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Spanish Property - Taxes lowered – Are you due a REFUND? (Part 1)

After years of lobbying by non resident property owners and backed by EEC guidelines, the Spanish government has significantly reduced the levels of Capital Gains and withholding tax on property sales to come in line with those rates applied to residents of Spain.

For many years, non resident foreigners selling property have been subject to a punitive 35% CG Tax on their gain when they sell property in Spain. So if you bought a house (including fees) for 100,000 euros last year and this year you sold for 110,000, then in simple terms you would have to pay the Spanish ‘Hacienda’ a hefty 3,500 euros. The government did let you adjust the base purchase figure to let you take into account the rise in the ‘cost of living’ index, but this was seen to be a token gesture and in many ways, very minimal. Compare this to the 15% CGT applicable to residents and you can see why both Brussels and the owners themselves questioned the ‘fairness’ and the legality of such a tax law.

Now, since the start of 2007, this CGT figure has been reduced by almost HALF to 18% whilst conversely, the rate for residents has moved up from 15% to 18% to ensure that all property owners are treated equally.

This capital gains reduction coincides and works together with, the new withholding percentage rate applied to non residents.

As a non resident for tax purposes, when you sold a property, 5% of the value (the official sale price) declared on the ‘escritura’ would be withheld by the purchaser as a payment on account of the Capital Gains Tax. The purchaser was then obliged to pay this to the ‘hacienda’ within 30 days of purchase.

The prime reason for the hacienda withholding monies was that they feared that once the seller had sold the property, he/she would then leave Spain and it would be difficult for them to claim the tax due. Withholding tax was a way out of the dilemma but at 5%, this was seen as onerous to say the least.

But having said that, it did actually work, well at least for the Spanish government that is!

Once the ’Hacienda’ had worked out the capital gain, at 35%, they could simply deduct it from the withholding tax and reimburse the seller at a later date. One must say that in many cases this turned out to be many months and in some cases years, so if you were due a refund, patience was a virtue!

Now all has changed, in line with the reduction in CGT, the withholding tax has now been lowered to a more reasonable 3% and therefore as a non resident when you now sell in Spain, you can walk away with more of your proceeds from day 1, all in all a more sensible solution to an old problem.

The government, by reducing these taxes, hope that this will encourage further investment in Spanish property and consequently the Spanish economy in general, but too many onlookers, this reduction has been a result of the external influences exerted by Brussels on the Spanish government.

Since joining the European Union, the centralised body has placed a great deal of pressure on Spain in the application of uniform legislation across the member countries with regard to ‘status’ or ‘residency’ and maybe this is the first step of many to come for the emergence of a wide reaching unified Europe.

In part 2 and in the light of these tax changes, we look at the question…ARE YOU ENTITLED TO A TAX REFUND IF YOU HAVE SOLD SPANISH PROPERTY IN THE LAST FEW YEARS?

If you are looking to purchase or sell Spanish property whilst keeping abreast of the latest news and developments, then visit or email Glyn McCarthy at

Valuvillas SL
Family Run Business 20 Years in Spain
"Simple honest advice in plain English"
Tel:0845 0042093

The content of the article is copyright of the owner but you are free to use it providing it is published in its entirety, including all links. The author firmly recommends that individuals seek independent legal advice prior to engaging in any Spanish property transaction.

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