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Selling a Property in Mallorca

When you sell a property in Mallorca, although you do not have to pay for the costs of the sale (notary, registry etc) you will possibly be liable for taxes.

Tax on the Increase of the Rateable Value of the Land

Impuesto Municipal sobre el Incremento del Valor Catastral de los Terrenos or “Plus Valia” is the tax on the increase of the rateable value of the land.   By law this is paid for by you, the vendor.

However, it’s customary in Mallorca that it is paid for by the buyer although this may ultimately come down to negotiation at point of sale when you agree a price.

Plus Valia is not charged if you are selling the property within one year of buying it.

Capital Gains Tax

Ganacia Patrimonial  If you sell a Spanish property more than one year after buying it, then you are liable to pay Spanish capital gains tax (CGT) on the difference between the amount that you sell the property for and the amount that you declared having purchased it for previously, minus any increase in price because of inflation. A non-resident will pay Spanish CGT tax at 18% and residents will pay at a rate of 18%. A resident may have the option to ''roll'' the tax into another property provided that it is a single main residence.

Although the figure of 18% for non-residents sounds high, CGT is subject to an annual "indexing" ("inflationary") tax relief. This means that an inflationary "index" allowance is subtracted from the profit before the CGT rate is applied.

A Non-resident who purchased their property before 1986 currently has no retention against CGT tax to pay on sale.

Non-residents who purchased their properties between 1986 and 1998 have a complicated tax position as both the old formula (an indexing allowance of about 11 % per annum) and the new formula (an indexing similar to the rate of inflation, recently about 1 %) needs to be considered. 

N-on-residents are liable for a "cautionary" retention tax of 3% when they come to sell their Spanish property.  For example, when a non-resident sells their Spanish property their buyers pay 3% of the sales price (retention tax) directly to the Spanish tax authorities and will only receive 97% of the sales price.  This retention tax is kept "on account" by the Spanish tax authorities until the non-residents capital gains tax is calculated.

Once the capital gain is determined (i.e.  the profit minus any inflationary considerations for the period that the property was owned and minus any certifiable costs and expenses) and the appropriate CGT is calculated, the Spanish tax authorities will deduct the retention tax (which is collected at point of sale) from the CGT that is liable.  If the CGT liable on the sale of the Spanish property is more than the 3% retention tax that is held "on account" then the non-resident has to pay the difference.   If, however the CGT liable on the sale of the Spanish property is less than the 3% retention tax that is held "on account" then the non-resident is reimbursed the difference by the Spanish tax authorities.

There is a new law which will be implemented in January 2007 but will be retrospective to January 2006 and therefore effect any property sold as of now.   The new law states that ALL property will liable for Capital Gains Tax and therefore retention, regardless of when the property was bought.   Furthermore, CGT will be 18% of the profit after relief for both residents and non-residents.

A Spanish property bought and sold in a quick timescale will gain virtually no capital gains tax relief.

Debts and Encumbrances

If there is any debt (such as a mortgage) or encumbrance on the property this will be cleared at the point of sale and you as the seller are liable for paying these.   Therefore, where there are any fees incurred by the cancellation of the debt (for example, mortgage cancellation fee) this is withheld at the point of sale and any difference is subsequently refunded.

So, for example, if you are a non resident, selling a property for 300.000 euros and you have agreed an agency commission of 5% plus VAT and the property has a 150.000 euros outstanding, assuming a 1% cancellation fee this is how much money you will receive at the notary: