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Fiscal Representation Services

Key features of our Tax Service For Non-Residents

– Free initial consultation
– Personalized service in English
– Annual control of the property tax (IBI)
– Representation before the Spanish Tax Office.
– Tax Status Report
– Analysis of your fiscal situation.
– Calculation, preparation and management of tax returns
– State and local tax calculation for the current year
– Calculation of state and local taxes for previous years not prescribed.

The essential to know about the taxation of Non-Residents in Spain

For non-residents in Spain, the deadline for tax returns will be here at the end of the year.

What Non-Resident Owners Have to Pay

There are two essential taxes that non-residents must pay.
– IBI (Impuesto Sobre Bienes Inmuebles) or municipal tax
– Imputed income tax or rent tax (in some cases, a combination of the two)
What determines being a resident and being a non-resident?
If you live in Spain for less than 183 days in a single year, then you are a non-resident:
Seems confusing? Here are some more details:
IBI (Impuesto Sobre Bienes Inmuebles) is a municipal tax that every owner must pay. The owner pays the IBI directly to the town hall or SUMA offices, annually and is based on the taxable value of his property or catastrophic value.
The rent tax is a compulsory property tax in Spain, for everyone, which means that there are certain dates when the rent tax must be paid. Pay quarterly, each year in the following pattern:
– April 20th
– 20th July
– October 20th
– January 20th
If you don’t live in Spain, why would you have to pay these taxes?
There is a particular tax for non-residents in Spain for those owners who do not rent their homes and therefore do not pay retail taxes. This is in place to prevent anyone from starting to rent their property on the wrong side of the law. This is called imputed income tax. Within the world of property tax in Spain, the imputed income tax:
– is paid on a second home that is not used for renting
– is declared on the annual non-resident tax return
– and paid to the Spanish tax authority.
Many non-residents may never have heard of these taxes before, and that may be because it works slightly differently in other countries. You will not be reminded to pay the Spanish non-resident tax, nor is it anyone else’s responsibility to ensure that it is paid. In addition, you must pay any outstanding tax balances before you sell a house or pass it on to your family.
What happens if I miss the deadline?
On December 31st, the deadline of each year, you must pay the tax. If you don’t, and you allow debts to build up, several more important things can happen:
– The bank insures your debt against your property until you can sell it or pass it on to someone else.
– There is a possibility that the Spanish tax authorities will look for evidence of fraud and therefore investigate it. This can lead to the freezing of your bank account(s).

 

Renting in Spain: the tax implications

Renting is a good option if you are looking to make money from a property you have bought in Spain. Whether short term or long term, renting is becoming increasingly popular and many different types of properties are in demand.
Some people choose to do all the paperwork themselves in terms of issuing contracts and checking inventories. Others choose to hire a rental agency that will take care of this for them. Whichever one you choose, paying taxes on your rental income is your responsibility and you should make sure it is done correctly.
Arrangements for this vary depending on whether you are a resident or a non-resident. However, the good news is that when it comes to taxes, you can offset the income you have against the deductible expenses incurred. Expenses you can send include:
– Municipal tax (IBI)
– Community fees
– Utility charges (if paid by the landlord)
– Home insurance
– Mortgage interests
– Legal Costs
– Cleaning and laundry
They can only be taken into account if you are a tax resident in an EU country, Norway and Iceland.
Non-residents
You must pay taxes on your rental income in Spain, even if you are not a resident here. However, the double taxation agreement between the UK and Spain means that you do not have to pay twice. Rental income must be declared in the country where you are a tax resident, but tax already paid in Spain can normally be deducted as double taxation.
Non-residents must declare rental income on form 210 every quarter:
1st quarter: January, February, March – tax due before 20 April
2nd quarter: April, May, June – taxes due by July 20
3rd quarter: July, August, September – taxes to be paid before October 20
4th quarter: October, November, December – tax to be paid before January 20

All returns must be submitted online by the 15th of the following month and the tax office will then debit your bank account directly on the 20th. If you are paying rent income tax, then, during the applicable periods of the year, you do not have to pay the imputed landlord income tax. The IBI council tax still applies throughout the year for both resident and non-resident owners of Spanish property.
For each period in which income tax is declared, you must submit the names of the tenants, the dates of occupation, the amount paid and the costs incurred. You must keep evidence of the costs and forward them to your tax representative so that the correct amount of tax is paid.
For the year 2017, the tax on rental income is 19% for non-residents who are tax residents in a country within the European Union, Norway and Iceland and 24% for tax residents outside these areas. Remember that it is the country where you are currently a tax resident that counts and not your nationality.

