What taxes do I have to pay when selling a property in Madrid?

Taxation on the Sale of Residential Property in Madrid

Selling a property in Madrid comes with several important tax obligations that property owners need to understand to avoid surprises and optimize their transaction. In this article, we detail the main taxes and fees you will face as a seller of residential property in Spain.

1. Municipal Capital Gains Tax (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana - IIVTNU)
   The municipal capital gains tax, or Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (IIVTNU), is a local tax that the seller must pay when selling their property. This tax is calculated based on the increase in the cadastral value of the land since the last transaction.
   • Calculation of the Municipal Capital Gains Tax: It is based on the cadastral value of the land and the number of years the property has been held. The longer the duration of ownership, the higher the tax can be.
   • Payment of the Capital Gains Tax: This tax is usually paid by the seller, although it is possible to negotiate with the buyer to share this cost.
2. Capital Gains Tax (Impuesto sobre la Renta de las Personas Físicas - IRPF)
   When selling a property in Spain, the seller is subject to capital gains tax, a component of the Impuesto sobre la Renta de las Personas Físicas (IRPF). This tax is calculated on the difference between the selling price and the initial purchase price, taking into account certain possible deductions.
   • Capital Gains Tax Rates:
     • 19% for the first €6,000 of gain.
     • 21% for gains between €6,001 and €50,000.
     • 23% for gains over €50,000.
   • Capital Gains Tax Exemptions: Residents over 65 years old selling their primary residence or those reinvesting the funds in the purchase of a new primary residence may benefit from tax exemptions.
3. Notary and Administrative Fees
   Although notary fees are primarily the responsibility of the buyer, the seller may have fees to pay, particularly for power of attorney or for canceling a registered mortgage on the property (if applicable).
   • Mortgage Cancellation: If the property is sold with a mortgage, fees for canceling the mortgage may apply, usually at the seller's expense.
4. Non-Resident Income Tax (IRNR)
   If the seller is a non-resident in Spain, they will be subject to Non-Resident Income Tax (IRNR) on the capital gain realized from the sale of the property.
   • IRNR Tax Rates:
     • 19% for residents of the European Union.
     • 24% for non-residents outside the EU.
   • Withholding Tax: The buyer must withhold 3% of the sale price and pay it to the Spanish tax authorities as an advance on the IRNR.

Conclusion
Selling a residential property in Madrid involves several tax obligations, including the municipal capital gains tax, capital gains tax, and potential notary fees. To maximize the profits from the sale, it is essential to anticipate these costs carefully. It is highly recommended to consult a tax advisor or a real estate lawyer to ensure all tax obligations are met.