Planning for sale or inheritance
Property purchased in Spain will eventually be sold or inherited. Both events carry significant tax consequences that are far easier to manage with advance planning.
Capital gains tax on sale
Capital gains tax is payable by the seller on the difference between the acquisition cost (including all purchase taxes and fees) and the sale price (net of sale costs). Non-residents are taxed at 19% for both EU/EEA and non-EU nationals (the rate was equalised in 2015).
Documenting all legitimate acquisition costs from day one — purchase taxes, notary fees, legal fees, plus any capital improvement expenditures with receipts — reduces the eventual capital gains tax liability. The buyer is legally required to withhold 3% of the sale price and remit it to the AEAT (Modelo 211) when purchasing from a non-resident seller; the seller can then claim a refund of any excess via Modelo 210.
Inheritance and gift tax
Spanish inheritance and gift tax (Impuesto sobre Sucesiones y Donaciones) applies to Spanish-sited assets regardless of where the deceased was domiciled. The rates and tax-free allowances vary dramatically by autonomous community:
- Madrid offers very generous allowances for direct family heirs — the effective tax on inheritance between parents and children can be close to zero.
- Andalucía eliminated inheritance tax for direct-line heirs from 2022.
- Valencia and other regions are considerably less favourable, with rates that can reach 34% on larger inheritances even between close relatives.
Structuring joint ownership correctly and making a Spanish will (testamento ante notario) at the time of property purchase — before any health issues arise — is strongly advisable for all non-resident buyers.
Holding structures
Some buyers choose to hold Spanish property through a Spanish Sociedad Limitada or a foreign holding company. This can offer estate planning advantages and, in some cases, ITP savings on subsequent share transfers rather than direct property transfers. However:
- Companies owning Spanish residential property are subject to corporate income tax (Impuesto sobre Sociedades) at 25% on any rental income or gains.
- Certain companies owning residential property used by shareholders face an additional Gravamen Especial sobre Bienes Inmuebles of 3% of the cadastral value annually.
Corporate holding structures for Spanish residential property require specific tax advice tailored to your nationality, domicile, and estate planning objectives before implementation.
Regional variations in property taxes and purchase experience
Beyond the standard IRNR obligations applicable to all non-resident owners, each region has practical features that affect both the ongoing ownership experience and the eventual sale or inheritance.
Andalucía (Costa del Sol, Marbella, Granada, Seville)
ITP rate: 7% (reduced from 8% in 2021). Inheritance tax for direct-line heirs is effectively eliminated (99% bonus on the state quota). The market has a large non-resident buyer proportion, and English-language legal services are well-established across the Costa del Sol.
Balearic Islands (Mallorca, Ibiza, Menorca)
ITP applies on a progressive scale reaching 13% for values above €1,000,000 — the highest of the major regions. Planning regulations are particularly stringent for rural properties (fincas rústicas), and tourist rental licensing is complex and increasingly restricted — factors that affect both income potential and resale value. Inheritance tax treatment is moderately favourable for direct heirs.
Valencia and Costa Blanca
ITP at 10%. Cadastral values in many areas are relatively low, keeping the Modelo 210 deemed-income tax modest for holiday home owners. A large inventory of older apartment-block properties means community of owners issues — deferred maintenance, extraordinary assessments — are common.
Madrid
ITP at 6%, the lowest of the major regions. Madrid also offers the most generous inheritance tax deductions for direct heirs (99% bonus, same structure as Andalucía). Land Registry processing times are generally shorter than in coastal regions, and the new-build market is large and diverse.
Cataluña (Barcelona, Costa Brava)
ITP at 10%. New pisos turísticos licences are effectively frozen in Barcelona city. Inheritance tax treatment is less favourable than Madrid or Andalucía — rates between direct heirs can be meaningful on larger estates.
Canary Islands
IGIC (the Canarian equivalent of IVA) at 6.5% on property transfers — a significant saving versus mainland ITP rates. Gains on Canarian property are taxed under the same IRNR framework as mainland property, but the ZEC (Zona Especial Canaria) regime can be relevant for buyers considering a property-owning company in the islands.
Common Mistakes When Selling or Inheriting Spanish Property
Property transactions in Spain generate a disproportionate number of tax errors — both overpayments (missed exemptions) and underpayments (missed obligations) — due to the complexity of overlapping national, regional and municipal taxes.
Mistake 1: Failing to apply the principal residence gain exemption for residents aged 65 or over. Under Article 33.4.b of Ley 35/2006 (LIRPF), gains derived from the sale of any asset — not just property — by taxpayers aged 65 or over who are Spanish tax residents are fully exempt from IRPF, without the reinvestment requirement. This is distinct from the under-65 principal residence reinvestment exemption. Many elderly taxpayers (and their advisers) overlook this blanket exemption and unnecessarily pay tax on gains from the sale of their habitual residence or other assets. The exemption is unconditional for those aged 65+: no reinvestment, no time limit, no cap.
Mistake 2: Underestimating the municipal capital gains tax (Plusvalía Municipal) liability when selling at a loss or flat value. Following the Constitutional Court ruling (STC 182/2021) and the subsequent reform through Royal Decree-Law 26/2021, the Plusvalía Municipal can only be charged when there is a genuine increase in the cadastral value of the land component over the holding period. If the seller can demonstrate that the value of the land did not increase — or decreased — during their ownership period, they are entitled to a full exemption. This requires comparing purchase and sale prices attributable to the land component (not the building) and presenting the evidence to the municipality. Sellers who pay the tax without verifying their eligibility for this exemption systematically overpay.
Mistake 3: Non-resident sellers failing to request the certificate of exemption or reduction from the 3% IRNR withholding before completion. When a non-Spanish tax resident sells Spanish property, the buyer is legally obliged to withhold 3% of the total agreed price and pay it directly to the AEAT as advance payment of the seller’s IRNR liability (Article 25.2 LIRNR). If the seller’s actual IRNR gain is less than the withheld amount — or if the seller qualifies for an exemption — they can claim a refund, but only by filing the corresponding IRNR return within 4 months of the sale. Sellers who do not file the return forfeit their right to the refund. In addition, if the withholding exceeds the tax due by a large amount (for example, because the property was sold near cost or at a loss), the seller has an incentive to proactively request the AEAT to reduce or eliminate the withholding before the sale completes — an option rarely communicated by estate agents.
These three mistakes illustrate a common pattern: non-residents and their advisers tend to focus on the headline tax obligation (IRNR, ITP, Plusvalía) without examining the specific exemptions and procedural rights available in their situation. In many cases, the tax liability is materially lower — or even nil — once the applicable exemptions are correctly identified and claimed. Engaging a Spanish tax specialist who has specific experience with non-resident property transactions before signing any purchase or sale agreement is the most reliable way to identify these opportunities and obligations in advance, rather than discovering them after the notarial completion when options are limited. BMC provides full Spanish property tax advisory for international clients. Learn about our tax services for non-residents.
