Non-resident vendor
Dear Sir,
We are selling our house at a loss. Even so, the buyer’s solicitor is insisting that 3% of the sale price will be held back and paid into to the tax office. The reason given is that it is for Capital Gains Tax.
This solicitor agrees that there is no tax to pay, so why is he insisting on holding back 3% of the sale price, to pay for a tax that is not applicable??
Answer
The simple answer is because the Law says so. Capital Gains Tax is obliviously payable by the seller of a property when a profit or gain is made.
This gain is calculated by subtracting the sale price (minus necessary expenses incurred in the sale) from the purchase price (plus necessary expenses of the purchase).
Many years ago, before the retention to the seller was in place, the seller used to just not pay any CGT, and there was no way that the Spanish tax office had to collect this tax. It is not a charge on the property, so there was not much to do.
The retention is made to any person or company that is not a resident in Spain for tax purposes, when their property is sold.If the retention is not paid to the tax office, the property and hence the new owner, is liable to pay any tax in this respect.
It is a payment on account of the CGT. If the retention is less than the tax, one is entitled to apply for a refund of the difference. If the tax is not covered by the retention that difference has to be paid.
In your case, since there is no CGT to pay, the 3% still has to be retained and paid to the tax office, and your tax adviser will apply for a refund which will be credited to your account. This refund takes about 12 months to be effected.
You will also have to pay the local Plusvalía tax. As you are a non-resident, if this tax is not paid, the property and the new owner is liable to pay this tax. The buyer´s solicitor will most probably retain the amount corresponding to this tax in order to pay it on your behalf.
This Plusvalía tax is a necessary expense on the sale of a property, and therefore is a deductible when calculating the CGT. Any improvements done on the property are also deductibles, but you must be able to provide valid receipts for these works to be able to justify this deduction. The estate agency fees, if you have used one, are also deductible and you will also need a valid receipt for this.
Regarding the purchase costs, which are also taken into account when making the calculations, the Notary and Land Registry fees are deductable as if the purchase tax. If you paid any estate agency fees when you purchased, you may also use this as a deductible, providing you have a valid receipt.
A survey of the property, if you had one done, is not a deductable because it is not considered to be a necessary expense, but one could argue about that.