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Tax experts warn: teleworking at the beach or in the village jeopardises deductions for usual residence

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Miguel Ángel Galán explains all the possible tax consequences of the home losing its status as a usual residence in El País

The health crisis caused by the coronavirus has, it is said, definitely boosted teleworking in Spain. Many companies have tested the advantages of this service provision formula for the first time and have decided to extend the model beyond the confinement period. Teleworkers, on the other hand, have greater freedom to determine their place of residence. Some have already chosen to move to their second home for a time, either in the village or on the beach. But beware, this move can cause a scare with the tax authorities.

As Andersen partner Miguel Ángel Galán warns, this is not a simple issue and "is not well resolved by the applicable tax regulations". As he explains, the law does not regulate what is to be understood by "temporary absence" and when this becomes definitive.

The key, explains Galán, lies in the interpretation made by the administrative bodies of the tax authorities using the tax law when listing the reasons for which a temporary absence is admitted: "or other similar justified reasons".

Signs and evidence

Usually the alarm can be triggered by a change of registration or, when crossing data, if another person notifies that they live in that property because, for example, it is rented. In fact, Galán agrees, the move can leave "a series of tracks", from registering in the municipality to have access to medical services or discounts for residents (in the Canary Islands) to contracting a post office box for deliveries or paying every week with a card at the hairdresser's in the village.

Despite the fact that the Inland Revenue initiates a check, according to the prosecutor, it is always possible to defend that the transfer has a justification that can be considered "an exceptional circumstance that allows the taxpayer to continue to consider his house as his habitual residence". The Treasury, for its part, can access a multitude of data, such as the average consumption of supplies (water, electricity, gas) in the home during this period.

Reinvestment exemption

Another of the possible consequences of the home losing its status as usual residence, , is the impossibility of applying the so-called reinvestment exemption explains Galán. The tax legislation exempts from the payment of taxes on the profits derived from the sale of the property if another home is purchased with them within a period of two years. If the transferred house was no longer the place where the taxpayer lived, the tax authorities can claim payment of the corresponding tax.

According to the expert, for the taxpayer to recover this right, at least three years should have passed since the house was re-inhabited before it was sold.

Taxation of income

Unless it is a usual residence, the possession of a property is considered as a demonstration of wealth by tax regulations, and therefore economic benefits are (fictitiously) attributed to it.

As the experts explain, the loss of the consideration of usual residence would also mean that in the income tax return a gain for that flat would be imputed to the taxpayer: 1% of the ratable value. This would occur regardless of whether or not one has only one property, adds Galán. Normally, he explains, second homes have a lower valuation than the main home, so if the AEAT (State Tax Administration Agency) verifies that there is a change of residence, the tax would be increased.

The full article can be read in El País.


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