 

WEALTH tax in Spain
You only have to pay wealth tax if you have assets worth more than 700,000 euros. From then on, a fee of between 0.2% and 2.5% is applied. It starts at 0.2% for the first EUR 167,129 on the allocation of EUR 700,000, gradually increasing to 2.5% on assets over EUR 10,695,966. There are differences between the regions .

To calculate the tax on your wealth, the following concepts must be included in it:
– Property (valued according to the highest value, the purchase price or the value assessed by the Tax Authority).
– Business assets and professional activities.
– Bank account balances.
– Insurance payments and temporary sources of income.
– Luxury goods (jewellery, furs, vehicles, art and antiques)
– Royalties, administrative concessions and intellectual property rights
However, residents in Spain enjoy extensive deductions, including an additional discount of £300,000 for homeowners. Married couples are also entitled to claim deductions as individuals, creating a combined tax-free allowance of £1,400,000 on their estate, plus an additional £600,000 on their main residence.

The following items are exempt from estate tax
– Household contents (except luxury items).
– Small businesses managed by their owners.
– Assets and business interests of more than 5%, as long as the business is the taxpayer’s main source of income (more than 50%) and the operations are constantly managed by the taxpayer.
– Pension rights.
– Intellectual property rights on the author’s property.
You can also offset mortgage debt against estate tax, however, you cannot claim debts that are covered by other exemptions. For example, you cannot offset the mortgage debt on your principal residence, since it is covered by the principal residence exemption.

Taxes for Residents in Spain: tax requirements and obligations

Tax residence status is a matter of fact. You cannot simply choose whether or not you are a tax resident in Spain.
To determine who is a tax resident in Spain, in fact, the rule is simple and very clear: if you live in Spain for more than 183 days in a calendar year, you acquire the tax resident status in Spain. These days do not have to be sequential; if you live in Spain for alternative months, but adding up 183 days in the same year, you are considered resident.
In this case, you have the duty to file a self-tax return in Spain and pay taxes on your income and assets worldwide.
The tax rate for each tax depends on the region and municipality where you have your residence, as the competence for tax regulation and collection is shared between the Central State Administration and each of the seventeen Regional Administrations.

Taxes for non-residents owners in Spain

In Spain, in addition to municipal taxes, non-resident citizens must pay one or both of the following each year, as appropriate:
– Income tax on rentals if they rent their property,
– Tax on presumed or imputed income, if not rented, and enjoyed personally.
As a non-resident, your Spanish property is automatically considered as a type of income, even if you do not obtain any income from permanent or tourist rentals.

As a non-resident, the taxes that you must pay annually as a property owner are as follows.
municipal taxes
The Real Estate Tax, or IBI for its acronym in Spanish, must be paid for the fact of being the owner of a property in Spain, whether or not you are a resident. It is paid directly to the city council through its tax collection services, although they generally hand over management to supra-municipal entities, as is the case with SUMA in the province of Alicante.
Income from property tax is used to pay for local services, such as the maintenance of facilities, parks and leisure areas, equipment and infrastructure provided by the City Council.
The period during which it is collected depends on the municipality where the property is located.
The tax to be paid is calculated on the cadastral value.
In addition, you will have to pay the rubbish collection fee annually.

Tax on presumed or imputed income
Presumptive imputed income tax is a state tax paid by all citizens, resident or non-resident, if they do not rent their property. In the case of residents, only the habitual residence is excluded. If you declare as a non-resident, logically you do not have your habitual residence in Spain.
Surely this tax is unconstitutional, as it is levied on a benefit that does not actually exist, which is against the constitutional principle, but it must be paid until a ruling is made in this case.
In any case, it is a very low amount.
If during part of the year you personally use the property as a non-resident, or it is simply empty, you will pay presumptive rent for that period. The period in which it is rented, proportionally, you will pay rent tax
Calculation of presumptive income tax
The presumed income tax can be calculated using the purchase price of your property or the cadastral value. As the cadastral value is lower, this criterion is the one that should be applied for the calculation of the tax. The cadastral value is updated every year on the real estate tax bill.

Rent tax
If you rent your property part of the time, you will have to pay the rental tax as a non-resident income tax in Spain. It is paid quarterly on April 1-20, July 1-20, October 1-20 and January 1-20.
Of course, the expenses necessary to maintain the property are deductible from the income.
You only pay for this concept of rent for the periods in which the property has actually been rented. For the time not rented you will pay the imputed income tax.

