How much capital gains tax does a non-resident pay when selling a property in Spain, and how does the 3% withholding work?

When a non-resident sells a property located in Spain, the gain is taxed in Spain under Impuesto sobre la Renta de no Residentes (IRNR, Spanish non-resident income tax), wherever the seller lives. Double taxation treaties normally give Spain the right to tax gains on property located in its territory. It is the seller's country of residence that, where applicable, relieves any double taxation.

How the capital gain is calculated

The gain is the difference between two figures:

• Transfer value: the sale price minus the costs borne by the seller, such as the estate agent's commission or the plusvalía municipal (local land value tax).
• Acquisition value: the purchase price plus the costs and taxes inherent to the purchase (ITP transfer tax or VAT, notary, Land Registry, gestoría) and the cost of improvements. If the property has been let, any depreciation claimed is deducted.

That is why it is essential to keep the purchase deeds (escritura) and the invoices for expenses and improvement works: every one of those amounts reduces the gain.

Tax rate: 19%

The gain is taxed at 19% for all non-residents, whether or not they live in the European Union, under Article 25 of the consolidated Non-Resident Income Tax Act (Royal Legislative Decree 5/2004). Each co-owner is taxed on their share.

The 3% withheld by the buyer

When the seller is non-resident, the buyer must withhold 3% of the agreed price and pay it to the Spanish tax office (Hacienda) using Modelo 211 (withholding return) within one month of the sale. This withholding is not the final tax: it is a payment on account for the seller. If the buyer fails to pay it, the property remains liable for that amount.

The seller's Modelo 210

The seller must file Modelo 210 (Spanish non-resident income tax return) within three months after the end of the buyer's one-month deadline to pay the withholding:

• If 19% of the gain exceeds the amount withheld, the seller pays the difference.
• If it is lower, or if the sale made a loss, the seller claims a refund of the excess withheld.

Many non-resident sellers never file this return and lose the refund they are entitled to, or build up debts with the tax office if the withholding did not cover the tax.

Plusvalía municipal

In addition to IRNR, the seller pays the local council the Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (plusvalía municipal, a tax on the increase in urban land value). It is a separate tax, and the amount paid is an expense that reduces the transfer value.

Exemptions

Exemptions are limited. In certain cases, EU or EEA residents selling what was their main home may claim the reinvestment exemption. This is uncommon for second-home owners, so it should be reviewed case by case.

Our advice

Before signing the sale, work out the gain and the expected tax. That way you will know whether the 3% withholding will be enough or whether you can recover part of it.