A person over 65 who donates their main residence to their children does not pay income tax on the capital gain, but they do pay the municipal capital gains tax and the donation tax that the child settles.
According to merca2.es, donating the main residence to children from the age of 65 avoids income tax on the capital gain, although it does not exempt from other payments. The article 33.4.b of the Income Tax Law exempts this gain both in a sale and in a free transfer to a child, and the exemption also applies to those who transfer in a situation of severe dependency or great dependency.
The savings can be significant. A property purchased in 1999 for around 90,000 euros and valued today at 280,000 euros generates a gain of 190,000 euros. If the owner sold it before turning 65, the tax base on savings would be around 42,000 euros. With the exemption, the donor pays nothing in income tax.
The exemption applies only to the donor. The child receiving the property does not inherit this benefit and is taxed under the Inheritance and Donations Tax.
To apply it, the property must be the main residence for tax purposes. This requires having lived in it continuously for at least three years, and it must be the case on the day of the donation or have been so at some point in the two years prior. The General Directorate of Taxes denied the exemption in binding consultation V0217-26, from February 2026, to a taxpayer who had not lived in their house for over 14 years, having rented it to third parties.
The donation tax varies depending on the autonomous community where the property is located. In the Community of Madrid, donations between parents and children have a 99% discount, while in other communities the same operation exceeds 20,000 euros.
The municipal capital gains tax, which taxes the increase in land value from purchase to donation, does apply. It is settled at the town hall within 30 business days and there is no exemption for donating to children. Since the 2021 reform, the taxpayer can choose between objective and actual calculation, and if there has been no increase in value, there is no tax liability.
Notary, registration, and management fees range from 600 to 1,500 euros, depending on the community. Leaving the house as an inheritance has another calculation: the heir does not pay tax on the gain generated by the deceased, so donating during life is particularly beneficial if parents plan to sell or want to arrange succession in advance. Donating only the bare ownership and reserving the usufruct is another option considered in notaries, as it reduces the base of the donation tax and allows continued residence in the house.
You may also like
