up-to-date information on tax obligations and possible deductions or exemptions in your specific case.
Other expenses when selling a home
Finally, it's important to remember that, aside from taxes on the sale of a home, there are other expenses associated with selling a property that you should be aware of. Unlike taxes, these expenses can sometimes be avoided, or at least reduced more easily. Therefore, if you want to maximize your profit from the sale, you should focus especially on lowering these additional costs.
The extra expenses a seller may incur are as follows:
Certificate of Occupancy. This document certifies that the home is habitable and is mandatory in some Spanish autonomous communities to sell a property. It is issued by a technician who charges between €8 and €120 for it.
Energy Performance Certificate, a document that certifies the home's energy efficiency level. As in the previous case, it is issued by a technician for around €120.
Real estate agency fees, which is what the real estate agency charges you for selling your home. These can be highly variable, as some agencies charge a fixed amount while others set a percentage of the sale price.
Notary fees, which according to the Civil Code should be shared between the buyer and seller, although it is common for the buyer to assume them. In principle, the seller is responsible for the costs of the public deed of sale.
Mortgage cancellation fees, if applicable.
Conclusion
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Would you like us to publish another post like this, discussing buyer taxes?
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