How could the new capital gains tax law affect you?

MADRID -- A new capital gains tax comes into effect on January 1, 2015. Not every property seller is impacted, though. According to Fuster & Associates, the government is eliminating two coefficients when calculating the tax due on a property sale. It does mean, however, that some vendors will see a large increase in the amount of capital gains they are liable for. There are three tax groups that will be exempted from paying, however:

1.    If you reinvest the amount received at sale in buying another property within two years. 

2.    If you are selling your main residence – not, therefore, a holiday home. 

3.    If you plan to use the sale money to purchase another property. 

Capital gains tax on property is applied on the difference between the original price you paid and the price you get now. Given the present property price situation, not many sellers will be impacted negatively, as most of them bought at peak prices.

Fuster & Associates explain the coefficients to be used as follows:

Looking closely at the new law, and in consultation with expert lawyers and estate agents, you would be well advised to try to sell your second home before the end of 2014, particularly if you do not plan to buy another property before the end of 2017.

If you bought the property a long time ago, here’s the tax increases under the new law:

The property was bought, say, in 1988, paid for in pesetas but in today’s Euro, it would be €50,000. If it were sold today – i.e. before the 2015 deadline – for €300,000, it would be liable for capital gains tax of €16,728. If it were sold after the new tax comes into effect, the tax liability would come to €58,880. That’s a 252% increase!

An example where the tax liability decreases:

It cost €50,000 to buy in 2002, and is now selling for €300,000. In 2014 the tax liability comes to €63,324, whereas next year, under the new law, the tax would come to €58,880.

You can calculate what you could be liable for on your property on the Cinco Días calculator.

There is another problem that keeps coming up, especially in smaller towns and villages. Once upon a time, notaries, who were supposed to look out for such things, very often turned a blind eye to having the contract say that the price was, for example, €25,000, when in reality, the money that had been paid was at least double that if not a great deal more. As you will see from the second example above, this could create a considerable capital gains liability, especially that notaries have been found out, and for some years have kept a beady eye on the figures on the contract.

(Original source: Fuster & Associates and, Cinco Días, financial magazine)