Who pays the Capital Gains Tax: Buyer or Seller?

The capital gains tax, known as the Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana (IIVTNU), is generally paid by the seller when selling a real estate property. However, there are cases in which the seller is not the one who must pay this tax. In this article, we will explore when and how the seller is not responsible for this tax, how to calculate it and how to determine if there has been an increase in the value of the property.

The Exception: Non-Resident Sellers

In most real estate transactions, the seller is responsible for the capital gains tax. However, there is an exception: when the seller is not resident in Spain the obligation to pay the tax passes to the buyer, acting as a substitute for the taxpayer. It is important to be aware of this if the person selling you the property, whether it is a house, commercial space, garage or land, is not resident in Spain.

You can verify the actual ownership of the property by requesting a "Nota Simple" at the Land Registry. However, if what you are looking for is to know all the details that are registered about the property, it is best to request our Legal Verification to avoid last minute surprises.

Remember that the capital gains tax can be legally calculated in two ways: by means of the theoretical calculation or the real calculation. If the result of the actual calculation, the difference between the transfer value and the acquisition value, is less than the theoretical calculation, the taxpayer can declare the actual value. If there has been no increase in value between acquisition and transfer, there is no obligation to pay capital gains tax.

Other assumptions in which the payment of this tax falls on the new owner

When an inherited or donated property is received, the capital gains tax is paid by the new owner. According to the Local Treasury Law, in order to determine the absence of an increase in value, the higher of the following values will be taken in each case: the value stated in the document recording the transaction or the value verified, if applicable, by the tax administration. Expenses or taxes related to these transactions are not taken into account for these purposes.

How the Buyer Can Prove No Increase in Value

One method of calculating the tax, chosen by the obligated party, is the actual appreciation method, which compares the acquisition value with the transfer value. In the case of a purchase from a non-resident, the buyer may opt for this method of calculation and try to prove the absence of an increase in the value of the land.

To determine the acquisition value, you must have information from the seller, who acquired the property and is now transferring it to you. If the property was acquired in exchange for money, the value will be as stated in the acquisition deed or, if applicable, the value that the tax authorities may have verified at that time. This information should be obtained from the seller.

If the seller acquired the property for free, through inheritance or donation, the value to be considered will be the one declared in the Inheritance and Donation Tax (ISD) at that time. If the tax authorities performed a verification of that value, the value resulting from the verification process will be taken.

Even if the transferor does not reside in Spain, when he/she received the inheritance, he/she was obliged to file the ISD declaration. Foreign residents who inherit property in Spain are subject to ISD as real obligations, with respect to the inherited property and rights located in Spain.

Therefore, the acquisition value will be the one used for the inheritance declaration. This value is compared with the transfer value (the current sale value), and from there, it is determined if there is an increase and what is the calculation of the capital gains tax.

Ignorance of these obligations does not exempt you from compliance and the Tax Agency neither forgets nor forgives, so it is essential to be up to date and not to have an outstanding debt that, in addition to the corresponding penalty, accumulates interest and we end up being executed in a seizure process. If you are in a similar situation and have any doubts , please contact us now, free of charge and without any obligation.