The sale of real estate and land may have significant tax consequences, which vary depending on the country involved. While capital gains arising from the disposal of property are generally subject to taxation in Spain, German tax law provides for certain exemptions under specific circumstances. Careful planning of the timing of the sale can therefore result in substantial tax advantages.

Taxation of Property Sales in Spain

When real estate or land is sold, the capital gain realised is subject to Spanish Personal Income Tax (IRPF). Such gains are classified as capital gains (ganancias patrimoniales) and are declared in the annual Spanish income tax return (Modelo 100). They are subject to a separate tax scale, with the applicable tax rate depending on the amount of the capital gain.

Capital Gains Tax Rates (2024)

Capital Gain                              Tax Rate

Up to €6,000                             19%

€6,000 – €50,000                      21%

€50,000 – €200,000                  23%

Over €200,000                          27%

Over €300,000 (since 2024)     28%

For Spanish tax purposes, the date of execution of the notarial deed of sale is generally decisive, rather than the date on which the purchase price is received. The taxable capital gain, the relevant tax year and the applicable tax rate are all determined by reference to that date. Deferred payment or payment by instalments does not alter this rule. However, special situations, such as private sales without a notarial deed or contracts subject to suspensive conditions, may affect the timing of taxation.

The taxable capital gain is calculated by deducting the acquisition costs and selling expenses from the sale price. The following costs may generally be taken into account when calculating the gain:

Acquisition Costs

- Original purchase price

- Estate agent's fees

- Notarial fees

- Local taxes, such as Property Transfer Tax (ITP)

- Acquisition-related costs, including investments and improvements to the property, renovation expenses and value-enhancing works

Selling Expenses

- Estate agent's fees

- Notarial fees

- Municipal Capital Gains Tax (Plusvalía Municipal)

Tax-Exempt Property Sales in Spain

Although capital gains arising from the sale of real estate are generally subject to taxation in Spain, Spanish tax legislation provides for a number of tax reliefs which, subject to certain conditions, may result in a full or partial exemption from tax.

1. Tax Exemption for the Sale of the Main Residence

If a property has been used as the taxpayer's main residence for at least three years, the capital gain realised on its sale is exempt from tax, provided that the entire sale proceeds are reinvested in a new main residence within two years. For taxpayers over the age of 65, this reinvestment requirement does not apply. They benefit from the exemption regardless of whether the proceeds are reinvested.

2. Tax Exemption for the Sale of Any Property upon Reinvestment in a Lifetime Annuity

Taxpayers over the age of 65 may also benefit from an exemption on the capital gain arising from the sale of any property if the sale proceeds are reinvested in a qualifying lifetime annuity (renta vitalicia) within six months. This exemption is limited to a maximum reinvestment amount of €240,000.

3. Reduced Taxation for Properties Acquired before 1995

Properties acquired before 31 December 1994 benefit from a transitional tax relief that may reduce the taxable capital gain upon sale. This relief, known as the abatement coefficients (coeficientes de abatimiento), reduces the taxable portion of the gain accrued up to 20 January 2006. Although this relief has been partially phased out, it continues to apply to capital gains relating to a maximum transfer value of €400,000 and may reduce the effective tax burden by approximately 11%.

 

Tax-Exempt Property Sales in Germany

In Germany, the sale of privately owned real estate is generally subject to income tax as a private disposal transaction (privates Veräußerungsgeschäft) pursuant to Section 23 of the German Income Tax Act (EStG). However, if more than ten years have elapsed between the acquisition and the sale of the property, the transaction is exempt from German income tax.

A further exemption applies to owner-occupied residential property. Where the property has been used exclusively for the owner's own residential purposes throughout the entire ownership period or at least during the year of sale and the two preceding calendar years, any capital gain is likewise exempt from taxation. Unlike the Spanish rules, there is no requirement to reinvest the sale proceeds in another main residence or in a lifetime annuity. This exemption may therefore be of particular importance for individuals planning to relocate to Spain.

Important Considerations Before Moving to Spain

For individuals planning to move to Spain, the timing of the sale of German real estate may have significant tax implications.

One of the key considerations is the seller's tax residence at the time of the sale:

- Tax residence in Germany at the date of sale: the capital gain may qualify for the exemptions described above. Further information regarding the application for a German tax residence certificate can be found in our article: German Tax Residence Certificate.

- Tax residence in Spain and a stay exceeding 183 days per calendar year: in this case Spain will generally be regarded as the country of tax residence, and the capital gain may be subject to Spanish Personal Income Tax (IRPF), even if the property is located in Germany.

Accordingly, it is advisable to plan the timing of the sale carefully, particularly where a move to Spain is envisaged. If the property is sold before becoming tax resident in Spain, a full exemption from German taxation may often be achieved. However, if the sale takes place after Spanish tax residence has been established, the capital gain may become subject to Spanish capital gains taxation regardless of the property's location. Further information regarding the establishment of tax residence in Spain can be found in our article: Tax Residence in Spain: Main Residence or Second Home?.

Our law firm will be pleased to analyse your individual circumstances, carry out the necessary administrative procedures on your behalf and assist you with the preparation and filing of the relevant tax returns. Should you require further information or have any questions on this subject, please do not hesitate to contact us by email or telephone.

Author:

Rike Füllgraf
Tax Advisor
info@sspartners.es
Tel: (+34) 951 12 13 06
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