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V2221-24 15 October 2024 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · dación en pago

Capital gains from deed in lieu of foreclosure on primary residence may be exempt under certain conditions

A taxpayer inquired whether transferring their primary residence to a third party designated by a bank to settle a mortgage debt is exempt from Personal Income Tax (IRPF). The Directorate General for Tax (DGT) stated that a deed in lieu of foreclosure to a third party does not lose its legal nature if imposed and accepted by the creditor, and remains subject to the statutory requirements for exemption.

The question raised

Whether the capital gain obtained in the aforementioned transfers would be exempt.

The DGT's ruling

The capital gain arising from the deed in lieu of foreclosure of the primary residence is exempt if it concerns a debt secured by a mortgage and the owner does not possess sufficient other assets to satisfy the debt. The transfer to a third party designated by the bank does not alter the nature of the deed in lieu of foreclosure if the creditor imposes the condition and accepts it as an extinguishment of the debt. Likewise, income obtained by debtors in insolvency proceedings through deeds in lieu of foreclosure may also be exempt under the terms of the forty-third additional provision of the Personal Income Tax Law.

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