Tax differences that every owner in the Canary Islands should be aware of before selling a first or second home.
Selling a property in the Canary Islands not only involves finding a buyer and closing the transaction at a good price, but also entails a series of tax obligations. At this point, one of the most common questions is: Does an owner pay the same when selling a first residence as when selling a second residence?
The answer is very simple: NO.
The legislation establishes clear tax differences when selling a first or second home, especially with regard to personal income tax and possible tax exemptions.
In this article, we tell you clearly what taxes come into play when selling a property in the Canary Islands and what tax advantages you can take advantage of depending on whether it is your primary residence or a second home.
IRPF when selling in the Canary Islands
The main difference between selling a first or a second residence is in the IRPF. When you sell a property, a capital gain is generated, which is calculated by subtracting the purchase price plus the associated expenses (notary, registration, accredited reforms, etc.) from the sale price.
This capital gain is what will define the percentage of IRPF that we will have to pay in our next Income Tax Return ( the higher the gain, the higher the taxation). However, there are a series of differences that make that the taxation is not the same depending on the type of house that is being sold.
Personal income tax on the sale of a primary residence
The state law contemplates a series of exemptions that allow to reduce or even eliminate the IRPF payment when selling a habitual residence (first residence) as long as some of these conditions are met:
- Reinvestment exemption: if you reinvest the proceeds in the purchase of another primary residence within two years, you will not pay taxes on the gain, in whole or in part.
- Exemption for those over 65 years of age: if the seller is 65 years of age or older, the sale of his or her primary residence is tax-free, even if he or she does not reinvest the money.
- Life annuity exemption: those over 65 years of age can also allocate up to 240,000 euros to constitute a life annuity and be exempt.
You may be interested in our blog article: Legislative novelties in Fuerteventura: taxes and deductions for housing.
IRPF when selling a second home
In the case of a second home (vacation apartment, country house, etc.), there are no tax benefits. The gain is always taxed in the savings base of the IRPF, with the following rates:
- Up to 6,000 euros profit: 19%.
- Between 6,000 and 50,000 euros: 21%.
- Between 50,000 and 200,000 euros: 23%.
- Between 200,000 and 300,000 euros: 27%.
- More than 300,000 euros: 28%.
*Regardless of the type of home you wish to sell, in Destiny Home’s Selling Guide you will find all the information you need to sell your home quickly and efficiently.
Municipal capital gains tax when selling in the Canary Islands
The Municipal Capital Gains Tax (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana, IIVTNU) is a tax that is managed in a particular way by each city council and must be paid whenever a property is transferred, regardless of whether it is a first or second residence.
The Municipal Capital Gains Tax is levied on the increase in value that the land has experienced during the time that the owner has been its owner. The amount to be paid depends on:
- The years that have passed since the acquisition.
- The cadastral value of the land.
- The tax rate set by each municipality.
The only way to avoid the payment of the Plusvalia Municipal is to demonstrate that there has been no increase in value at the time of transferring the property.
At Destiny Home we have prepared an online calculator with which you can estimate what you will pay when selling a property in Corralejo (La Oliva) or Puerto del Rosario.
You may be interested in our blog article: Plusvalía Municipal and Plusvalía en el IRPF: How much will you pay when selling in Fuerteventura?
Practical Example:
Imagine that a homeowner in Fuerteventura has just sold a house for 250,000 euros, which he bought 10 years ago for 150,000 euros. What taxes will he have to pay?
- First residence: if you reinvest in another habitual residence, or if you are over 65 years of age, you would not pay income tax on the 100,000 euros of gain, but you will have to pay the corresponding amount for the Municipal Capital Gains Tax (Plusvalia Municipal).
- Second residence: the 100,000 euros of gain will be taxed in the IRPF. This would mean around 21,000 euros in IRPF, in addition to what corresponds to pay for the Municipal Capital Gains Tax.
Tax peculiarities in the Canary Islands
Although most of the taxes for the sale of a property in the Canary Islands are state taxes and work the same as in the rest of Spain, there are some particularities in the archipelago that should be taken into account:
- Wealth Tax is not paid: unlike many peninsular communities, the Canary Islands do not apply this tax, which is a tax relief for those who own several properties of high value.
- IGIC instead of VAT: in the Canary Islands VAT does not exist and is replaced by IGIC (Impuesto General Indirecto Canario). However, this is only applied in operations of new housing between promoter and buyer. If the sale is between individuals, neither IGIC nor VAT is paid.
- Autonomous deductions: The Canary Islands have maintained some deductions linked to investment in habitual residence (e.g., acquisitions made before 2013), which may influence the tax treatment when the money from the sale is reinvested.
- Benefits for residents: in some cases, residents in the Canary Islands can access more favorable conditions in financing and public aid related to housing, which can influence purchase decisions after a sale.
In short, the tax difference between selling a first residence and a second residence in the Canary Islands can be very significant. While the habitual residence enjoys important exemptions (especially in case of reinvestment or for people over 65 years old), the second residence always generates taxation in the IRPF.
Therefore, before selling your property in Fuerteventura or anywhere else in the islands, it is advisable that you get good advice and previously calculate the fiscal impact of your operation. In Destiny Home we accompany you throughout the process so you can sell with peace of mind and get the most out of your home.
Are you selling a first or second home in Fuerteventura? Contact us so we can guide you from the first moment.
