Concept: Capital Gain on the sale of real estate.
When we sell a property in Spain we have to pay a tax on the profit we obtain. It is the Capital Gains Tax, CGT. This goes from 19% to 23%. But, it is possible not to pay anything, when it comes to the main home or habitual residence.
Capital Gain. Calculation
In general, we can say that the Gain is the difference between:
– Transmission Value. The price for which we are selling the property. Less, if applicable, real estate agency fees, etc.
– Acquisition value. The price paid. Plus: taxes, notary fees, property registration, etc.
The profit is taxed on:
– 19% on the first €6,000.
– 21% from €6,000 to €50,000.
– 23% from €50,000.
Tax benefit. Exemption for reinvestment in the main home
In Spain, it is foreseen as an exemption. No capital gain will be paid on the sale of the habitual residence or main home. Provided that profit is reinvested in the acquisition or rehabilitation of a new habitual residence.
Reinvestment that must be carried out within two years.
Concept of habitual residence or main home
Legally, the main home is considered the one that constitutes the habitual residence for at least three years.
Example Reinvestment in habitual residence. Capital Gain Tax Exemption
A total exemption is possible. That is, when all the money received is reinvested.
For example. We sell our home for the price of €100,000, and we make a profit of €30,000. If we reinvest the €100,000 in a new habitual residence. We will NOT pay any tax, for the profit of €30,000.
Also, it can be a partial exemption. When all the money is not reinvested. In the above case. Let’s imagine that from the €100,000 of the sale, only €50,000 is reinvested in a new habitual residence. That is, 50%. In this case, we would not pay tax on 50% of the capital gain, that is, €15,000.
The existence of a mortgage loan. How it affects the reinvestment in the habitual residence
The Spanish tax authority understood that if a loan was obtained to buy the new habitual home, it was only understood as reinvested, the capital repaid within the first two years, of the loan.
In a recent ruling, the Supreme Court, of October 2020, has changed the criteria.
Now pay attention to the economic value of the reinvestment, that is, the value of the property.
Thus, if instead of reinvesting the money obtained, we save it, but we buy a property, with a mortgage loan, we will be able to benefit from the exemption even if we do not reinvest the money. If the asset has the same or greater value.
So, following the previous example. If we sell for €100,000. We keep the money. And we bought another habitual home for €100,000 that we fully financed, with a mortgage loan. The exemption would apply to the entire profit. Although we have not invested the money from the sale.
The information provided in this article is not intended to be legal advice, it merely conveys information related to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
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