Are you selling your house to buy a new one?
Beware of the tax that the Tax Administration can charge you for the capital gain obtained.
When selling a property in order to buy another, it is very important to take into account the tax aspect.
Thus, for those people who work in Spain and pay their income tax in Spain, they should pay attention – not only to the transfer tax (ITP), or the local tax on the increase in value of the land (plusvalía) – but also to the capital gain that would be paid in the Income Tax for the difference in price between the one for which you bought and the one you are going to sell.
Let’s take a practical example to help us understand this better:
In 2022 Carmen bought a house, which she used as her permanent home, for the price of €150,000.
Carmen has seen another house where she would like to move into, for the price of €200,000, so she decides to sell her house to buy this new one.
As the property market has risen, Carmen has been able to sell her old house for the price of €170,000 euros, making a capital gain of €20,000.
Under normal circumstances, Carmen would have to pay those €20,000 in personal income tax at 21%, i.e. she would have to pay €4,200 extra tax in her personal income tax return for the following year.
However, there is an exception to this. When you sell your home to buy another property that is also going to be used as your main residence, you would be exempt from paying this amount.
However, you must make sure that at least 3 years have elapsed between the purchase and the sale of the property in order for it to be considered as your ‘main residence’.
Furthermore, there is an exception to the exception. According to Spanish Law, (Art. 41 bis section two of the Personal Income Tax Regulations), despite the fact that the 3 year period has not elapsed, in our case, from 2022 when Carmen bought the property until the date on which she is going to sell it, it will also be understood that the property was considered to be your main residence when there are circumstances that necessarily require a change of address, such as marriage, separation, transfer of employment, obtaining your first job, or change of employment, or other similar justified circumstances.