Both residents and non-residents are required to pay capital gains tax when they sell a property in Mallorca. It used to be advantageous to buy properties through a company in order to avoid this, but this is not the case now as the advantages are less and it can complicate the sale of the property. So this is something we recommend strongly against unless there are very clear reasons as to why this is the preferable structure to adopt.
The good news is that the tax rate is now lower than it used to be. Non-residents used to have to pay a higher rate of 35%, but this has now been standardised to be in line with the residents’ rate at 18%.
The tax is calculated as the difference between the acquisition value and the sale value of the property. These figures are worked out as follows:
Acquisition Value
The value is based on the stated value in the Deed of Purchase plus those taxes and disbursements which are related to the purchase (primarily VAT, Transfer Tax, Inheritance tax (if applicable), Notary’s fees, Stamp Duty and Land Registry fees).
This value is then recalculated according to a formula that is reviewed every year by the Government. This basically reduces the taxable value by increasing amounts according to the length of ownership.
Sale value
The value of the sale is calculated as the purchase payment received less any disbursements – this includes taxes related to the purchase and which have been paid by the vendor (Plusvalia tax, Estate Agent’s fees and Notary’s fees). Disbursements can include some types of post completion works carried out on the property.
So, in essence, both the Acquisition value and the Sale Value are moderated in your favour. As with all tax matters we advise that you need to seek the advice of a tax expert during the initial purchase process and, ideally, prior to making the option payment on the property, ion order to be sure that you fully understand the ins-and-outs and that you plan your management of the property in the most tax-efficient way.
Obviously if you are paying this tax in Spain you do not have to pay it again in the UK. There is a double taxation treaty between the UK and Spain which means that tax cannot be levied in one country and then again in another. The gain on the property is being made in Spain so this is the correct place to apply the tax liability.
If you would like to speak to a tax expert regarding any of the above please email us and we will put you in touch with our partners in Palma. They will be happy to give initial advice free of any charge.
