Tax incentives for people over the age of 65

The tax reform approved at the end of last year has been favorable for taxpayers over the age of 65, as it has introduced a new case of exemption in personal income tax (IRPF) for capital gains obtained by these taxpayers, where the proceeds from the transfer are used to set up an assured life annuity for his or her benefit.

Thus, the profit obtained from the sale of any kind of asset (real estate, shares, investment funds, etc.) by people over 65 will not be subject to IRPF provided that the proceeds from the transfer are used within a six-month period to set up an assured life annuity for his or her benefit.  The exemption is limited, as the maximum amount that can be reinvested in a life annuity to have the right to apply the exemption is €240,000.

The IRPF Regulations, amended last July, have implemented the requirements to be met in order to be entitled to the exemption:

• The life annuity contract must be signed by the taxpayer, who will be the beneficiary, and an insurance company.

• The life annuity must have a periodicity of one year or less and start to be received within one year following its creation. In addition, the annual amount of the annuity cannot decrease by more than 5% with respect to the preceding year.

• The taxpayer must inform the insurance company that the life annuity constitutes the reinvestment of the proceeds from the transfer of assets.

In relation to the limit on the exemption, the Regulations clarify that if, as a consequence of the reinvestment, the amount of €240,000 were exceeded considering previous reinvestments, only the difference between €240,000 and the amount of previous investments will be deemed as reinvested.  In addition, where the reinvested amount is less than the total obtained on the transfer, the exemption will only apply to the proportional part of the capital gain relating to the reinvested amount.

Moreover, the Regulations add that the breach of any of the conditions established, or the early collection of all or some of the economic rights derived from the life annuity will mean the taxation of the capital gain initially deemed exempt. Penalties and fines will not be charged due to the breach, although a supplementary return would have to be filed for the year when the gain was obtained, including late-payment interest.

Lastly, let us recall that the reform has maintained the exemption applicable to the gain obtained on the transfer of the principal residence by taxpayers over the age of 65, without any reinvestment having to be made.

Nuria Cabré Plana

Garrigues Tax Department