Summary of tax obligations for residents

If you live or are going to live in Spain for six months of the year, consecutive or not, you have, or will have, the status of resident for tax purposes. This is also the case if you have your main interests, such as your business or family, which are vital in Spain. As a resident, you are obliged to file a tax return with the Spanish Tax Office if:
– You earn more than 22,000 euros per year from a single source of employment with Spanish tax withholding.
– Running a business or being self-employed
– If you receive more than 1000 euros per year from renting a property
– If you earn more than 1600 euros per year in capital gains or interest on savings.
– This is your first year as a tax resident in Spain.
It is important to know that you must declare to the Spanish Tax Authority your overall income, that is, also the income obtained from assets, business or savings in any other country.

The Spanish tax year runs from 1 January to 31 December. Residents in Spain will file their income tax return between April 1 and June 30 of the following year .
As an owner of property in Spain, you will have to pay some local taxes, such as IBI and rubbish collection tax.
Treaties to avoid double taxation
Spain has double taxation agreements with the United Kingdom, to prevent people from paying tax twice on their profits.
In some cases, tax must be paid in the country of origin, and in these situations, they are either declared exempt or the tax paid is deducted from the tax payable in Spain on the same income. For example, if you transfer a property in the UK and pay tax on the profit there, you have to declare the sale in Spain as well, but the tax paid in the UK is deducted from the tax payable in Spain.

Calculation of the Spanish Capital Gains Tax

when selling your property
In Spain, as in most developed countries, is applied a tax on the increase of wealth, or capital gains.
This tax is basically a tax on the sale of a capital asset that will probably not be settled in cash within one year. The most common capital gains derive from the profits from the sale of shares, bonds and real estate located in Spain, whether you are a resident or non-resident.

Calculating Capital Gains Tax in Spain

For Tax Non Residents
In Spain, surprisingly, capital gains tax is cheaper for non-residents than for residents.
For non-residents, the Spanish capital gains tax is a flat rate of 19% , on the profits made from the sale of a property. To determine the tax, the following factors must be considered:
– The actual purchase price, which must be the one officially declared in the public deed of sale, plus the implicit costs, such as the Transfer Tax you paid when you bought the property, or Documented Legal Acts plus the Value Added Tax, , the Notary’s fees for the authorization of the notarial purchase document, the fees of the Property Registry for the examination and inscription in the Registry, and the capital gain you pay when you sell the property. If you can justify them, with the corresponding invoices and licenses, you can also deduct the important investments you have made in the property. If they affect the description of the property, you can also deduct from the proceeds the notary, registry and tax costs incurred for the declaration of new construction.
– The actual sales price, which must be the one officially declared in the public deed of sale, discounting the costs involved during the sale, such as lawyer’s and real estate agent’s fees, and the municipal capital gains tax.

From the net difference of these two factors we obtain the net profit, on which the tax rate is applied as explained below.

For Tax Residents
As you know, if you reside in the country for more than 183 days a year, and there is evidence of this, you are considered to be a tax resident in Spain.
In this case, the rate is incremental, with three sections:
– 19% for the first benefit of 6,000.
– 21%, for the benefit between 6001 50000 euros.
– 23%, for the benefit exceeding 50,001 euro

Residents selling their home in the UK
In Spain, as in most European States, residents must pay taxes on their worldwide income. If you are resident in Spain and sell your property in the UK, you must also pay tax on capital gains in Spain. You must declare the income from the sale on your annual resident tax return. However, it is important to remember that this declaration covers the previous year. Therefore, if you sell your home in May 2020, you would declare it in June 2021 and not on the current year’s return.
In the UK, you pay higher rates of CGT on property than other assets. Base rate taxpayers pay 18% of the profit they make from selling property, while higher and additional rate taxpayers pay 28%.
With other assets, the base CGT rate is 10%, and the highest rate is 20%. Keep in mind that any capital gains will be included when you calculate your tax status for the year, and may push it to a higher level.
All taxpayers have an annual CGT allowance, which means they can earn a certain amount tax-free. In 2020-21, you can earn tax-free capital gains of up to £12,300 (or up to £12,000 in 2019-20). Couples who jointly own assets can combine this allocation, potentially allowing a gain of £24,600.

