Forgetting about the Inland Revenue and expenses is one of the most repeated mistakes when putting a property up for sale. At CoolHomesMallorca we provide you with an estimate of the taxes and expenses you will have to face when selling your property. This way from the first moment you will know what will be the “net” amount you will get for the sale.
Next, we summarize the taxes and expenses that you must take into account when
selling your property:
The sale of a property is taxed in the Income Tax by the Capital Gain (NOT to be confused with the Municipal Capital Gain, which we address in the following point) which must be paid in the income tax return of the year following the sale.
For its calculation, the general rule says that the profit is determined by the difference between the real values of transmission (sale) and acquisition (purchase).
Within this purchase price you can add the expenses and taxes that you assumed when you bought the house, such as VAT or Transfer Tax.
In addition, you can add up the investments and improvements made to the home as a greater purchase value, which are the works that effectively increase the value of the property, such as, for example, the installation of air conditioning. In addition to this, there are the commissions and expenses of setting up the home, but not the commissions and interest that you have paid for the mortgage, as these are not considered to be deductible expenses.
What can no longer be applied generally are the coefficients for updating the acquisition value, which were abolished in 2015. Only homes purchased before 31 December 1994 can apply the transitional regime of capital gains relief.
In summary, the higher the purchase price, the lower the Capital Gain, so it is essential to have all the documentation from when you acquired the property and invoices for subsequent improvements in order to correctly calculate the tax to be paid. If after the calculation, it turns out that it gives rise to capital gains in the sale, that is to say, if there are profits, it will be necessary to pay taxes, whereas if you have lost money, you will be able to compensate it with other patrimonial gains.
These are the tax rates for capital gains in 2020:
Profits up to 6.000 euros – 19%
Earnings between 6.000 y 50.000 euros – 21%
Earnings over 50.000 euros – 23%
Tax exemptions for the sale of housing:
For reinvestment of habitual residence. If you sell your main residence to buy another one, you will not have to pay for the benefit you obtain. The key to the tax exemption is that it only applies to primary residence, not second homes. Furthermore, you have a period of two years to reinvest.
Over 65s who sell their primary residence. In this case there is no additional requirement to apply the exemption.
MUNICIPAL CAPITAL GAINS
The Tax on the Increase in Value of Urban Land or better known as the Municipal Capital Gain “PLUSVALIA MUNICIPAL”, is paid for the increase in the value of the land and depends on the municipality. It is calculated on the current value of the land by means of a mathematical formula in which each municipality can determine the coefficient to increase or decrease the amount to be paid. Some municipalities do not charge this tax. You must know that the payment of the capital gain corresponds to the seller and not to the buyer of the house, as many people believe. This tax has caused a lot of controversy because it was charged regardless of whether or not there is any capital gain. Recently, the Supreme Court ruled that the capital gains tax cannot be collected if it is proven that there is no actual gain.
MORTGAGE CANCELLATION FEES
If you have not yet finished paying the mortgage, you will have to ask the bank for a certificate of cancellation to calculate the commission it will charge you to cancel the debt. This commission is stipulated in the conditions you signed in your mortgage when you bought your house.
REAL ESTATE FEES
Following our policy of transparency, we will apply the fees only for the steps agreed and carried out according to our rates informed on our website: www.coolhomesmallorca.com