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Practical manual for Income Tax 2023.

General scheme

Specific valuation standard

In the case of exchange of assets or rights, including the exchange of securities, the capital gain or loss will be determined by the difference between the acquisition value of the asset or right being transferred and the highest of the following two :

  • The market value of the asset or right delivered.

  • The market value of the good or right received in exchange.

Special case: exchange of land for apartments or premises to be built on it

In this case, the capital gain or loss of the owner of the land will occur at the time when he proceeds to transfer it and will be determined by applying the rule discussed above.

Once the capital gain or loss obtained has been determined, the taxpayer may choose to pay taxes in the tax period in which the change in assets takes place (transfer of the land) or to impute it proportionally as the buildings are delivered to him or, where appropriate, he receives cash payments, provided that more than one year passes between the transfer of the land and the delivery of the buildings or cash, by applying the special rule of temporary imputation of transactions with a term or deferred payment.

Goods or rights delivered 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 one to which the reduction or abatement coefficients are 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

Mr. AOP On June 25, 2023, he transferred a plot of land of his own in exchange for an apartment for his own use, which will be delivered in October 2024 and whose market value is estimated to amount to 600,000 euros in that year.

The transferred land was acquired by Mr. AOP by inheritance on January 10, 1989, the value administratively verified for the purposes of the Inheritance and Gift Tax in that year amounting to an amount equivalent to 100,000 euros. The market value of the land on the date of transfer was 600,000 euros.

Since 1 January 2015, the taxpayer has not transferred assets to which the ninth transitional provision of the Personal Income Tax Law would apply.

Determine the capital gain or loss obtained by Mr. AOP and the completion of their personal income tax return for the 2023 financial year, knowing that the taxpayer has chosen to allocate the capital gain to the 2023 financial year in which the apartment will be delivered to them.

Solution:

1. Determination of the capital gain or loss obtained by Mr. AOP 

  1. Market value of the apartment to be received: 600,000

    Market value of the land delivered: 600,000

  2. Purchase value of the land being transferred: 100,000

  3. Capital gain (600,000 - 100,000) = 500,000

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

Reducible capital gain (500,000 ÷ 12,584) x 6,219 = 247,099.49

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: 400,000

    Capital gain susceptible to reduction (247,099.49 x 400,000) ÷ 600,000 = 164,732.99

  2. Applicable reduction

    Number of years of stay until 31-12-1996: up to 8 years

    Reduction by abatement coefficients (66.66% x 164,732.99) = 109,811.01

  3. Reduced capital gain

    Reduced capital gain: (247,099.49 – 109,811.01) = 137,288.48

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

Non-reducible capital gain: (500,000 – 247,099.49) = 252,900.51

5. Computable capital gain (137,288.48 + 252,900.51) = 390,188.99

6. Capital gain attributable to 2023 : 0 (3)

Notes to the example:

(1) The determination of this part of the gain is made in proportion to the number of days elapsed between the date of acquisition (10-01-1989) and 19-01-2006, inclusive, which amounts to 6,219 days, with respect to the total number of days elapsed between the date of acquisition and the date of transfer (25-06-2023), which is 12,584 days.. (Back)

(2) Although the value of the transfer is 600,000 euros, the maximum limit is 400,000 euros. Therefore, the portion of the profit generated before 20-01-2006 that corresponds proportionally to a transfer value of 400,000 euros is subject to reduction. In the next transfer that is made, even if the asset was acquired by the taxpayer before December 31, 1994, the reductions of the ninth transitional provision of the Personal Income Tax Law cannot be applied. (Back)

(3) Since the taxpayer has chosen to impute the capital gain obtained in 2023 to the year in which he receives the agreed consideration (delivery of a flat for personal use) 2024 , it will be in this year when he must make the tax imputation of the entire capital gain obtained and recorded in the 2023 Personal Income Tax return. (Back)