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Practical manual for Income Tax 2021.

11. Transfers of assets in exchange for income

Regulations: Art. 37.1.j) Law Income Tax  

Specific valuation standard

In these cases of transfers of assets in exchange for a temporary or life annuity, the capital gain or loss will be determined by the difference between the following values:

  • Actuarial financial present value of income.

  • Acquisition value of the transferred assets.

Important: If the transferred asset is the habitual residence and the transferor of the same is over 65 years of age or a person in a situation of severe or great dependency, the capital gain that may be derived from this operation is exempt from IRPF

Assets acquired before December 31, 1994

In this case, if a capital gain is obtained, the part of the capital gain generated before January 20, 2006 (the only part to which the reduction or abatement coefficients will be applicable) must be distinguished from that generated after said date, to which the reduction or abatement coefficients are not applicable.

The determination of the capital gain generated prior to January 20, 2006 and the application, where applicable, of the reduction coefficients will be carried out in accordance with the distribution rules discussed in this same Chapter.

Example

On 10 November 2021, Mr SMT, aged 60, transfers his habitual residence in exchange for a life annuity, the current actuarial financial value of which at the time of its creation amounts to 180,000 euros, an amount that coincides with the market value of the property. The annual payment for the 2021 financial year is 15,000 euros.

The property was purchased on April 2, 1980 for an amount equivalent to 23,000 euros, including expenses and taxes inherent to the transfer.

Since January 1 2015, the taxpayer had not made any transfer of assets to whose profit the ninth transitional provision of the Income Tax Law was applicable.

Determine the taxable income derived from said operation in the 2021 financial year.

Solution:

1. Determination of the capital gain or loss arising from the transfer of the home.

Transfer value: 180,000

Acquisition value: 23,000

Capital gain (180,000 - 23,000) = 157,000

2. Determination of the capital gain generated before 20-01-2006 (1):

Reducible capital gain (157,000 ÷ 15,197) x 9,424 = 97,359.22

3. Calculation of reduction:

  1. Profit generated with prior to 20-01-2006 susceptible to reduction (2)

    Maximum limit: 400,000

    ∑ Transfer value of assets with the right to reduction from 01-01-2015: 0

    Transfer value of the asset to which DT9 Law of IRPF applies: 180,000

    Capital gains susceptible to reduction: 97,359.22

  2. Applicable reduction

    Number of years of stay until 31-12-1996: more than 10 years

    Reduction by abatement coefficients (100% xs/97,359.22) = 97,359.22

  3. Reduced capital gain

    Reduced capital gain: 0

4. Determination of non-reducible capital gain (generated from 20-01-2006):

Non-reducible capital gain (157,000 –97,359.22) = 59,640.78

5. Computable capital gain (59,640.78 + 0.00) = 59,640.78

6. Determination of the return on movable capital derived from the annuity.

Investment income: (15,000 x 24%) (3) = 3,600

Notes to the example:

(1) The reducible capital gain is the one estimated to have been generated before 20-01-2006. Its determination is made in proportion to the number of days elapsed between the date of acquisition (04-02-1980) and 01-19-2006, inclusive, which amounts to 9,424 days, with respect to the total number of days elapsed between the date of acquisition and the date of transmission (11-10-2021), which is 15,197 days. (Back)

(2) Since the maximum limit applicable to the transfer value is 400,000 euros and, in this case, the transfer value with the right to the application of reduction coefficients is 180,000 euros without any other transfer having taken place with the right to the application of the ninth transitional provision of the Tax Law, the reduction coefficients will be applied to the entire amount of the capital gain generated prior to 20-01-2006. (Back)

(3) The percentage of 24% corresponds to the age of the annuitant (60 years) at the time of the establishment of the annuity (year 2021) and will remain constant throughout its validity. See, in this regard, within Chapter 5, the section " Life or temporary annuities derived from the imposition of capital ". (Back)