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Grab a Bargain Before The End Of The Year – Spanish Tax Changes

Valencia's Central MarketThe Spanish government in its infinite wisdom (The usual none) has decided to change the tax rules on selling houses and this might give you, the buyer, a much better chance of grabbing a bargain house if you are able to act quickly. The change affects people who have had a house for many years and will not affect anyone buying a house now in the future.

On the 1st of January 2015 it will cost much more in Spanish tax to sell a property that has been held for years by the current owner. Previously property bought before 1994 enjoyed a sliding scale of tax breaks on selling to allow for the effects of inflation. Effectively the tax due on sale for capital gain was reduced on a sliding scale according to the length of time the property had been held. What the Spanish government is doing now means they consider that 1 Euro now has the same value as it did in 1975 or any other year you care to choose, no inflation has ever occurred in Spain it seems.

Therefore capital gains tax on selling a property is paid on the whole amount of the difference between the buying price and the selling price. See the below example.

Tax Rates on selling Spanish Property

Tax Rates on selling Spanish Property (Via Idealista)

In this example a property bought in 1975 for the peseta equivalent of 12,000 Euros is sold now for 350,000 Euros. Under current rules the tax payable as capital gain would be 19,752 Euros. On the first of January 2015 this would increase to a whopping 80,000 Euros.

How does this affect you as a buyer then? Well from a cost point of view it doesn’t, whatever you offer for the house and get accepted will be what you pay. However it is much more likely that you will have a lower offer accepted on a property if you are able to complete before 2015 arrives. This would potentially save the owner of any property bought before 1994 a huge amount of money.

Let’s take the example as above. The property sold for 350k may well have been advertised at 400,000 Euros. The buyer was able to come to a deal at 350k because the owner knows that their tax bill will increase radically if they wait until 2015 to sell the property. Therefore they are more well disposed to come down to 350k as their net income will be greater after tax than it would be under the new tax rates after 1st January 2015.

Therefore if you are looking at property that has been in the same name for over 20 years, eg fincas in the countryside or city centre apartments are good possibilities whereas new build Costa units aren’t, then you might want to try making a much lower offer and see what happens. If it is not accepted then maybe try telling the owner about the new tax rates and show them this article (or this one in Spanish) to help convince them that your offer is a good one because you can complete before 2015. Remember though this is not the case in all purchases, just for those properties purchased before 1994 and equally, the longer the time period before 1994 the greater the new tax liability will be for the seller so there would be even more chance of getting the offer accepted. Try it out. You might be pleasantly surprised.

One thing though, if the owner is over 65 years old at the time of the sale and it is their main place of residence they don’t have to pay so a lower offering will not work. Even if it is a secondary residence they do not have to pay any tax if they reinvest the money earnt in a pension plan so it may not work then either.

The major effect we think will happen is that some properties will be taken off the market in 2015 as it would not be worth the owner selling them. However there will be many owners not aware of the tax implications so they may still accept offers.

Valencia's Central Market

Valencia’s Central Market

If you are able to complete quickly and have your eye on a property that has been in the same family for years why not get in touch. We may be able to negotiate a great deal for you. Even if you are at the start of your Spanish property search get in touch. We may just be able to find you an absolute bargain. Equally if you have a property you need to sell quickly why not let us list it for you or recommend an agent who may be able to help you out.

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Valencia's Central Market