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Speculation tax on holiday properties: the German side of selling in Mallorca

Responsible for this content: Frank Menze

Anyone selling a holiday property on Mallorca thinks first of Spanish tax – and in doing so overlooks the German side of the equation. The so-called speculation tax is in reality § 23 of the German Income Tax Act (EStG): a ten-year period within which a capital gain from the sale of property in Germany can be taxable – regardless of whether the property is located in Germany or on Mallorca. For owners resident in Germany, this is no academic question: the wording of the law contains an exception for owner-occupied properties, and a landmark ruling by the Bundesfinanzhof in 2017 clarified that second homes and holiday properties can also fall under this rule. This guide sets out the time limit, its exception and the pitfalls in the case of letting – and shows how the German rule relates to the double taxation agreement with Spain.

Speculation tax on holiday properties: the German side

Are you planning a sale and want to know how your history of use affects your German tax liability?

The term "speculation tax" does not actually appear in the law. What is meant is § 23 EStG, which governs private sales transactions. This provision covers gains from the sale of land and property-equivalent rights where no more than ten years lie between acquisition and sale. This applies regardless of which country the property is located in – for your Mallorca property, in principle, the same rules apply as for a house in Germany, provided you are subject to unlimited tax liability in Germany.

Feature Regulation under § 23 EStG
Legal basis § 23 para. 1 sentence 1 no. 1 EStG
Assets covered Land, property-equivalent rights, buildings, outdoor facilities
Length of period No more than ten years between acquisition and sale
Structures included Buildings/outdoor facilities erected, extended or enlarged within the period
Exception Owner-occupation under sentence 3 (two alternatives, see below)

Note: This time limit applies exclusively to German income tax. Whether and how Spain taxes the capital gain is a separate matter – more on this below and in the detailed guide Taxes when selling property in Spain.

The ten-year period in detail

The period begins at the time of acquisition and ends at the time of sale – in each case this refers to the underlying contractual obligation, i.e. as a rule the date of the notarial purchase contract, not the later entry in the land register. Important for owners who have extended or converted their finca: building components and outdoor facilities erected only within the current ten-year period are also included in the calculation – this applies correspondingly to flats and part-ownership as well.

Question Answer according to § 23 (1) sentence 1 no. 1
When does the period begin? With the acquisition (usually: the date of the purchase contract)
When does it end? With the disposal (sale contract)
What else counts? Buildings/outdoor facilities erected, extended or converted within the period
Does this also apply to condominiums (Eigentumswohnungen)? Yes, correspondingly for self-contained parts of buildings and Teileigentum

The owner-occupation exception – two routes to tax exemption

Sentence 3 of the provision exempts assets that were used for the owner's own residential purposes. The wording of the law describes two separate alternatives for this – meeting just one of them is enough.

Alternative 1 Alternative 2
Period Between acquisition/completion and disposal In the year of disposal and the two preceding years
Requirement regarding use Exclusively for own residential purposes, without interruption Only one continuous period spanning three calendar years is required
Special feature No gap permitted Only the middle year needs to be fully covered, the outer years do not

Note: Both alternatives require actual owner-occupation. Anyone who never lives in the property themselves, but rents it out purely as a capital investment from the outset, cannot rely on either variant and needs the full ten years.

Why this topic is relevant at all for Mallorca owners

The decisive question for holiday properties is: does a finca that you only occupy part of the year even count as "own residential use"? The Bundesfinanzhof answered this explicitly in the affirmative in its ruling of 27 June 2017 (case no. IX R 37/16). The headnote makes clear: a building is used for the owner's own residential purposes even if the owner only lives there temporarily, provided it is available to him as a dwelling for the rest of the time. The exception can therefore also cover second homes, holiday flats not intended for rental, and dwellings used as part of a dual household arrangement.