Taxation of rental income

British citizens constitute the largest foreign-owned colony in Spain. Some own their property simply for personal use, to spend holiday periods here or to live here for one or more seasons throughout the year, with continuous comings and goings to the UK, and many use it part-time throughout the year, but reserve the high season for rental to tourists who are prepared to pay high prices for short periods in summer. This formula is quite ideal, as this income allows you to maintain and enjoy the property in Spain without having to contribute funds from the UK for its maintenance and improvement, even, in most cases, making a profit, which you will be able to enjoy during your stays here.

However, this income is subject to tax.
Tax on rental income in Spain
You must pay taxes on rental income in Spain, even if you are not a resident, to the Spanish tax office on a quarterly basis, on the following dates:
– First quarter (January, February, March), April 1-20
– Second quarter (April, May, June), July 1-20
– Third quarter (July, August, September), October 1-20
– Fourth quarter (October, November, December), January 1-20
However, some expenses may be deducted or compensated for, in proportion to the period in which the rent was actually generated. The main ones are home insurance, , property tax, community fees, maintenance repairs, cleaning, administrator’s or rental manager’s fees, water and electricity supply. You can even claim expenses against mortgage interest and lawyers’ fees for completing your tax return.
When you rent your property and pay income tax, adjustments are made to the calculation in accordance with the normal tax for non-residents. The amount of this tax is based only on the number of days the property has not been rented. However, you can only deduct the costs if you are a resident of the EU, Norway or Iceland.

The British-Spanish Double Taxation Agreement
However, British owners will be relieved to know that Spain and the UK have a double taxation agreement. This means that you are not obliged to pay income tax in both countries. Although you have to declare your income in the country where you are a tax resident, you do not have to pay twice. Instead, the tax you have already paid in Spain is deductible as double taxation.

The applicable rate
The tax on rental income remains at 19% for non-residents who are tax residents in a country within the European Union, Norway and Iceland and 24% for tax residents outside these areas.
The amount payable as a non-resident depends on the country in which you are a tax resident, not on your nationality.

IBI. The Spanish Property Tax

The Impuesto sobre Bienes Inmuebles , or IBI, is a tax that every owner in Spain has to pay. Both your local council and SUMA offices will collect the payment, which they use to finance local services. The local authority collects this tax annually and failure to pay can result in fines and interest. Although all local authorities collect IBI annually, different amounts are due at different times depending on your region.

How is IBI calculated?
The calculations of IBI are relatively similar to the council tax banding system. IBI will be calculated according to the cadastral value . The cadastral value is determined according to:
– Size
– condition
– location
– title
– lease details
– cost of improvement
– Cost of construction of the property.
With this information, the local authority will compile a report and an appraiser will assess what the appraised value should be.
This valuation is recorded in the Land Registry, which is a central registration agency. This register is usually based at your local town hall. You can find out the cadastral value on your invoice or IBI receipt.
The Equal Property Tax is not exactly the same in all municipalities. Different municipalities will charge different rates and your local authority will make a difference to the amount of IBI tax you have to pay. Rates can vary greatly, ranging from 0.4% to 1.30%, and this is a factor to consider when buying a house. In any case, IBI in Spain is much cheaper than the equivalent taxes in the UK.
Occasionally, there may be a revision of the cadastral value in your local area, every ten years. After this review, your taxable value may increase and you may be charged more for your IBI. This may be the case if, for example, you have made a major change to your property, such as a terrace, extension or swimming pool. The local council may charge you back taxes if you have made home improvements and have not informed the authorities properly.

If you forget to pay the Property Tax, they will impose a surcharge on the tax, which ranges from 5 to 20%, depending on the time elapsed between the end of the voluntary payment and the moment you actually pay. Normally, you are not required to pay immediately, but there will be a register against your property that will be revealed when you want to sell it or leave it in your inheritance. Therefore, it is very important to keep your payments current.
Depending on the municipality where you have your residence and property, the municipality or SUMA will collect your IBI. In most of Alicante, it is SUMA. The process is quite simple as long as you pay within the specified voluntary period and have the invoice ready.
On your SUMA invoice, you will find a reference number and your NIE tax number. With this information, you can pay online by credit or debit card. The website is relatively easy to navigate and there is an English version. Alternatively, you can pay your IBI in Spain directly at a SUMA office or by phone with your card.

Spanish tax forms that you will need to know

Form 30 – Censal Registration
This is the first Spanish tax form that you must submit when you establish yourself in Spain, or acquire your property, within 30 days, in order to declare your intention to pay tax as a resident or non-resident. This must happen within 30 days of your arrival.

