Conditions for exemption

Capital gains tax residents

07 / Feb

Capital gains is taxed in Spain. The capital gains obtained from the sale of your home, however, may be exempt under circumstances. In this article we will inform you on the conditions for this exemption.

Definition of capital gains
Capital gains is considered all profit obtained in the sale of the property, so selling prices minus cost price.
• You can deduct the costs made to acquire the property.
• You can also deduct the balance of a mortgage loan that is paid at the time of selling
• You can deduct investments made to refurbish the property if this refurbishment is ‘substantial’. The meaning of the term ‘substantial’ is difficult to comprehend due to the technicalities it must comply with. As an alternative you make sure the value of the refurbishment is a minimum of 25% of the value of the property.

Definition of home
To call a property your home in legal terms, it should be considered your primary residence.

This means you must have lived in it for at least 3 years prior to the date where you effectively start using the new home. This condition does not apply if the owner dies before this term ends, nor when the owner is forced to move due to marriage, divorce, or similar circumstances.

First exemption is the one applying to people of the age above 65 years. They are not liable for capital gains tax.
Another exception is when the total amount obtained from the transfer is reinvested in the purchase of another, new home. This exemption has some conditions and needs explanation.

A new home is only considered as such if it is your primary residence during at least 12 months from the date of purchase (title deed) or the date where any refurbishment is finished. The also applies even if the owner dies before the end of these 12 months or moves temporarily to a different home for work related reasons within that term.

Term of the reinvestment
The reinvestment of the amount obtained in the sale must be made, in one go or successively, within two years after the sale of the home. It is allowed to apply this two year window to payments made before the sale of the home.

In those cases, in which a new home is acquired prior to the transfer of the ‘old’ home, there is still exemption if:
The ‘old’ home is the primary residence or was during at least 2 years before the sale.
The ‘old’ home has ceased to be a primary residence due to the taxpayer having transferred his or her primary residence to the new one at any time after its purchase.

Deductible amount
In the event that the amount of the reinvestment is less than the total obtained in the sale, only the proportional part of the capital gains that corresponds to the amount effectively reinvested in the conditions stated above will be exempt.

Roeland van Passel