Exemptions from Personal Income Tax when selling a house in Costa Blanca: exemption for reinvestment in a primary residence; exemption for handing over the flat in lieu of payment and exemption for the over 65s.
Selling a house in Costa Blanca is a profitable operation. According to the analysis we carried out in our article ‘What return can I obtain from my property in Moraira‘, buying a property to then proceed to sell it can bring returns of more than 30%.
However, when we sell property we tend to limit ourselves to thinking about the profit we will make, forgetting that we will also have to assume a series of expenses: Habitability Certificate, Municipal Capital Gains Tax, mortgage loan cancellation, Personal Income Tax…
It is precisely on this last expense that we wish to focus this article. How much Personal Income Tax (IRPF) will we have to pay on our home? What exemptions can we take advantage of to avoid having to pay this tax?
Personal Income Tax on the sale of a flat in Costa Blanca
Personal Income Tax (IRPF) is levied on income obtained by individuals resident in Spain. This income can be obtained from work (salary, pensions…) or from real estate capital (real estate and savings).
The income obtained from the sale of a house in Costa Blanca is included in the capital gains obtained from real estate capital. All sale and purchase transactions must be included in the Income Tax Return either as capital gains (in this case we would have to pay tax on them) or as capital losses (in this case we would not have to pay tax on them).
How much will we have to pay the Tax Authorities?
The amount we will have to pay for the capital gains obtained from the sale of our house in Costa Blanca will depend on the profit we obtain from the sale.
To calculate this profit, you can make use of our online home valuator, a tool which will give you an idea of the approximate price for which you will be able to sell your property.
These profits will be taxed at a progressive rate as follows:
- 19% on the first 6,000 euros of profit.
- 21% between 6,000 and 50,000 euros of profit.
- 23% between 50,000 and 200,000 euros of profit.
- 26% on more than 200,000 euros of profit.
3 cases in which you won’t have to pay the Tax Authorities
The exemptions on the payment of Personal Income Tax were created to benefit certain groups when it comes to selling a property. Here are the 3 cases in which we can avoid paying the tax authorities if we sell our property.
Exemption for reinvestment in a primary residence
We can take advantage of the exemption for reinvestment in a primary residence when the property we are selling is our primary residence and the profit obtained from it is reinvested in the purchase of another primary residence.
In order for the property in question to be considered our primary residence, we must have been living there for a minimum period of three years in a continuous manner. This three-year period may be reduced if any of the following circumstances apply:
- A divorce.
- Changing jobs and getting our first job.
- Death of the taxpayer.
- Relocation for work-related reasons.
- Circumstances demanding a necessary change of residence.
Similarly, the reinvestment in the new home must be made within a maximum period of two years. In other words, the purchase of our new home can be made up to two years prior to or after the sale of our property in order to qualify for this exemption.
Exemption for handing over the house in lieu of payment
We can also enjoy an exemption from Personal Income Tax if we hand the house over to our bank in the event of being unable to repay the mortgage. In this circumstance, it is compulsory that we do not own any other property of sufficient value to cover the mortgage debt.
Exemption for the over 65s
Finally, it will not be necessary to pay the Tax Authorities for the sale of our home if we are over 65 years of age and the property we are selling is our primary residence. In this case, it is not necessary to reinvest the profits obtained from the sale in the purchase of a new home.
The exemption for the over 65s is also available to people who are considered to be highly or severely dependent.
Likewise, sales of second homes will not be subject to Personal Income Tax if the proceeds are used to create a life annuity in accordance with the following requirements:
- Time: There is a maximum period of six months from the sale of the property until the annuity is taken out.
- Amount: The maximum profit amount is 240,000 euros.
- Periodicity: The annuity payment must have a frequency of less than or equal to one year and must be received one year after its constitution.
- Communication: it is compulsory to inform the bank or insurance company that the money is coming from the sale of a property and that we want to take advantage of the exemption.
*To maximise the profit you can make from the sale of your house in Costa Blanca, you need to establish a good strategy for pricing, staging and marketing your property. To find out everything you need to know about the process and maximise your profit, you can download our Seller’s Guide.