Capital Gains Tax When Buying Again Outside Spain

Published on 19/07/2011 in Taxes in Spain

"I am a fiscal tax Resident in Spain and I have sold my habitual residence here. With the monies from this sale I intend to acquire another property, this time outside of Spain.

I understand that if I was to reinvest the monies into a property within Spain I would not have to pay Capital Gain Tax, but where do I stand by purchasing outside of Spain? Will I still have to pay taxes?"

Dear reader, thank you for your email.

First of all I would I like to confirm that the Income Tax Law 35/2066 (applicable to tax residents in Spain) in its article number 38 covers the potential of being exempt from paying Capital Gain Tax derived from the sale of a habitual residence, so long as the total amount received from this sale is reinvested in the purchase of another habitual residence.

Since Spanish Law does not expressly state that the application of this exemption is conditional to reinvestment of the funds into a further property solely in Spain, this leads to the opinion that you will qualify for the exemption even if you buy a property in another country of the EU, and not one just within Spain.

Additionally, to strengthen this opinion, it is relevant to note the Order granted by the European Court of Justice (ECJ) on the 26 October 2006 ruling on Procedure number C.345.05 initiated by the European Commission against Portugal.

Tax in SpainWe could briefly summarise the ECJ Order as follows:

• Portuguese Law stated (in a very similar way to Spanish Law) about the existence of a tax exemption for reinvestment in habitual residence but stated ‘that it would only be applicable if the new residence was located within Portugal’.
• The ECJ ruled in the Order that Portugal breached the obligations under the EU Treaty (especially articles 18CE, 39CE, and 43CE as well as articles 28 and 31 of the European Economic Agreement (EEA)) on the basis that the benefit of the exemption was conditioned to reinvestment in Portugal, which is contrary to the EU principles of freedom of establishment, free movement of workers etc.

As a result of the above, and independently of what the Tax Laws of Spain or any other EU country may state, it should be possible for you to benefit from the exemption when reinvesting in a habitual residence, entirely regardless of where you purchase your new residence - so long as it is located in a member country of the EU.

The information provided on this article is not intended to be legal advice, but merely conveys general information related to legal issues.

Written by: White & Baos Lawyers

About the author:

White & Baos is a law firm established by Spanish and UK lawyers, and is regulated by the Law Society of England & Wales as well as the Spanish regional equivalent, the Colegio de Abogados in Alicante.  They are one of Eye on Spain's few recommended lawyers.

Calle Diana No. 19. 2º-D, 03700 Denia, Alicante
Tel.: +34 966 426 185
Fax.: +34 965 784 471

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Pam said:
20 July 2011 @ 15:33

I am trying to sell my one and only house, my home here in Spain. I have been tax resident for 8 years, so presumably if I reinvest the full proceeds into another home in EU I should be exempt from CGT. But how do I go about ensuring I do not have to pay? How do I stop a retention being made at the Notary? How do I prove what I have done with the money over the next couple of years? What returns do I have to make?

MAT said:
20 July 2011 @ 11:50

Although I've lived with my family for 3 years in Spain, I'm not classed as a tax resident. If I sell my house and invest all of the proceeds in another Spanish purchase, would I still have to pay CGT?

SP said:
20 July 2011 @ 08:45

If it is like in the UK, it must be your primary residence. As in the UK, if it is a second or holiday home, you will have to pay CGT (and there is no tax-free allowance which is over 10K in the UK)

thomas magee said:
20 July 2011 @ 02:00

in reply to what you have stated in your article in will give you my experience.

i bought a house in spain for 234,000 sold it 18 moths later for 360,000 . i then bought a house for 360,000 under the impression i would not get charged cap gain tax. but when i did my take return i got stung to the value of 18,000 please explain because the explaination i got was because i did not live in the house for two years or more it is classed as a bisiness transaction an there for liable for cap gain tax.

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