Suppose you buy a building plot in Spain to build (or have built) your dream home. Perhaps you do not intend to sell the property - once finished - in the short term. Yet it is advisable to already take into account a future transfer. After all, in the event of a sale or donation, you will pay capital gains tax on the capital gains actually realised. For non-residents, the capital gains tax is 19%. So how do you calculate the taxable capital gain? This article explains more about capital gains tax when building your own home in Spain.
The horror scenario
First, we explain the horror scenario. Indeed, we have several files where the client's parents or grandparents built their own villa in Spain. In some files, we are still talking about purchase prices in pesetas (166,386 pesetas = 1 euro). These properties were not always registered correctly and invoices were not properly maintained. Result: a huge capital gains tax on sale or donation. After all, clients can no longer prove the construction costs.
How is added value calculated?
To calculate capital gains tax, there are 3 steps.
First, we calculate the purchase value of the property. This is the purchase price plus the cost of works, renovations, purchase costs, excluding interest, but less any depreciation. We then index the purchase value according to Ley de Presupuestos Generales del Estado, based on the year of effective payment of expenses. We index depreciation based on the year of deduction.
In the second step, we calculate the transfer value. This is the effective sale price, but this amount cannot be lower than fiscal minimum value. This amount is then increased by the selling costs (e.g. plusvalia muncipal).
In the third step, we subtract the transfer value from the acquisition value to arrive at the taxable base. However, deductions may still apply to this.
Where is the rub?
To calculate the purchase value correctly, you need invoices from your suppliers. It is important that these invoices are your NIE number state. Without valid invoices, you cannot prove the investments made and the purchase value is much lower. And the taxable capital gain higher. Thus, the horror scenario.
Moreover, in the case of a new home, you have the Declaración de Obra Nueva necessary. This specifies the value of the structure for stamp duty.
Buying a building plot yourself and building a home in Spain is usually a good thing. Not only do you have control over the quality of materials and workmanship, you also avoid a number of costly middlemen. However, it is crucial to keep your entire administration in order. Otherwise, you will pay unnecessary capital gains tax on a later sale.
Do you have questions about capital gains tax when building your own home in Spain? If so, please feel free to contact on.