By Carlos Baos (Lawyer) • 14 September 2023 • 11:59
Selling your property main residence in Spain? Tax benefits when reinvesting through mortgage. Capital Gains Tax.
The purchase and sale of real estate in Spain is subject to a series of taxes, which we have analysed in detail in previous articles. In this week’s column we want to talk about one of the taxes payable by sellers. The capital gains tax. We will focus especially on the exemption for reinvestment in the habitual residence, and what happens if this is done by means of a mortgage. Is it possible? What requirements must be met? We analyse it, below.
Let’s start at the beginning. How does the capital gains tax work? This tax is calculated on the difference between the purchase price and the selling price. In other words, if you bought a house for 80.000€, and years later you sell it for €150,000, the Spanish Tax Office will understand that you have experienced a gain of €70,000. And you will have to pay tax on it.
Is this tax always payable? No. The Spanish Tax Law foresees several exemptions and allowances. For instance, if you are over 65 years old and sell your main residence, you will be exempt from paying this tax. The same applies if you suffer from a serious or severe dependency. Along with the above, one of the most widely used tax benefits when dealing with this tax is the exemption for reinvestment in a habitual residence.
What does this tax benefit consist of? If the taxpayer sells their main residence and, in the two next two years (or previous 2 years) reinvests in another home, that he/she uses as his/her main residence, the capital gain from the sale will not be subject to taxation.
What happens if I reinvest in another habitual residence through a mortgage? Will I also be able to benefit from this exemption? For several years, the Tax Agency denied this possibility and only counted as “reinvestment” the money actually paid out of the taxpayer’s pocket. Meaning that, when the buyer asked for a mortgage (or subrogated in the mortgage of the seller) it was not allowed to ask for this tax benefit. However, the Supreme Court has confirmed that buying through a mortgage does not affect the exemption. And that it is not an obstacle to ask for this tax benefit, to avoid paying capital gains tax. Therefore, if you are selling and reinvesting by means of mortgage, please note that you could also be exempt from the payment of this tax.
At White-Baos Lawyers we have been advising our clients on purchases, sales, gifts… for nearly 20 years. If you have any doubts about real estate law in Spain, taxation, etc. Do not hesitate to contact us. We will study your case and offer you expert legal advice.
You may be interested in the following services and articles:
Is it possible to sell a protected public house?. We explain everything you need to know. Right of first refusal. Maximum price. Valencian Region. Buying and selling a property.
Reference value and its new regulation. Legal Regulations. Its importance in Spain with the transaction with real estate assets: purchase, selling, etc.
Documents that we should reviewed with your lawyer before signing them, when selling or buying a real estate property in Spain. Contract with the agent, reservation, arras, etc..
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
White & Baos 2023 – All Rights Reserved.
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Lawyer Carlos Baos has been advising on variety of expat-related legal issues for years and weekly column offers free weekly insights.
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