When considering a home reversion plan, one of the most common questions is how it affects your tax return. In this post, we detail the tax implications and the taxes involved in this type of operation.
What is Home Reversion from a tax perspective?
From a tax and legal viewpoint, a home reversion transaction involves splitting the property rights into two: the legal title (home reversion) and the right of use (usufruct). For the seller, this operation has specific tax treatments that are often very beneficial, especially for those over 65.
Is the sale of Home Reversion declared in your Income Tax return?
The sale of the legal title constitutes a capital gain or loss. However, there is a very important exemption in Spain:
- Over 65s: If you sell the legal title of your primary residence (main home), the capital gain is 100% exempt from Personal Income Tax (IRPF). You do not have to pay tax on the profit obtained from the sale.
- Under 65s: If you are under 65, you must pay tax on the capital gain in the savings tax base.
Taxes to be paid when selling the legal title
Beyond Income Tax, there are other taxes and expenses to consider:
- Municipal Capital Gains Tax (Plusvalía Municipal): This tax is paid to the local Town Hall and is based on the increase in the value of the land. According to the law, this is typically paid by the seller.
- Property Tax (IBI) and Community Fees: One of the great advantages of home reversion is that, once the sale is completed, the new owner (investor) usually takes over the payment of the IBI and extraordinary community levies (derramas). The seller (usufructuary) only continues to pay the ordinary community expenses (maintenance and utilities).
Tax benefits of the Home Reversion Annuity Plan
If instead of a lump sum, you opt for a home reversion annuity plan, the monthly income received also enjoys significant tax advantages. For those over 70, 92% of the income is exempt from tax, meaning you only pay tax on the remaining 8%.
Why is it important to have expert advice?
Taxation can vary depending on your personal situation, the type of property, and whether it is your main home or a second residence. At Óptima Mayores, as experts in equity release plans, we provide a detailed study of the tax impact of your operation to ensure you maximise your savings.
If you have questions about the taxes involved in home reversion or a lifetime mortgage, contact us today for free professional advice.
