Taxation of shares in income tax 2.014

Taxation of shares in income tax 2014The taxation of shares in 2.014 has changed drastically with one of the innumerable changes in tax legislation that have taken place in Spain in recent years. In this article I will explain the taxation of the shares in the income statement of this year 2.014 for both long-term and short-term investments.

Distinction between the long-term and short-term profitability of shares in personal income tax

One of the main novelties in the taxation of shares for personal income tax (IRPF) in 2.014 is to differentiate fiscally between income from long-term stock market operations (more than one year) and short-term (less one year). This distinction has a very important effect on the taxation of shares, as you will see below.

The taxation of long-term shares in personal income tax (more than one year)

The taxation of shares that have been conserved in the long term, that is, for shares held in the portfolio for a period of more than one year, will be taxed as capital gains within the tax base of savings. The type of tax to calculate the full share of the savings will depend on the amount of capital gains:

  • 21%, up to 6.000 euros per year
  • 25%, between 6.001 and 24.000 euros per year
  • 27%, more than 24.000 euros per year

The taxation of short-term shares in personal income tax (less than one year)

Income tax for capital gains on the sale of shares in periods of less than one year has changed dramatically with the new tax legislation. Capital gains from the short-term sale of shares no longer fall within the tax base of savings, but are now part of the general tax base.

Is this beneficial or detrimental to the investor? The answer is that this will depend on our type of tax on personal income tax, although the normal thing, except for people with very low incomes, is that we lose out. In the worst case, capital gains from the sale of shares in a period of less than one year can be taxed up to 52% of the capital gain.

Calculation of capital gain or loss

The capital gain or loss is calculated by subtracting the acquisition cost (purchase price - purchase commission) from the sale cost (sale price - sale commission). From this result we can subtract the commission and custody expenses of our broker.

In the case of selling shares purchased in different periods of time, the criteria prevail FIFO (First In, First Out), that is, the capital gain or loss is calculated as if the shares that we sell first are those that we buy first.

Reduction for shares purchased before 1.995

Publicly traded shares that were acquired before 1.995 have a reduction in the calculation of their capital gains. This reduction depends on the year they were acquired:

  • 1.994 (included in 31/12/1.993): 25% reduction
  • 1.993 (included in 31/12/1.992): 50% reduction
  • 1.992 (included in 31/12/1.991): 75% reduction
  • 1.991 or earlier: 100% reduction

SCORE ON THE REDUCTION:

The reduction with "old" shares is not exactly as you state since that "bargain" was cut in January 2006 and is as follows:

In general, a linear calculation of capital gains is made based on the days elapsed from the acquisition date to January 19, 2006, both inclusive, and from January 20, 2006 to the date of transmission. There are, however, peculiarities regarding the calculation in the cases of securities admitted to trading and of shares and participations in collective investment institutions.

If the transmission value of these elements is greater than or equal to the value for the purposes of the Wealth Tax (IP) for 2005, the profit on which the coefficients will be applied will be the result of the difference between the value for the purposes of IP of 2005 and the acquisition value. On the contrary, if the transmission value is lower than the value for the purposes of the 2005 IP, the abatement coefficients are applied to all the gain. 

In short, you recognize the profit up to that date as subject to reduction; if it has risen more, the difference over the value of that date is not applied by the reduction. On the other hand, with real estate, they do not follow that criterion, each year the network passesuction is less due to the rule of 3 that they apply and the paradox arises that although the properties lower the tax “recipe” each year that passes is greater, all old properties had to be sold in 2005-2006.

Thanks to José Luis Benito for his correction. 😉