Are you fed up with your partner? Did you know there is a special procedure in Spain to terminate property co-ownership? In fact it can also save you up to 86% in taxes. Solicitor Raymundo Larraín explains to us how we can re-arrange asset holdings in Spain between family and friends without heavy taxes. Interested? Read on.
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An Introduction
In this article, we explain a special Spanish legal procedure that allows you to re-arrange property holdings which saves buyers a considerable amount in taxes. On buying resale property in Spain, a buyer is normally subject to 8% Property Transfer Tax (ITP), or even more, on the sales proceeds. However, by following a ‘Dissolution of Joint Property Ownership’ (or DJPO, for short) a buyer attracts only 1.5% Stamp Duty. The catch is that you must already be a joint owner for this tax advantage to apply. In plain English, this procedure saves you 86% in tax, or more.
The Definition
A Dissolution of Joint Property Ownership allows joint owners to re-arrange their share on a property in a tax-efficient manner. Hence enabling the outgoing joint owner to legally transfer his/her share to an existing co-owner. Thus waiving the extreme Property Transfer Tax and paying in lieu 1.5% Stamp Duty (or less).
DJPO Requirements
Both buyer and seller must be pre-existing owners of a property. For example. a married couple who own a property under joint names.
One of them wishes to terminate the situation and sell his/her share to another joint owner.
If there is an outstanding mortgage on the property, you may need the lender’s permission to release the outgoing borrower/owner from their commitment.
Applicable Cases
A DJPO is suitable in a number of cases involving joint property ownership:
1 – In a divorce or separation. Couples co-owning property may decide to split up. Taking for granted they own a property in equal shares, one of them decides to sell their 50% to their ex-partner. The ex-partner will pay them their quota on this transaction.
2 – Re-arranging inheritances. Beneficiaries of an inheritance transferring their quota on a property to a fellow heir. For example, sisters who inherit property transfer a share between them.
3 – Re-distributing property holdings between family and friends. Stakeholders such as family, friends or investors co-owning a property may decide to re-arrange their holdings.
Associated Taxes & Expenses
Both buyer and seller are subject to pay taxes on transferring ownership of the asset.
Buyer:
• Pays 1.5% Stamp Duty on the outgoing share.*
• Lawyer’s fees.
• Notary fees.
• Land Registry fees.
• Pays the percentage of the property’s value *In some regions of Spain, due to devolved competencies, it is in fact well-below this quoted tax rate.
Seller:
• Pays Capital Gains Tax (CGT, for short) on the outgoing share.
• If the seller is non-resident, a 3% retention may be practised on the outgoing share.
In Conclusion
To sum up, a Dissolution of Joint Property Ownership is optimal to mitigate a buyer’s tax burden. In fact, it saves them 86% in taxes, or more, in a legal manner. A seller’s CGT can also be greatly mitigated, or even completely negated, on applying for lenient tax relief.
However, a DJPO may not apply in all cases. Obviously, it is important to seek legal advice on the matter.
A non-contentious DJPO works much like a conveyance and can be arranged within a few days providing both parties agree to it. There is no need to fly over to Spain if you grant your appointed Spanish lawyer a specific power of attorney. The new re-arranged ownership is then lodged at the Land Registry after settlement of the associated taxes.
A DJPO neatly puts to rest the financial side of couples’ ongoing marital disputes, legally saving them a great deal in taxes. It’s a win-win.
At LNA we can represent you following a DJPO for a very competitive fee, regardless of the property’s location in Spain. We act nationwide.
LNA is a law firm specialised in conveyancing, taxation, residency, inheritance, and litigation. We will be pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our online contact form.
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