Form 100 – Tax return
All residents of Spain must complete this tax return within their first year. Thereafter, it should only be completed for earnings in excess of £12,000 per year if your situation meets certain conditions.

Form 210 – Non-resident imputed income tax and income tax
Non-residents in Spain must pay tax for this concept. The rate currently applicable is 19% for citizens of European Union Member States, and 24% for others.

Form 720 – one of the most important Spanish tax forms
Form 720 must be declared by all residents in Spain, Spanish or foreign, to report all assets and rights worth more than 50,000 euros that they hold in another State. Model 720 is merely for information purposes and to control tax fraud. No tax is payable on this declaration, but it is essential to complete it, as failure to do so will result in significant tax penalties.
Unless the value of the asset increases or decreases by at least EUR 20,000, or is sold, Form 720 does not have to be resubmitted. The form is due between January 1 and March 31 of the year following the information shown.

The criteria for who must file Form 720 are as follows:
1. Persons who have bank accounts abroad : bank, deposit and savings accounts with a balance of more than EUR 50,000 held in the name of the person completing the form. This also applies when the signatory is an authorized representative or beneficiary of the account.
2. Persons who have assets and private pension funds abroad – Those who have bonds, investment portfolios, stocks and shares, pension plans and annuities active in the value of EUR 50,000 will need to complete form 720.
3. Persons who own property or business abroad : Those who own property outside Spain , including property for commercial purposes worth more than 50,000 euros, must declare it on form 720.

SPANISH TAX CALENDAR 2020
Enero 2020
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Febrero 2020
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Marzo 2020
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Abril 2020
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Mayo 2020
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Junio 2020
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Julio 2020
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Agosto 2020
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Septiembre 2020
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Octubre 2020
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Noviembre 2020
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Diciembre 2020
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THE MAIN TAX FORMS IN SPAIN FOR FOREIGN RESIDENTS AND NON-RESIDENTS

MODEL 030. CENSUS. DECLARATION OF REGISTRATION IN THE CENSUS OF TAXPAYERS, CHANGE OF ADDRESS AND VARIATION OF PERSONAL DATA. To communicate the variation of identification data, the marital status, to request a new card accrediting the NIF, etc. In addition, those who do not carry out economic activities may request registration in the census of taxpayers or the NIF when they do not have an ID card or NIE and participate in operations with tax implications, and Communicate the change of address, in general, within 3 months from the change (those who carry out economic activities shall file form 036/037). The notification will be made in the income tax return – for resident individuals – if the period for presentation of the same ends earlier.

 

FORMS 036 & 037. CENSUS DECLARATION. Declaration of registration: before starting the corresponding activities or the start of the obligation to withhold or pay into the account. Declaration of modification: 1 month from the day following the modification. Declaration of cancellation: 1 month from the cessation or effective cancellation of the entries in the Companies Register. 6 months from the death of the taxpayer (to be presented by the heirs). Application for NIF: month following the constitution or establishment in Spanish territory of legal persons and entities without legal personality, always before the start of the activity. Registration in the Monthly Refund Register: in general, the month of November prior to the year in which it is to take effect. Options or waivers of special regimes: in general, in the month of December prior to the year in which they are to take effect.

 

PERSONAL INCOME TAX

Form 113. Communication of capital gains due to change of residence to another Member State of the European Union or the European Economic Area with effective exchange of tax information: between the date of the change and the end of the tax return period corresponding to the first financial year in which the taxpayer did not have such condition as a result of the change of residence and variations, two months from the date of the change.

Form 121. Personal Income Tax. Deductions for large families or dependent disabled persons. Notification of the assignment of the right to the deduction by taxpayers not obliged to file a tax return: period established in each financial year for filing the income tax return.

Form 122. Personal Income Tax. Deductions for large families, for disabled dependents or for ascendants with two children who are legally separated or not married. Regularisation of the right to deductions for taxpayers not obliged to file a tax return: between the date on which the advance payments were unduly received and the end of the period for filing the income tax return for the year in which the advance payment was unduly received.

Form 140. Request for advance payment of deductions for maternity and notification of variations that affect their payment: when you opt for the advance payment method and 15 calendar days following the variations, respectively.

Form 143. Request for advance payment of deductions for large families, for ascendants with two children or disabled dependents and for notification of variations that affect payment: when you opt for the advance payment method and 15 calendar days following the variations, respectively.

Form 145. Communication of the personal and family situation of the recipient of income from work, or of its variation, to the payer: before the beginning of each calendar year or at the beginning of the relationship.

