Where should a resident in Spain declare the capital gain from the sale of a property located abroad?

In recent weeks much has been said in the press about where to declare the capital gains from the sale of property located outside Spain for residents in Spain. We will conduct a brief and simple analysis of the tax legislation to respond to the question.

Article 2 of the Law on Income Tax of Individuals states:

"The object of the tax is thetaxpayer’s income tax, defined as all his income, capital gains and losses and income allocations established by law, regardless of where they had occurred and regardless of the residence the payer. "

We understand that the residents in Spain must declare in their tax returns all their worldwide incomes regardless of where their were generated, including gains on sale of property.

Furthermore, Article 7 of the Law states:

"The provisions of this Law shall be without prejudice to the provisions of international treaties and conventions that have become part of domestic law, in accordance with Article 96 of the Spanish Constitution."

According to this clause we must check if Spain has signed an agreement to avoid double taxation with the country where the property is located to make sure where to pay taxes on the capital gain.

Spain has signed the same type of agreement with most countries, but this does not mean that there could be differences between the different agreements so we should review each agreement expressly to avoid any mistake.

In particular we will analyze the treaty signed with Britain to see where capital gains are taxed on the transfer of immovable property located in the United Kingdom obtained by tax residents in Spain.

The Article 13 (Capital Gains) of the Convention between the Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland to avoid the double taxation and prevent tax fraud with respect to Taxes on Income and on The Heritage at its clause 1 states:

“Capital gains from the alienation of immovable property, as defined in paragraph (2) of Article 6, may be taxed in the Contracting State in which such property is situated.”

Article 22 provides:

“Where a resident of Spain derives income which, in accordance with the provisions of this Convention, may be taxed in the United Kingdom, Spain shall allow as a deduction from the tax on the income of that person an amount equal to the tax paid in the United Kingdom; such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is appropriate to the income derived from the United Kingdom.”

It is clear that the capital gain must be declared in Spain, and the the taxpayer can deduct in the spanish tax the tax already paid in the UK, but the deduction may not exceed the amount of tax as computed before the deduction.

Capital gains from the alienation of movable property is taxed at 21% in Spain,

For further information don’t hesitate contact us.