How can you pay less tax when you sell your house in Spain?

When as a property owner you transmit your home, whether you sell it or donate it, you’ll naturally want to pay as little tax as possible and make the greatest profit you can. In this article, economist and tax advisor José Miguel Golpe Saavedra analyses various different options for transferring a home in Spain and the taxes that must be paid to the state, regional or local treasury in each case.

Selling the property

In this section we analyse the "normal" sale, that is, without including any tax exemptions or what happens if you reinvest the proceeds from the sale in a new home.

When you sell your home (not one where you live permanently), you’ll either make a capital gain or loss. In the event of a patrimonial loss, the taxpayer will have obtained a tax rebate which they can apply in their income tax returns that same tax year, or in the next (up until the proscribed deadline in accordance with the Spanish General Tax Law). On the other hand, if there is a capital gain, you will have to pay the corresponding tax on it unless you have overall losses in that fiscal year or in previous fiscal years that have not yet expired.

In addition, depending on whether you make a profit, you will have to pay the municipal capital gains tax of the municipality where the property is located.

Reinvesting your profits in a new main residence

When a taxpayer sells their habitual residence and within a period of no more than two years buys a new home to be their residence using the profits obtained (or part of them), then those capital gains will be exempt from taxation. However, this will only happen provided that the conditions set out in Article 41 of the Personal Income Tax Regulations are met.

It is very important to bear in mind these two basic requirements in order to have get a tax exemption for reinvesting the profits from the sale in a new habitual residence:

• That both the home being sold and the new one to be acquired by the taxpayer are their main residence in accordance with the tax code.
• That the money that comes from the capital gains obtained is used to buy the new habitual residence.

If these requirements are not met, in general terms, you cannot get this tax exemption and must pay capital gains tax at a rate of between 19% and 23%, depending on the amount how much profit you made.

Consequently, if you have any doubts when applying this reinvestment exemption, it is very important to check the law carefully to verify whether the taxpayer’s particular case allows you to do it or not.

Main residence tax exemption for over 65s in Spain

In accordance with the Spanish Personal Income Tax Law (Impuesto sobre la Renta de las Personas Físicas or IRPF), when a taxpayer over the age of 65 transfers their habitual residence in exchange for either capital or a life annuity, the capital gains will be exempt from taxation.

If the home is owned by two or more people and they don’t both meet the age requirement to be entitled to the capital gains tax exemption, the exemption will only apply to that one person who does meet the age requirement. It is very important to point out that it is not possible to apply this exemption for a habitual residence when what is transmitted is the usufruct of the home.

Donating your home

Another option for transferring ownership of a home is by donating it freely. In this case, a lot depends on the taxation applicable in the particular Spanish Autonomous Community where the property is located and on the relationship of the donor to the person who receives ownership of the home as a donation. In addition to the property donation, there is what is known as ‘pacts of succession’ (pactos sucesorios), which are of great importance in some Autonomous Communities such as Galicia where the tax scheme is very advantageous.

Inheriting property in Spain

As with donations, Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones) will be applied to determine the amount of tax that should be paid by the person acquiring ownership. The tax rate to be applied will change depending on the degree of kinship between the deceased and the heir, the value of the taxpayer's assets, and the Autonomous Community in which he or she resides.