Model 146. Pensioners with two or more payers. Request for determination of the amount of the deductions: January and February of each year.

Form 147. Voluntary notification of employed workers who are going to acquire the condition of taxpayers for income tax, due to moving to Spanish territory, for the practice of withholdings: from the 30 days prior to the entry into Spanish territory up to the 183 days following the start of the work or up to 30 June of the following year when the start is after 2 July.

Form 149. Communication of the option, waiver and exclusion from the special tax regime for Non-Resident Income Tax for individuals who acquire their tax residence in Spain by moving to Spanish territory. Option: 6 months from the start of the activity. Waiver: November and December prior to the start of the calendar year in which it is to take effect. Exclusion: 1 month from failure to comply with the requirements for applying the scheme. End of journey: 1 month from the end of the journey.

Form 156. Annual information return on the contributions of members and mutual insurance companies for the purposes of the deduction for maternity. In general: 1 to 31 January of the year following that which corresponds to the declaration. Exceptions: until 1 April.

Form 185. Monthly information return of Social Security and mutual insurance contributions: 10 calendar days following the month to which the information refers.

Form 186. Information return on births and deaths: following calendar month.

 

TAX ON THE INCOME OF NON-RESIDENTS WITHOUT A PERMANENT ESTABLISHMENT

Model 210. Non-residents without permanent establishment. Self-assessment. In general: to be paid from 1 to 20 April, July, October and January. Zero quota, from 1 to 20 January of the year following the year of accrual. To be returned, from 1 February of the year following the year of accrual and within 4 years from the end of the period of declaration and payment of the deduction. Income from property transfers: 3 months having elapsed 1 month from the transfer. Imputed income from urban property: calendar year following the accrual.

Form 211. Withholding on the acquisition of property from non-residents without a permanent establishment: 1 month from the transfer of the property.

Form 213. Special tax on property belonging to non-resident entities: January.

Form 216. Declaration-document for the payment of withholdings and payments on account of income from non-residents obtained without a permanent establishment: 1 to 20 January, April, July and October. For large companies, monthly.

Form 247. Voluntary notification of employed workers who are going to acquire the condition of taxpayers for Non-Resident Income Tax due to moving abroad. The deadline for filing will depend on the duration of the posting.

Form 250. Special tax on dividends and income from foreign sources for the transfer of securities of non-resident entities: 25 calendar days following the date of accrual.

Form 291. Information return on non-resident accounts: 1 to 31 January.

Forms 294 and 295. Shares and holdings and investment position in collective investment institutions marketed by entities resident abroad: first quarter of the year.

Form 296. Annual tax return on withholdings and payments on account: 1 to 31 January.

 

TAX ON ECONOMIC ACTIVITIES

Model 840.- Declaration of registration: for non-exempt IAE taxpayers, 1 month from the start of the activity. For taxpayers who have been applying a tax exemption and no longer meet the requirements: the month of December prior to the year in which the taxpayer is liable. Declaration of variation: 1 month from the date of variation (effects of the year following that of the variation). Declaration of withdrawal: 1 month from the date of withdrawal. Taxpayers who apply any of their exemptions: during the month of December prior to the year in which the taxpayer is exempted from paying this tax. In the event of the death of the taxpayer: 1 month from the death (successors). For taxpayers exempt from IAE, the filing of forms 036 and 037 replaces the filing of form 840.

Form 848. Communication of net turnover: 1 January to 14 February of the financial year in which the communication is to take effect.

Local Taxation in Spain

 

The Local Finance Act groups municipal taxes into two blocks: the first is made up of compulsory municipal taxation, the second of voluntary taxation.

A.-  Mandatory municipal taxes. They have the following common characteristics:

- must be applied by the town council, which may only vary or introduce tax benefits, elements to quantify tax debts and, in no case, regulate certain aspects of the management procedure. This compulsory local taxes are: 

  1. Business Tax
  2. Property Tax
  3. Tax on Mechanical Traction Vehicles 

 B.-  Voluntary municipal taxes. They may be established or abolished by means of the municipal tax ordinances. The following are included in this category:

  1. Tax on Construction, Installations and Works
  2. Tax on the Increase in Value of Urban Land
  3. Municipal Tax on Sumptuary Expenses

 

Management of municipal taxes

The administration of municipal taxes is the responsibility of the local councils, although the State Administration is exclusively responsible for the cadastral management of the Real Estate Tax and the census management of the Income Tax, although the latter may be delegated in certain cases.

