Owners of property in Spain

[costa-brava]

We have sold two of our properties this year and I have spent most of today sorting out paperwork for the next tax declaration. As we are resident we don't have to do it till next May/June but there are other things for this year that are affected by the gains or losses.
We sold one with a gain of €40,000 euros and the other with a loss of €19,000. So it looked like we'd be paying tax on the 21,000. But I checked it out and it goes like this. The value of acquisition is the price paid PLUS all the costs incurred in the purchase. (that used to be 10% as a rule of thumb but is currently about 12%). For the disposal the value is taken as the sale price LESS any costs and taxes.
So the gain of €40000 becomes just €29000 and the loss of €19000 becomes a loss of €37000.
So instead of a tax bill of approx €3000 the taxman owes us roughly the same amount.
BUT HERE IS THE IMPORTANT BIT! You need to have all the documentation from the time that you bought. At the time of purchase everybody clings tightly to their "Escritura Publica" thinking it is a title deed. In fact it becomes fairly insignificant a few weeks after the sale has gone through. You can get a copy any time you like at the property register, or more normal is just an extract. For today it's importance was to tell me the declared sale price. Historically this is often less than what you actually paid so you find the tax burden now is higher.
But on the day of purchase you would have paid what is called a "retencion" to cover all the "gastos y impuestos" for the notary, bank costs, transmition tax on a second hand house or IVA on a new one.
If you don't know where this documentation is you need to find it now. I have all mine but it was in several different files.
All of this relates to all owners whether you are resident or not. The calculation of tax is different but the calculations of acquisition and disposal are the same in both cases.
You may not be contemplating selling and in fact may just have bought but these documents are gold plated. You need to have them in your possession. Like I said they should total about 10%, maybe a little more, of the price that was declared in the escritura. The documents relating to disposal are for a much lower value and you will get them at the time of sale in the future.
HEY, and please folks don't start bickering with me on this one.
And just for the record I am a retired English Teacher not an estate agent.

[lorca]

Very interesting - we are hoping to sell one of our properties. Where does the valor catastral figure in this? Or is capital gains really solely based on the actual price paid?

[kevsboredagain]

If you sell a property at a loss the tax man gives you money?

[costa-brava]

Lorca wrote;
"Where does the valor catastral figure in this? Or is capital gains really solely based on the actual price paid?"
The key point in my post Lorca is that to minimise tax legally you need to have the documents I mentioned. The tax you will have to pay is based on the price declared in the "escritura" by the notary. People still often declare a lower price than the actual price paid. Each notario has a ratio that he/she must work to depending on when there was the last review of catastral values in that town. The usual is that the minimum you must declare is one and a half times the catastral value. The thing that surprises lots of people is when you dig out the old escritura from the purchase and you find the selling price was, for example €250,000 and you paid €320,000. They convinced you at the time it was a good idea but now it comes back to bite. Because your selling it at €290,000 and think you have made a loss. That's when all the documents are important.
You are taxed on the difference between the declared price of acquisition and the declared price of disposal.
There is another tax that the seller pays based on the catastral value of the land. It is a fixed tax on your property but is different to the main tax which is charged against the the gains you have made from the sale.

[costa-brava]

To Kevsbored:
The simple answer is yes, that tax authorities will refund overpaid tax if you have overpaid. That is standard throughout the western world. In your case you have to pay, on a quarterly basis, on the earnings you make from renting. If you show sufficient loss in that same tax year you get back what you paid. But much more important is that as a non resident there will be a retention at the time of sale. The notario is obliged to hold back a percentage to cover the taxes after you have skipped off back home. Lots of people just grumble about the unfairness of this and then forget about it. But if you have all the documents (and a good gestor/accountant) they can file your tax declaration the following year and get some back from that retention.
The key is in having all the old documentation from the original purchase. I am just guessing but you probably paid more for your property than the price on your escritura. Then you would have paid about 10% on top of that to the notario on the day.
All of that 10% counts as cost of acquisition but only if you have the documents to prove it.
If you bought in the last couple of years it will be 12% that you paid.

[kevsboredagain]

The simple answer is yes, that tax authorities will refund overpaid tax if you have overpaid. That is standard throughout the western world. In your case you have to pay, on a quarterly basis, on the earnings you make from renting. If you show sufficient loss in that same tax year you get back what you paid.

Last year I paid about 4K tax on rental income but made a loss of 6K due to a water leak and major repairs. I do not receive a cent in tax back. I only pay tax on profit as expenses are not allowed.

That is entirely different to a situation where you pay some tax in advance and then settle up the exact amount some time later.

[CSE]

The posting is not quite complete.
Documents we understand which are required:

• *Title deed, the Escritura Pública
  *Passport(s)
  *NIE certificate(s)
  *IBI (Impuesto sobre Bienes Inmuebles)
  *The certificado catastral
  *Latest utility bills(?)

The actual value of the property is based upon what is written down in the cadastral value (Valor Catastral) of the property plus a number of years you have owned the property comes into the calculation..(somehow).
The Valor Catastral at one time stated the price of the property below the actual value. However as we all know things have changed so that value could well be higher than the selling value. Note payment of CGT has nothing to do with what is writen on the Valor Catastral.

