Exemption for reinvestment in main residence. Is it possible to apply for it when the new residence is located abroad?

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Benjamin Franklin is credited with the famous phrase: “There are only two things certain in this world: death and paying taxes.”

In today’s article we look, once again, at the latter. The payment of taxes, and the importance of knowing all the applicable exemptions and allowances so that the tax bill is reduced as much as possible. When selling a property, one of the headaches that many people face is the capital tax gain that they will face if the sale price ends up being higher than the acquisition price.

Let us use very simple example. J, a British expatriate, bought a house in Spain in 2004 for €200,000 and made it his habitual residence, being to all intents and purposes a tax resident in Spain. In the year 2022, he decides to sell it for €280,000 and return to his country. How much will he have to pay for this capital gain of €80,000?

Let’s assume, for practical purposes, that from the most common exemptions provided for in the Spanish Personal Income Tax Law, none is applicable to J. He has not yet reached the age of 65, so he cannot make use of the exemption for people over that age who sell their main residence. Nor does he have any major or severe disability, in which case his capital gain would also be exempt. However, according to Spanish law, when the taxpayer uses the funds obtained from the sale to purchase or rehabilitate a new home, and turn it into his habitual residence, he will be exempt from paying this gain. Although the law does not indicate where this new home must be located, the tax authorities tend to be somewhat restrictive, and usually interpret that this home must be in Spain too.

A recent binding consultation, issued by the Directorate General for Taxation, seems to clarify this issue definitively. In its ruling, the Spanish tax authority confirms that reinvestment can also take place abroad. In J’s case, if he returns to the UK, acquires or renovates a home there, he could perfectly apply for this exemption, and the Spanish Authorities would have no choice but to grant it to him. Which would mean, in this case, a saving of several thousand euros (€17,280).

If you are planning to sell your property in Spain, please do not hesitate contact us. We will study your case and offer you expert advice on the contract, required documents, taxes, etc.

You may be interested in the following services and articles:

Taxes on a plot of land purchase in Spain. Legal advice. VAT or Transfer Tax. The importance of knowing the tax to pay.

Taxation and taxes payable on the purchase and sale of furnished properties. Legal and tax advice.

New: Possibility of not paying Capital Gains Tax in Spain, for those who are no longer tax residents

Carlos Baos (Lawyer)

White & Baos.

Tel: +34 966 426 185

E-mail: info@white-baos.com

White & Baos 2022 – All Rights Reserved.

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