Selling a property is an important decision and, when it comes to a second home, tax considerations are often one of the main concerns. Among property owners over the age of 65, there is some confusion as to whether the same tax exemptions apply as for a main residence, or whether taxation works differently.
In some cases, a property that is currently considered a “second home” may have been a main residence in the recent past, which has implications for its tax treatment and should be analysed carefully.
In this article, we clearly explain how the sale of a second home is taxed when the owner is over 65, which taxes apply and what should be considered before making a decision.
Article Contents
- 1. Is there a tax exemption based on age when selling a second home?
- 2. Taxes payable when selling a second home
- 3. Is there any way to reduce taxation?
- 4. Difference between a main residence and a second home
- 5. Why is it important to plan before selling?
1. Is there a tax exemption based on age when selling a second home?
In general terms, a full age based tax exemption only applies when the main residence is sold and the owner is over the age of 65, provided that the residency requirements and time limits established by tax regulations are met.
In the case of a second home, even if the seller is over 65, there is no automatic personal income tax exemption based solely on age. Therefore, in most cases, the capital gain obtained from the sale of a second residence is taxable, unless specific mechanisms apply, such as reinvestment in a life annuity, or the property still qualifies as a main residence for tax purposes due to timing requirements under current legislation.
2. Taxes payable when selling a second home
As a property owner, when selling a second home you should mainly consider two taxes:
Personal Income Tax:
The capital gain obtained from the difference between the sale price and the purchase price, adjusted for related costs and taxes, is taxed under the savings income tax base.
The applicable tax rates are applied progressively in bands and may change slightly over time. It is always advisable to review the current regulations at the time of sale. It is important to remember that only the capital gain is taxed, not the total sale price.
Local capital gains tax:
In addition to personal income tax, the seller must also pay the local capital gains tax. This tax is levied on the increase in the value of urban land from the time of purchase to the time of sale.
It is paid to the relevant local authority, and the amount depends on the cadastral value of the land and the length of time the property has been owned. In recent years, regulations have changed, making it possible in some cases not to pay this tax if it can be demonstrated that there has been no increase in value.
3. Is there any way to reduce taxation?
Yes. Although there is no automatic age based exemption when selling a second home, there are certain situations that may reduce, or even eliminate, taxation under personal income tax:
Reinvestment in a life annuity:
Individuals over the age of 65 may be exempt from paying tax on the capital gain if the proceeds from the sale are reinvested in an insured life annuity, up to the maximum limit established by law.
To apply this exemption, several conditions must be met, such as setting up the life annuity within a maximum time limit (usually six months from the sale) and respecting the exempt amount cap (currently up to €240,000 of capital gain per taxpayer). This option can be attractive but requires prior professional advice to ensure all requirements are met correctly.
Updating costs and improvements:
When calculating the capital gain, it is possible to include certain costs associated with the purchase and the sale, as well as investments made in the property that represent a genuine improvement to the property rather than routine repairs or maintenance. Remember to keep invoices and documentation, as these amounts can significantly reduce the taxable gain.
Sale without a capital gain:
If the sale price is equal to or lower than the purchase price, adjusted for related costs, there is no capital gain. This means no personal income tax is payable, although there may still be an obligation to declare the transaction.
4. Difference between a main residence and a second home
It is important to highlight this distinction, as it is one of the most common sources of confusion. A main residence is a property in which the owner has lived continuously for at least three years, subject to certain justified exceptions (such as a job change, separation or dependency).
Only in this case, and when the owner is over the age of 65, may the sale be exempt from capital gains taxation, provided the regulatory requirements and time limits between ceasing to occupy the property and selling it are met.
Second homes, regardless of their use, do not benefit from this general exemption for the sale of a main residence, although they may qualify for other specific mechanisms, such as reinvestment in a life annuity for individuals over 65, provided the conditions are met.
5. Why is it important to plan before selling?
Selling a second home can have a significant tax impact, even when the owner is over 65. That is why prior planning is essential. Before closing a transaction, we recommend analysing your personal situation, the history of the property and the available tax planning alternatives. In many cases, good planning can make a substantial difference to the final outcome.
In many situations, reviewing whether the property has been a main residence in recent years and assessing the life annuity option can significantly change the final tax bill.
The sale of a second home by an owner over the age of 65 is not automatically tax exempt. Unlike a main residence, the capital gain is usually subject to personal income tax and may also trigger local capital gains tax.
Understanding the tax framework, assessing available reduction options and seeking appropriate professional advice allows you to make more informed decisions and avoid unexpected outcomes. In a constantly changing market and with regulations that continue to evolve, information is a key tool for protecting the value of your assets.
If you found this article useful and would like to read more, visit our Owners Blog. If you are considering selling your property with the support of an expert team, please do not hesitate to get in touch with us. We will be delighted to help.
