Residents in Spain will be taxed on the sale of inherited real estate abroad

Tax residence in Spain entails the obligation to pay tax on worldwide income. This implies that any capital gain or loss derived from the disposal of assets located outside the national territory must be declared in the taxpayer's income tax return.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that, when a resident in Spain sells real estate acquired through an inheritance abroad (in this case, Argentina), the resulting capital gain or loss must be included in the savings tax base of the Personal Income Tax (IRPF).

For the calculation of said gain, the following parameters have been established:

• Acquisition value: This will be the value resulting from applying the rules of the Inheritance and Gift Tax, provided it does not exceed the market value.
• Expenses: Expenses and taxes inherent to the acquisition of the asset may be added.
• Double taxation: In accordance with the Convention between Spain and Argentina, the taxpayer may apply the international double taxation deduction, limited to the amount of tax corresponding to that income in Spain.

What it means for you

If you are an expatriate or a resident in Spain who owns assets abroad, the sale of inherited real estate is not exempt from taxation in Spain. The value used to determine the acquisition cost is critical, as an error in the valuation of the inheritance will directly affect the calculation of the capital gain.

Furthermore, the existence of a treaty to avoid double taxation allows for the mitigation of the tax burden, but the deduction is subject to specific limits that depend on the amount of tax paid in the country of origin and Spanish regulations.

What you should do

In an operation of this nature, it is necessary to correctly document the acquisition value through the corresponding settlement of the Inheritance and Gift Tax. Likewise, it is fundamental to have the documentation proving the tax paid abroad to correctly exercise the right to the double taxation deduction in the IRPF return. Each wealth situation requires a detailed analysis of market values and the applicable treaties.