The municipalities can manage their taxes:

  1. directly by themselves; or
  2. delegating all or part of their powers, in favour of the Regional Authorities Communities or local supramunicipal entities in whose territory they are integrated.

         

Local Surcharges and Allowances

The surcharges payable on the taxes of local entities and Regional Governments are considered resources of the local treasuries.

In each of the local taxes there are the allowances that are indicated when developing the specific concept. However, in general, it should be noted that local councils can establish a reduction of up to 5% of the tax payable by taxpayers who choose to have their periodic debts paid by direct debit to a financial institution, advance payments or carry out actions involving collaboration in the collection of income;

 

Infringements and sanctions

The regime of infractions and sanctions in the field  of local taxes is in line with the general provisions of the General Tax Law, the complementary provisions   resulting from the Local Finance Law and those that, where appropriate, are established in the local tax ordinances.

The Real Estate Tax (IBI)

The Real Estate Tax (IBI) is a direct tax of real character, of municipal ownership and compulsory levy that taxes the value of real estate. Its management is shared between the State Administration and the exacting local councils.

The basic regulations at the state level are those provided for in:

- the consolidated text of the Law regulating Local Treasuries (Ley Haciendas Locales)

- the consolidated text of the Law of Real Estate Cadastre.

 

Taxable event

The taxable event is constituted by the ownership of urban, rural and special property, of one of the following rights:

  1. administrative concession on the buildings themselves or on the public services to which they are attached;
  2. Surface right;
  3. usufruct;
  4. property rights.

       

        Real Estate

For the purposes of the IBI, real estate is considered to be that which is defined as such in the regulations governing the Real Estate Cadastre. As a general rule, the urban or rustic character of a property depends on the nature of the land. Thus, a distinction must be made between land of an urban nature, land of a rustic nature, and land that includes real estate with special characteristics. Likewise, the constructions are urban or rustic depending on the nature respectively urban or rustic of the land on which they are located.

 

 

Passive subject

Taxpayers are natural and legal persons and entities referred to in the General Tax Law Article 35.4, who hold the ownership of the right that, in each case, constitutes the taxable event.

       

Transmission condition

In the case of changes in ownership of the rights that constitute the taxable event for this tax, the properties that are the object of the rights are subject to the payment of all the tax quotas, under a regime of subsidiary responsibility.

Notaries must request information and expressly warn the parties in the documents they authorise about:

  1. the outstanding debts for the IBI associated with the property being transferred;
  2. the period of time available to present the tax return when this obligation subsists due to the failure to present the cadastral reference of the property.
  3. the effect of the goods on the payment of the tax liability;
  4. the liabilities that may be incurred in the event of failure to submit declarations, late submissions or submission of false, incomplete or inaccurate declarations .

       

Article 35.4 Entities

The co-participants or co-owners of the entities referred to in the General Tax Law Article 35.4 are jointly and severally liable for the tax liability in proportion to their respective shares, if they are registered as such in the Real Estate Cadastre. Otherwise, liability is in equal parts.

 

        Taxable income

The taxable base is made up of the cadastral value of the real estate, which is determined, notified and subject to challenge in accordance with the regulations of the Real Estate Cadastre.

 

        Settlement basis

The taxable amount is the result of a reduction in the tax base of certain properties by applying the rules set out below.

       

Scope of application

The reduction is applied ex officio, without the need for a request by the taxpayer, to the taxable base of urban property that is in one of the following situations:

  1. Its cadastral value has increased as a result of general collective valuation procedures due to the application of
  2. the first total paper of values approved after 1-1-1997;
  3. successive total presentations of approved values after the period corresponding to a previous reduction has elapsed.
  4. They are located in municipalities where a value report has been approved that has already led to a reduction in the values mentioned in the previous section and before the expiry of the period of the report they see their cadastral values altered as a result of procedures:
  5. of collective evaluation;
  6. of registration by means of declarations, communications, applications, correction of discrepancies and cadastral inspection.

In principle, this reduction is also applicable with respect to rustic properties under the terms set out above for urban properties, but the regulations on the payable base are suspended for this type of property until the date of application is established by law.

The reduction is only applicable to properties with special characteristics when the cadastral value resulting from the application of a new special value statement is more than twice the value previously assigned to the property as such. In the absence of this value, 40% of the value resulting from the new presentation is taken as such. This reduction is not applied with respect to the increase in the taxable base of the properties resulting from the updating of their cadastral values by application of the coefficients established in the LPG.

