Feb 16, 2021 Newsletter

Guide to housing taxation. Part I

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What taxes are payable on a purchase, sale or lease? Who pays them and when? Understanding clearly the fiscal and legal aspects of housing is extremely important for any buyer or seller. 

The purchase, sale and rental of housing have numerous fiscal effects and are taxed by different taxes.

Today and next week, we dedicate the newsletter to housing taxation. Here we go.

Transfer of a home
The transfer of a property is a formal and voluntary act between two parties in which the seller undertakes to hand over the property in exchange for a price to be paid by the buyer. This transaction involves certain tax obligations for both the seller and the buyer.

What obligations does the seller have?
The seller will have to assume the taxes that fall on the capital gain obtained by the sale of the property.

In this case, the Personal Income Tax (IRPF) and the Tax on the increase of value of urban land (IIVTNU), better known as municipal capital gain.

How must the seller declare the capital gain in their tax return?
This obligation is required at the time of filing the income tax return. The sale of a property must be included in the section of the tax return dedicated to “capital gains or losses derived from the transfer of assets” and, in this case, the calculation will be based on the difference between the acquisition value at the time of purchase and the transfer value at the time the property is sold.

(Transfer value – acquisition value = capital gain/loss).

If a capital loss has been obtained, there will be no taxation, while if a capital gain has been obtained, it will be taxed at a rate of between 19% and 26%.

These are the tax rates applied to the savings base foreseen for 2021:

Profits up to 6,000 euros: 19.00%
Profits between 6,000 euros and 50,000 euros: 21.00%
Profits between 50,000 euros and 200,000 euros: 23.00%
Profits of more than 200,000 euros: 26.00%

Capital gains and losses can be compensated between them, as long as they derive from the transfer of capital elements. If the balance is negative, it will be compensated with the positive balance of the capital gains with the limit of 25% and, in the case of a remaining negative balance (capital loss without compensating), this amount can be compensated in the following four years in the same terms.

Can the seller be exempt from declaring the capital gain obtained from the sale?
The capital gain obtained from the sale of the taxpayer’s main residence is not taxable if the taxpayer is over 65 years of age or is a person with severe or great dependency.

Is there an exemption for reinvestment in the main residence?
Those taxpayers who wish to sell their main residence can benefit from the exemption of the gain, provided that the total amount obtained from the sale is reinvested in the purchase of a new home or in the refurbishment of that home, which must also be their main residence.

Furthermore, if this was acquired through a mortgage, the amount to be reinvested will be that which results after cancelling the outstanding debt with the bank.

As for the reinvestment period, the reinvestment must be made within a maximum period of two years, counted from date to date, which can be not only those following but also those prior to the sale of the main residence.

In the event that the taxpayer decides not to reinvest the totality of the price obtained from the sale of his home, the exemption of the gain will be applied proportionally to the amount reinvested.

What about the exemption for reinvestment in an annuity plan?
An annuity is a fixed sum of money paid to someone each year, typically for the rest of their life. The Spanish law foresees the reinvestment of the amount obtained from the sale of the property in this type of financial product to obtain the exemption of the capital gain. In any case, it is only foreseen for those taxpayers older than 65 years old.

Next week we dive deeper into the capital gain and the tax obligations for buyers and landlords. Don’t miss it.

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