A little thing called Plusvalia is called in to assess the actual value of the property. Maybe look that up. We understand the seller pays the Plusvalia tax.

Capital Gains Tax is officially called Impuesto sobre Incremento the Patrimonio de la Venta de un Bien Inmeuble.
Capital Gains Tax resident

21% on the portion between € 0 and € 6,000
25% on the portion between € 6,000 and € 24,000
27% on the portion above € 24,000

Capital Gains Tax non-resident

A non-residents pays 21% tax on the sales profit. 3% of the selling price is retained as capital gains tax. Kevin as a non-resident, you should receive 97% of the selling price.

In the past a lower price was written down than had actually been agreed to pay. Obviously this was done to pay cheat the tax system. From information we have gained this practice is no longer that easy.
There are ways to reduce your tax payments and they depend on your personal situation.

Note as usual things are never 100% clear in Spain. So it is always better to go to a Gestoria/lawyer if you feel inclined.

Some links in Spanish.
http://www.catastro.minhap.gob.es/default.asp
http://www.fiscal-impuestos.com/impuest ... s-IBI.html
https://www.youtube.com/watch?v=YfxtGBirP8E

[CSE]

Just read Kevin's post. This thread is about selling. Are you talking about running costs? If so over paid taxes (runnign costs) are paid to us after just under a year.

[kevsboredagain]

Just read Kevin's post. This thread is about selling. Are you talking about running costs? If so over paid taxes (runnign costs) are paid to us after just under a year.

Yes, I assumed it was about selling too so the example of my rental taxes is completely irrelevant to this thread as well as being incorrect.

I would assume that if you sell, you can reclaim taxes paid in advance but if for example I sold my place and lost over 100K, as would be the case right now, I would not be receiving some massive tax refund. All I would get is any advance payments (the 3% mentioned) of CGT repaid, because there was no gain to tax.

I think the key point of this thread is that selling and buying costs are important and documentation of these needs to be retained because they affect the overall taxable sums, when you sell the property.

[CSE]

Yes keep the bills you paid for the repairs. They will come in handy to reduce your taxes if you come to sell.
Spain and paper work!

[costa-brava]

There are several things mentioned that are very relevant on the day of the sale but are not relevant to the theme of my post. But two points made by Casanto estevo help to highlight my main point.
Casa wrote:
Capital Gains Tax resident:
21% on the portion between € 0 and € 6,000
25% on the portion between € 6,000 and € 24,000
27% on the portion above € 24,000
Capital Gains Tax non-resident
A non-residents pays 21% tax on the sales profit. 3% of the selling price is retained as capital gains tax.
And also wrote:
Yes keep the bills you paid for the repairs.

YOU NEED TO HAVE ALL THE BILLS YOU CAN FIND: On the one hand you will be taxed heavily but in the tax declaration made after the year end the "sales profit" that Casa speaks about is not the difference between the purchase price and selling price. It is derived by subtracting the purchase price plus all costs and works done from the selling price less costs and taxes (including the 5% you may have paid to the estate agent if you have a proper receipt)
So. Back to my original post which is that all owners should, right this moment, check that they have all the receipts and invoices from notario, bank, gestor, property register, transfer tax or IVA on the house purchase, plus all bills from your builder.
And yes you will need a good gestor or assessor (Spanish) who understands all the intricate changes of the last couple of years. But no matter how good he is, he can't deduct these costs on your behalf if you don't have supporting documents. Among these documents one of the least important is the escritura (title deed). You are looking for receipts etc that support what you paid at the time of purchase or later for repairs and renovations.
The escritura itself is easily obtained in copy form but some of the other receipts are quite likely to be stapled or tucked inside the back cover of your "copia simple" of the escritura. You should be able to produce receipts that total 10% or more of the purchase price declared in the escritura. If you start looking for them now it will save you a packet when you come to sell.
IT REALLY IS SO IMPORTANT THAT I ASK CASA AND KEVIN AND OTHERS TO COME ON BOARD AND EMPHASISE THIS. There are lots of quirks in the tax system of every country and I'm not trying to list them all in this post. I'm just saying GET ALL YOUR RECEIPTS TOGETHER NOW!

[kevsboredagain]

One small flaw in this though. It's Spain and getting an official receipt for anything is extremely difficult. Cleaners, builders, plumbers, painter, gardeners, air con firms, leak detection firms to name a few that I've used. Not one has given me a receipt for their work and most want cash.

[costa-brava]

That's not the kind of stuff that would count. We're talking about a new garden wall or a garage door, maybe new double glazed windows. These people usually do invoices and charge IVA. If you have used the guys on the black market you've already had your tax avoidance. I'm talking about the things that went through on official receipts. Do you have, Kevin, the detailed receipt that you would have got about 2 or 3 months after you bought your property? When you bought you would have had to leave about 10% on top with the notario. It is a retention but you later get a detailed list of the costs. You should have a receipt for the retention and the later breakdown.