The BFH further clarifies: if the use is intended to be permanent, it does not matter whether the owner has other dwellings and how often he actually stays in them. For the classic constellation – a German couple with a finca in Santanyí who spend a few weeks there several times a year and otherwise leave the property empty – this is an important clarification: infrequent use alone does not disqualify owner-occupation.

The trap: renting out without simultaneous owner-occupation

This is where many owners with an ETV licence stumble. According to settled BFH case law, use for the owner's own residential purposes does not exist if the owner lets the dwelling to a third party, for payment or free of charge, without living in it himself at the same time – expressly confirmed in BFH, ruling of 3 September 2019 (IX R 8/18). In its decision of 29 May 2018 (IX B 106/17), the BFH sharpened this further: it is not enough for the owner to occasionally enter the rented dwelling for a visit – it must be available to him as a dwelling at all times.

Translated for practical purposes: anyone who lets their Mallorca property for certain periods via an ETV licence and does not live in it themselves during those periods loses the tax relief for exactly those periods. For the portion affected, the full ten-year period is then required, not the shorter owner-occupation exemption.

Note: How mixed use – partly owner-occupation, partly letting of the same property – is to be apportioned mathematically in an individual case is one of the most complex questions under § 23 EStG and cannot be answered in general terms. This is precisely the point at which individual tax advice becomes indispensable.

Who is "resident" – and why this decides everything

The entire German perspective of this article applies to owners who are tax resident in Germany. Anyone whose tax residence is instead on Mallorca declares their worldwide income in Spain and is subject to a different system. Whether you are (still) resident in Germany or already resident in Spain depends, among other things, on the number of days you spend there and other criteria – more on this in the guide Tax residence Spain. For everything else in this article, we assume a seller who is resident in Germany.

The Spanish side – briefly classified, not elaborated

Spain has no holding period equivalent to the German ten-year period: the capital gain is, in principle, taxable there regardless of how long the property was owned. Non-resident sellers are also faced with a tax withholding and their own declaration obligation, in addition to the municipal capital gains tax. These three topics have their own detailed guides:

This article deliberately focuses on the German side, because in practice it is the aspect most often overlooked.

The double taxation agreement: exemption with progression clause

Since 18 October 2012, the agreement of 3 February 2011 for the avoidance of double taxation has applied between Germany and Spain. For the sale of a property located in Spain, the system is regulated as follows:

Treaty article Content of the provision
Art. 13(1) Gains from the disposal of immovable property may be taxed in the state where it is located – i.e. Spain
Art. 22(2)(a) Germany exempts income that is actually taxed in Spain under the agreement from the German tax base (exemption method)
Art. 22(2)(d) Germany reserves the right to take the exempted income into account when determining the tax rate applicable to the remaining income (progression clause)
Art. 22 para. 2 e) In the case of unresolved qualification or attribution conflicts, the treaty switches to the credit method

Important for the classification: the exemption in Art. 22 para. 2 a) only applies to the extent that Spain actually taxes the gain – not automatically in every constellation. And even if the gain is excluded from the tax base in Germany, it still affects the tax rate on your other German income via the progression clause. "Nothing is due in Germany then" is therefore not an accurate summary – the effect is more subtle. You can find out more about the basic mechanics in the guide Double Taxation Agreement Germany–Spain.

Most common mistakes when selling

  1. Using the wrong date as the start of the period. The period runs between acquisition and disposal; rental phases do not interrupt it not — they only cost you the owner-occupation exception. Anyone who additionally built, extended or expanded within the period must also read § 23 para. 1 sentence 1 no. 1 sentence 2: buildings and outdoor facilities are then included.
  2. Overlooking the rental trap: Anyone who rented out the property under a holiday-letting licence (ETV licence) without living in it themselves during that time loses the owner-occupation exception for those phases – even if they regard it "essentially" as a holiday home.
  3. Confusing German and Spanish systematics: The German ten-year exception has no equivalent in Spain – there, the assessment is made irrespective of the holding period.
  4. Failure to clarify tax residency before the sale: Anyone who is not sure whether they are still tax resident in Germany or already in Spain cannot correctly determine which rules apply.
  5. Forgetting the progression clause: Even exempt income can increase the tax rate applied to your other German income.

