Spanish tax reforms penalise those selling property after more than twenty years

The rush to sell Spanish property could accelerate between now and December

Among the measures contained in the Spanish government’s tax reforms which are currently in the process of being passed by parliament is an important alteration to tax on property sales.

The changes proposed will affect anyone selling a property which was acquired before 31st December 1994, and will effectively mean more tax being payable if the sale takes place after 1st January 2015. This is because monetary adjustments and reductions on the amount taxable for sales of all such properties are to be abandoned.

In other words, the effects of inflation will not be taken into account in calculating taxable gains.
Until now the situation has been that all capital gains obtained prior to 20th January 2006 were subject to a reduction in the amount taxed for every year the asset continued to be held: this reduction is set at 11.1% for real estate, but it will be scrapped by the tax reforms currently being processed.

The increase in tax payable has been calculated to amount to around 55%, assuming that the new legislation is enforced as planned, and one of the effects is likely to be a rush to sell among those who have placed properties acquired before 1995 on the market. This in turn could mean prices being slashed in order to avoid punitive taxation, and market analysts are anticipating that the effect could be to accelerate the rate of decrease in property markets to new lows.

The last time government legislation caused a surge of activity in the property market was at the end of 2012, when increased VAT and property purchase tax led to buyers pushing deals through the notary as soon as possible. This time the pressure may be from the opposite side of the market, with sellers hurrying to complete transactions before 31st December.

There is still a chance that this legislation might not come into force: the Defensor del Pueblo, or Ombudsman, suspects that this modification may be unconstitutional, since the Spanish Constitution states that new laws cannot suddenly imply a significant tax responsibility which did not exist previously. Taxpayers invest for the medium and long term in the belief that new legislation cannot retrospectively wipe out their gains, but this is effectively what the tax on property sales does in many cases.
 

Image: Copyrighted