Sale of primary residence by residents aged over 65
SHOULD any doubts occur regarding any tax matter, taxpayers in Spain can inquire at the Tax Office, and they must respond. Sometimes these inquiries are binding, meaning they require compliance by the administration, and other times they are non-binding.
We shall address a particularly interesting inquiry dated January 16, 2013, regarding the capital gain derived from the sale of the primary residence by a person over 65 years old.
The facts of the inquiry involved a homeowner whose property has been their primary residence since 1995 and who intends to sell it.
Considering that they will turn 65 on September 1, 2024, the question arises as to whether they could apply the exemption for the capital gain derived from the transfer of the primary residence for individuals over 65 years old if they sign a private contract now but formalise the deed of sale after turning 65.
The tax office's response is as follows: the sale of the property will generate a capital gain for the inquirer. However, paragraph 33 of the personal income tax law states that gains from the transfer of their primary residence by individuals over 65 years old or by individuals in a dependent situation will be exempt from this tax.
The concept of a primary residence requires:
a) Having turned 65 years old at the time of the transfer of the primary residence.
b) The transmitted property must have been considered the primary residence up to any day within the two years preceding the date of its transfer.
Furthermore, any capital gain or loss obtained must be attributed to the tax period in which the asset alteration occurs, that is to say at the moment of handing over the property subject to the sale.
Regarding this, paragraph 1462 of the Spanish Civil Code states that "The sold thing shall be considered delivered when it is placed in the possession and control of the buyer.
When the sale is made through a public notary deed, the execution of this deed shall be equivalent to the delivery of the property object of the contract, unless the opposite is clearly stated or deduced from the same sales deed.”
Finally, it is important to note that in the event a private contract is formalised, the amounts received by the seller for the sale of the property act as partial payments and form part of the sale price. Similarly, in the case where the inquirer formalises, prior to the transfer, a lease agreement with an option to purchase, the amounts paid for the lease of the property until the exercise of the purchase option, if agreed upon, will reduce the agreed price for the property transfer. This will constitute a lower value of the property transfer to calculate the capital gain or loss resulting from the mentioned transfer.
Therefore, this consultation emphasizes that for the exemption concerning the sale of the primary residence by individuals over 65 years old, the date considered is typically the transfer date, usually coinciding with the signing of the notary public deed, to calculate both the age and the duration of the primary residence.
Thus, the date of the private contract will not be taken into account unless it explicitly states otherwise and involves the transfer of possession of the property.
It's important to consider that the Spanish Civil Code establishes that:
Contracts are binding regardless of the form in which they are executed. Nevertheless, contracts involving the transfer of real estate must be signed in a public deed.
Another tax applicable to the sale of real estate, commonly known in Spain as ‘plusvalia’, should not be confused with the capital gain tax from the property sale. Plusvalia is a municipal tax different from the former.
The seller is the obliged to pay this plusvalia tax, although it can be agreed upon for the buyer to cover it. Nevertheless, private agreements in this regard do not affect the municipal tax offices.
Ultimately, if the tax remains unpaid, the municipality can end up seizing the property to collect the debt.
Case law stipulates that the party obligated to pay under an agreement or contract with the taxpayer is entitled to request the rectification of the tax selfassessment. The aforementioned derives from an important Spanish Constitutional Court sentence dated October 26, 2021.