Exemption of capital gains tax on the sale of your primary residence abroad

Published: 4th January 2023

These types of resolutions from the General Directorate of Taxes are beneficial to foreign investors that wish to come to reside permanently in Spain. Note that previous study and planning in these cases is of utmost importance due to high tax savings.

According to tax consultation V2910-21 that was published on November 18, 2021, when an expat acquires tax residence for the current tax period (the tax year in Spain is the calendar year), the capital gains from the sale of the property is exempt from Spanish taxation. However, this is only granted if your primary residence is outside of Spain and you bought a new home there (thus making it a reinvestment) at the time the property was transferred, or on any day during the following two years.

Rosana Tejada is a tax advisor at Tejada Solicitors Law, and she advises that the Spanish tax agency will verify this type of exemption. To ensure a large tax saving, Rosana suggests cautious planning and making sure you follow all the rules outlined for standard tax.

The tax consultation refers to a UK citizen who moves to live in Spain in August 2020 and is a UK tax resident in 2020. And individual and their spouse bought a new primary property in Spain in October 2020, and they plan to sell their old primary residence in the UK within 2 years of that purchase. The tax consultation decides that the capital gains from the sale of the British couple’s property in the United Kingdom may be exempt in 2021, when the complete sum acquired in said transfer is reinvested in a new habitual residence in Spain and meets the following criteria:

The total amount received from the sale of your main residence abroad must be reinvested in a new principal residence in Spain. This must be done within two years from the date of disposal of the residence abroad, in order for the capital gains to be exempt in Spain.

To be eligible for the exemption, the regulation stipulates that the transferring of the habitual residence abroad must be realised during a specific time. It needs to be during the time when the expat is a taxpayer for Personal Income Tax (following the terms of article 9 of the LIRPF), or is a tax resident in Spain.

Interesting read: Cost of Buying a house in Spain

Concept of habitual residence for Personal Income Tax (IRPF) purposes.

In summary, the building that has served as the taxpayer’s primary home for a continuous period of at least three years is deemed to be their habitual home under Article 41bis of the RIRPF.

Within a period of twelve months beginning on the date of acquisition or the completion of the works, the taxpayer must be permanently residing at the property.

Interesting read: Andalusian Inheritance Tax

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