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Form 100. 2019 Personal Income Tax return

11.5. Exemption for reinvestment in life annuities

Capital gains that are made in the event of the transfer of capital elements by taxpayers over 65 years old are exempt from taxation, provided that the total amount obtained by the transfer is allocated to constitute an insured life annuity in their favour.

Note that the exemption for reinvestment in life annuities also applies to capital gains derived from the transfer of capital assets those related to economic activities, as well as those obtained through entities in the allocation of income when the company member makes the reinvestment, complying with the requirements. 

Reinvestment period

The life annuity must be established within six months from the date of transfer of the equity element.

However, when the capital gain is subject to withholding and the value of the reduced trans ­ mission in the amount of the withholding is allocated in full to constitute a life annuity within the aforementioned six-month period. The period for allocating the amount of the withholding, if applicable, to the constitution of the life annuity will be extended until the end of the year following the year in which the transfer is made.

 Conditions and requirements for applying the exemption

  1. The life annuity contract must be signed between the taxpayer, who will have the beneficiary, and an insurance company.

    In life annuity contracts, mechanisms may be established for the reversal or certain periods of benefit or formulas for counter-insurance in the event of death once the life annuity has been set up.

    In order to ensure that the application of the exemption from the reinvestment gain provided for in article 38,3 of the Personal Income Tax Act complies for the intended purpose, contracts concluded after 1 April 2019 are required, in which reversal mechanisms are established, certain periods of benefit or formulas for counter-insurance in the event of death, the fulfilment of the following requirements (Additional Provision Nine Act):

    • In the event of reversal mechanisms in the event of the insured party's death, there may only be a potential beneficiary of the life annuity that is reversed.
    • In the event of certain periods of benefit, these periods may not exceed 10 years from the date of the life annuity.
    • In the case of counter-insurance formulas, the total amount to be received as a result of the death of the insured person may at no time exceed certain percentages with regard to the amount intended for the constitution of the life annuity.
  2. The life annuity must be less than or equal to the year, starting within one year of its constitution, and the annual amount of the income cannot be reduced by more than five percent compared to the previous year.

  3. The taxpayer must inform the insurance company that the life annuity that is contracted constitutes the reinvestment of the amount obtained by the transfer of equity elements, for the purposes of applying the exemption provided for in this article.

 Maximum reinvestment limit

 The maximum total amount of reinvestment in the constitution of life annuities will give the right to apply the exemption will be 240,000 euros.

If, as a result of the reinvestment of the amount of a transfer in a life annuity, the amount of the previous reinvestments is exceeded, considering the amount of 240,000 euros, only the amount of the difference between 240,000 euros and the amount of the previous reinvested assets will be considered reinvested.

Partial reinvestment

When the reinvested amount is lower than the total amount received in the transfer, the proportional part of the capital gain obtained corresponding to the amount reinvested will be excluded from taxation.

Failure to comply with the conditions of the total or partial reinvestment of the economic advantages derived from the life annuity established

Failure to comply with any of the conditions set out in this article, or the total or partial loss of economic rights derived from the life annuity, will determine the taxation of the corresponding capital gain.

In this case, the taxpayer will charge the capital gain not exempt from the year of acquisition, by making a supplementary self-assessment, with inclusion of late payment interest, and will be presented within the period between the date of default and the end of the statutory period for filing the tax return corresponding to the tax period in which this non-compliance occurs.

All these details that must be filled in boxes 1624 and following on page 16 of the tax return, the program will transfer them to this annex and section.