11.5. Exemption for reinvestment in life annuities

Capital gains arising from the transfer of assets by taxpayers over 65 years of age are exempt from tax, provided that the total amount obtained from the transfer is used to create an insured life annuity in their favor.

Please note that the exemption for reinvestment in life annuities is also applicable to capital gains derived from the transfer of assets assigned to economic activities, as well as those obtained through entities in the attribution of income when the member of the entity makes the reinvestment in compliance with the required conditions. 

Reinvestment period

The life annuity must be established within six months from the date of transfer of the asset.

However, when the capital gain is subject to withholding and the transfer value reduced by the amount of the withholding is entirely used to create a life annuity within the aforementioned six-month period. The deadline for allocating the amount of the withholding, if applicable, to the creation of the life annuity will be extended until the end of the year following that in which the transfer is made.

 Conditions and requirements for applying the exemption

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

   In life annuity contracts, reversal mechanisms or certain benefit periods or counter-insurance formulas may be established in the event of death once the life annuity has been established.

   In order to ensure that the application of the exemption from reinvestment gains provided for in article 38.3 of the Personal Income Tax Law complies with the intended purpose, contracts entered into after April 1, 2019, in which reversal mechanisms, certain benefit periods or counter-insurance formulas in the event of death are established, must comply with the following requirements (Additional Provision nine of the Law):

   • In the case of reversal mechanisms in the event of the death of the insured, there may only be one potential beneficiary of the reversing life annuity.
   • In the case of certain benefit periods, said periods may not exceed 10 years from the establishment of the life annuity.
   • In the case of counter-insurance formulas, the total amount to be received upon the death of the insured may at no time exceed certain percentages with respect to the amount allocated to the creation of the life annuity.

2. The life annuity must have a periodicity of less than or equal to one year, beginning to be received within one year from its establishment, and the annual amount of the income may not decrease by more than five percent compared to the previous year.

3. The taxpayer must inform the insurance company that the life annuity being contracted constitutes the reinvestment of the amount obtained from the transfer of assets, for the purposes of applying the exemption provided for in this article.

 Maximum reinvestment limit

 The maximum total amount that can be reinvested in the creation of life annuities that will give rise to the right to apply the exemption will be 240,000 euros.

If, as a result of the reinvestment of the amount of a transfer in a life annuity, taking into account previous reinvestments, the amount of 240,000 euros is exceeded, only the amount of the difference between 240,000 euros and the amount of previous reinvestments will be considered reinvested.

Partial reinvestment

When the reinvested amount is less than the total amount received in the transfer, only the proportional part of the capital gain obtained that corresponds to the reinvested amount will be excluded from taxation.

Non-compliance with the conditions of the total or partial advance reinvestment of the economic rights derived from the established life annuity

Failure to comply with any of the conditions established in this article, or the advance, in whole or in part, of the economic rights derived from the established life annuity, will determine the subjection to taxation of the corresponding capital gain.

In such case, the taxpayer will impute the non-exempt capital gain to the year in which it was obtained, making a supplementary self-assessment, including late payment interest, and will submit it within the period between the date on which the non-compliance occurs and the end of the regulatory declaration period corresponding to the tax period in which said non-compliance occurs.

All of this information, which you must complete in boxes 1624 and following on page 16 of the declaration, will be transferred to this annex and section by the program.