What happens after the sale?

After the notary appointment, the process splits into two parallel tracks: in Spain, the applicable deadlines for withholding and the seller's tax return apply – covered in the separate guide on Taxes on property sales. In Germany, if the transaction is taxable under § 23 EStG, you declare it in your income tax return; the relevant authority is your German local tax office (Finanzamt). Because the usage history – exactly when the property was occupied personally and when it was rented out – is decisive for the assessment, it is worth organising these documents (rental agreements, ETV licence periods, occupancy schedules) before the sale, rather than gathering them only when the tax office asks for them.

Checklist before the sale

Check point Why it matters
Purchase date and contract to hand Determines the start of the period under § 23 EStG
Usage history documented without gaps Decides whether, and for which periods, the owner-occupation exception applies
Rental periods (ETV licence) recorded separately Periods without simultaneous owner-occupation do not count as owner-occupation
Tax residence at the time of sale clarified Determines which national law serves as the starting point
Advice obtained in both countries German and Spanish tax law apply independently of one another
Deadlines on the Spanish side (withholding, tax return, Plusvalía) noted in the calendar Parallel deadlines, independent of the German ten-year period

For the legal and tax coordination between both countries, it often helps to consult a tax adviser experienced in German-Spanish cases – especially since the interface between § 23 EStG and the DTA is rarely straightforward in detail.

Conclusion

The "speculation tax" on the sale of a Mallorca property is not a Spanish matter but primarily a German one for owners resident in Germany: § 23 EStG is tied to a ten-year period and provides for an exception for owner-occupation, which the BFH explicitly also applies to holiday and second homes. The decisive pitfall is letting the property without simultaneous owner-occupation – this breaks the exception for the periods concerned. In parallel, the double taxation agreement with Spain provides for an exemption with progression clause, not automatic tax exemption in Germany. Anyone who cleanly documents their usage history and coordinates both legal systems at an early stage avoids the most expensive surprises only after the notary appointment.

Official sources

Does the German ten-year rule also apply to my property in Mallorca?
Yes, § 23 EStG does not distinguish between domestic and foreign properties. It applies to owners resident in Germany regardless of whether the property is located in Germany or in Mallorca.
When is the sales profit exempt from German tax due to owner-occupation?
According to § 23 Abs. 1 Satz 1 Nr. 1 Satz 3 EStG, there are two alternatives: continuous owner-occupation between acquisition and sale, or owner-occupation in the year of sale and the two preceding years, whereby only the middle year needs to be fully covered.
Does a holiday flat that I only live in for a few weeks a year count as owner-occupation?
According to the BFH ruling of 27 June 2017 (IX R 37/16), yes, provided the flat is available to you as a home for the rest of the time and the use is intended to be ongoing. The frequency of your stays is not decisive here.
What happens if I have temporarily rented out the property under an ETV licence?
For periods during which you made the property available to a third party without living in it yourself, the BFH considers this not to be owner-occupation. For these periods, you need the full ten-year period instead of the shorter exception.
Do I have to pay tax on the sales profit in both Germany and Spain?
Under the double taxation agreement, Spain is entitled to tax the profit; Germany then generally exempts it, but takes it into account via the progression clause when determining the tax rate on your other income.
Is there a rule in Spain comparable to the German speculation period?
No, in Spain the capital gain is generally taxed regardless of the holding period. You can find details on this in the guide to taxes on property sales in Spain.
Which tax office is responsible for the German tax return?
As a rule, your German tax office at your place of residence, provided you were resident in Germany at the time of the sale.
How can I find support for coordinating between German and Spanish tax law?
Specialised tax advisors with experience in German-Spanish cases, as well as lawyers familiar with both legal systems, are the right contacts – for example via the industry directory for lawyers in Mallorca.