Dear reader, if you intend to sell a house, you should know that the sale of the same will generate in you a capital gain or loss in accordance with the provisions of article 33.1 of Law 35/2006, of 28th November, on Personal Income Tax, (hereinafter, LIRPF).
The amount of this capital gain or loss will be determined, according to article 34.1.a) of the same Law “by the difference between the respective acquisition and transfer values” of the same, i.e. the difference between the sale value and the purchase value, including the expenses inherent to each operation.
However, if you are over 65 years old, there may be no capital gain when you transfer your principal residence. In these terms, article 33.4.b) of the LIRPF states that the capital gains that are revealed “on the occasion of the transfer of your habitual residence by people over 65 years old or by people in a situation of severe dependence or great dependence in accordance with the Law for the promotion of personal autonomy and care for people in a situation of dependence” are exempt from the tax.
What would be considered a principal residence?
A habitual residence is defined as a building that constitutes the taxpayer’s residence for a continuous period of at least three years. However, it is also considered to be the habitual residence when, although three years have not elapsed, there are force majeure causes, such as the death of the taxpayer, marital separation, travel for work or any other reason that prevents the occupancy of the property.
Once the above requirements have been met, i.e., being over 65 years of age and being the habitual residence, the sale of the same would be exempt from taxation in the event of a capital gain.
However, it is necessary to consider the fine print when applying this exemption and it is that you have to be the owner of the full domain of the property, even if it is shared. In binding consultation V3931-16 of September 19, 2016, the Directorate General of Taxes states in such terms in response to the question of a married couple that has the property as follows: the consultant has 100% of the bare ownership and the spouse has 100% of the usufruct, without either of them having the full domain. In the indicated case this marriage does not have the right to apply the mentioned exemption for not being owner of the full domain of the property that is what has to be transmitted to proceed to its application, reason why in that case they would be taxed on capital gains.
A second case that may arise is a married couple in which one of the spouses dies and, by means of an inheritance award, the surviving spouse receives the other 50% of the freehold of his/her habitual residence (instead of receiving the usufruct), so that he/she now has 100% of the freehold. In this case, if he/she were to sell the main residence (being over 65 years old), he/she could only apply the exemption to 50% of the capital gain that could be accrued, since the other 50% has just been received and three years have not passed for it to be considered as main residence.
A third case may also arise in which parents, over 65 years of age, wish to donate their primary residence to their son/daughter, in which case it would also be exempt from taxation as it meets the aforementioned requirements. In these terms the Directorate General of Taxes states in binding consultation V2583-20 of July 29, 2020.
Evidently the casuistry is very broad, so it is always convenient to review each case independently without presuming that they are all the same and that they could apply the exemption directly.