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Practical manual for Income Tax 2021.

Example 1: Determination of the amount of the gain derived from the onerous transfer of a property acquired prior to December 31, 1994

Mr. BPT On 10 October 1992 he acquired a villa for an amount equivalent to 100,000 euros, paying an amount equivalent to 7,000 euros in Property Transfer Tax. The remaining disbursements made by Mr. BPT The acquisition amounted to 1,000 euros for notary and registration fees.

In July 2012, he contracted the construction of a swimming pool, as well as the remodeling of the interior of the chalet. These works were carried out during the month of July and their amounts amounted to 75,000 euros, including VAT .

On February 3, 2021, the villa was sold for 500,000 euros, of which 150,000 euros correspond to the improvement carried out in 2012, paying the amount of 15,000 euros in Municipal Tax on the Increase in Value of Urban Land. The chalet has never been rented.

Determine the amount of the capital gain or loss obtained in said transfer, taking into account that the taxpayer has not made any transfer of assets since 2015 to whose gain the ninth transitional provision of the Income Tax Law was applicable

Solution:

Since improvements were made to the chalet in a year other than that of its acquisition, the part of the sale value that corresponds to each component, that is, to the chalet and the improvement, must be distinguished in order to apply the reduction coefficient corresponding to the capital gain derived from the transfer of the chalet.

The determination of the capital gain or loss obtained will be made by distinguishing between that which corresponds to the chalet and that which corresponds to the improvement.

1. Determination of the capital gain corresponding to the chalet (sale date 02-03-2021).

  1. Determination of the capital gain obtained:

    Value of transmission (500,000 – 150,000 – 15,000) (1) = 335,000

    Value of acquisition (100,000 + 7,000 + 1,000) (2) = 108,000

    Capital gain (335,000 – 108,000) = 227,000

  2. Determination of capital gains generated before 20-01-2006):

    Capital gain generated prior to 20-01-2006: (227,000 ÷ 10,343) x 4,849(3) = 106,422.03

  3. Calculation of reduction:

    1. Capital gains susceptible to reduction (4)

      Maximum transmission value limit: 400,000

      Accumulated transfer value of other assets transferred with the right to reduction since 01-01-2015 = 0

      Transfer value of the asset to which DT9 Law of IRPF applies = 335,000

      Capital gain susceptible to reduction = 106,422.03

    2. Applicable reduction

      Number of years of permanence as of 31-12-1996: up to 5 years

      Reduction by abatement coefficients (33.33% x 106,422.03) = 35,370.46

    3. Reduced capital gain

      Reduced capital gain (106,422.03 – 35,370.46) = 71,051.57

  4. Determination of capital gain not susceptible to reduction (generated from 20-01-2006):

    Capital gain generated after 20-01-2006: (227,000 ÷ 10,343) x 5,494(5) = 120,577.97

2. Determination of the capital gain corresponding to the improvement:

Transfer value: 150,000

Acquisition value: 75,000

Capital gain (150,000 - 75,000) = 75,000.00

3. Computable capital gain (71,051.57 + 120,577.97 + 75,000.00) = 266,629.54

Notes to the example:

(1) From the portion of the transfer value corresponding to the chalet (350,000 euros), the amount paid for Municipal Tax on Increase in Value of Urban Land (15,000 euros) has been deducted. (Back)

(2) Please note that as of 1 January 2015, the discount coefficients that were applied to determine the discounted amounts of the acquisition value components are being eliminated. (Back)

(3) The capital gain generated between the date of acquisition of the chalet (10-10-1992) and January 19, 2006, both inclusive, is determined by proportionally distributing the total capital gain (227,000) between the number of days elapsed (10,343) between the date of acquisition of the chalet and the date of transfer thereof (02-03-2021), with respect to the total number of days (4,849) between the date of acquisition and 01-19-2006, both inclusive. (Back)

(4) Since the maximum applicable limit on the transfer value is 400,000 euros and, in this case, the transfer value of the villa is 335,000 euros and, in addition, this is the first transfer made by the taxpayer since 1 January 2015 to which the transitional regime may be applicable to the capital gain, the corresponding reduction percentages will be applied to the entire amount (106,422.03 euros) of the capital gain generated prior to 20-01-2006. There is a remainder of 65,000 euros of the maximum limit (400,000 – 335,000) that can be used in the next transfer to which the ninth transitional provision of the Income Tax Law is applicable. (Back)

(5) The capital gain generated from January 20, 2006 to February 3, 2021, when the chalet is transferred, is determined by proportionally dividing the total capital gain (227,000) between the number of days elapsed (10,343) between the date of acquisition of the chalet and the date of its transfer (02-03-2021), with respect to the total number of days (5,494) between 01-20-2006 and the date of transfer.

This last amount can also be determined by subtracting from the total capital gain obtained the part generated before 20-01-2006. That is, (227,000.00 – 106,422.03 = 120,577.97) profit that cannot be subject to reduction. (Back)