EXPLAINED: Capital gains tax and selling your home before moving to Spain

Many people fall into the trap of paying a lot in capital gains tax to Spain because they end up selling their properties back home after they move here.

Of course, it makes sense not to sell your home straight away when you move because you want to see if Spain is the place for you and try it out before you commit.

After a couple of years of living here you may decide that you want to stay permanently and therefore make the decision to finally sell up back home, but this of course could mean that you end up paying a lot in capital gains tax too.

It’s important to be aware that once you spend over 183 days in Spain you become a Spanish tax resident, and this means you are taxed on your worldwide income and assets.

Typically if any amount of money that you earn from the sale of your main property will be reinvested into the purchase of a new one, and you will use live in it, you don’t need to pay capital gains tax.

There is a big caveat to this for selling properties abroad, however.

The Spanish tax authorities will see your property back home as a second home because your main one will be the one you live in in Spain, even if you're renting.

This means that it’ll be taxed the same as a holiday home.

READ ALSO: The tax you pay in Spain when buying a property from a non-resident

Capital gains tax is Spain is payable at the following rates:

19 percent on the first €6,000

21 percent from €6,000 - €50,000

23 percent from €50,000 and above

This could mean a sizable sum to pay in tax. For example, if you made €150,000 on the sale of your home abroad you would pay first €6000 at 19 percent which equals €1,140, the next €44,000 at 21 percent which equals €9,240 and the remaining 100,000 at 23 percent which equals €23,000. This means paying a total of €33,380 to the Spanish government.

Remember though, there are double tax treaties between Spain and many other countries including the UK and the US, this means you don’t have to pay twice to both countries on the same capital gain.

IRPF: What you need to know about income tax in Spain

Also, it’s important to know that the Spanish tax year is the same as the calendar year – January 1st to December 31st and not the same as in some other countries such as the UK where it runs from April to April.

This can catch some people out because they believe they have sold their property abroad before the end of their tax year, even though it’s not the same in Spain.

Say for example you sell your home in the UK in March and then don’t move to Spain until May. Even though the UK tax year ended in April, it’s still partway through the tax year in Spain.

As you will have spent more than 183 days from May until December 31st you may end up paying capital gains on your property even though you sold it before you moved.

If in doubt, it’s always best to contact a lawyer here in Spain to find out how much you could potentially pay before you decide to make the move.

Our journalists at The Local are not tax experts. This article is intended to be helpful and informative, but before making any financial decisions, you should always seek the advice of a professional accountant or gestor.

READ ALSO: What you need to know about Spain’s plusvalía tax on property sales