       

For the purposes of determining the net base, the following rules must be taken into account:

  1. In collective valuation procedures, it is the responsibility of the General Directorate of Cadastre, and can be appealed before the economic-administrative State courts.
  2. If the taxable base results from the processing of declaration, communication, application, correction of discrepancies and cadastral inspection procedures, it is the responsibility of the local council. However, this will be carried out by the General Directorate of Cadastre, unless the respective local council informs it that this competence will be exercised by it before the end of February of the year in which it assumes said competence.

Period of application

As a general rule the period of application of the reduction is 9 years from the entry into force of the new cadastral values.

However, there are some exceptions to this general rule, and a distinction is made according to the increase in cadastral values that occurs as a result of

- A general collective assessment procedure before the end of the period of a previous reduction. In this case:

- the right to the application of the rest of the previous reduction that was being applied is extinguished; and

- the calculation of a new reduction period starts.

- A collective valuation procedure of a partial or simplified nature, or as a result of a registration procedure by means of declarations, communications, applications, correction of discrepancies or cadastral inspection before the end of the period of a previous reduction, in which case:

- a new reduction period is not counted; and

- the reduction coefficient applied to the buildings concerned takes the value corresponding to the rest of the buildings in the municipality.

       

Amount

The amount of the reduction decreases annually and is the result of applying a reduction coefficient, unique for all the buildings in the municipality, to an individual reduction component, calculated for each building.

 

Reduction Coefficient
Year 1 0,9
Year 2 0,8
Year 3 0,7
Year 4 0,6
Year 5 0,5
Year 6 0,4
Year 7 0,3
Year 8 0,2
Year 9 0,1
Year 10 0

To determine the individual component of the reduction, as a general rule, the positive difference between the new cadastral value -only the first component in the case of rural properties- corresponding to the property in the first year in which the reduction is applied and its base value is taken, which, as a general rule, is the net base for the year immediately prior to the entry into force of the new cadastral value. There are certain specific cases based on alterations to the cadastral description before the new collective valuation takes place.

It can be said that this component is the positive difference between the new taxable base and the old taxable base, and that the coefficient corresponding to the year is applied to this component in order to determine the new taxable base.

Single component: new cadastral value - base value (settlement basis of the previous year)
Amount of reduction = individual component × reduction coefficient

       

When an increase in cadastral values occurs before the end of the period of an ongoing reduction and this is due to a partial or simplified collective valuation procedure, the positive difference between the new cadastral value and the base value must be divided by the last applied reduction coefficient. Such a division also occurs if the updating of the cadastral values by application of the coefficients established in the State Budget Law determines a decrease in the tax base.

Amount of reduction = (Individual component/Correction coefficient year n) × Reduction coefficient year n+1

       

Notification

The notification of the net base is made together with the notification of the tax base.

In collective valuation procedures, the notification of the net base must include the reason for the reduction applied. For this purpose, the base value that corresponds to the property must be indicated, as well as the amounts of the reduction and the net base for the following years:

- for general procedures: the first year of validity of the new cadastral value in the IBI;

- for partial and simplified procedures: the exercise in which it is notified.

 

       

Tax liability

For the calculation of the tax liability, it should be taken into account that:

  1. the full amount is the result of applying the tax rate to the payable base;
  2. the liquid quota is obtained by subtracting from the total quota the amount of the legally stipulated allowances; and
  3. there may be certain surcharges on the tax liability.

       

Tax rate

The Law differentiates the tax rates applicable to urban and rural real estate from those applicable to real estate with special characteristics.

       

  1. Urban and rural real estate

The minimum - and supplementary - legal rates, as well as the maximum rates applicable to this type of property are as follows:

 

Types of properties Minimum Maximum
Urban properties 0,4% 1,10%
Rustic properties 0,3% 0,90%

A number of circumstances have been envisaged in which local councils may increase the above tax rates by the percentage points indicated for each case:

Type of municipality PERCENTAGE POINTS
Urban Rustic
Capital of province or autonomous community 0,07 0,06
The urban collective surface public transport service is provided 0,07 0,05
Local councils provide more services than those to which they are obliged under Law 7/1985 Article 26 0,06 0,06
The land of rustic nature represents more than 80% of the total surface of the term - 0,15

Within the above limits, local councils may set different rates for urban real estate, excluding those for residential use - to which a surcharge is applied - depending on the uses established in the cadastral regulations for the valuation of buildings, up to a maximum of 10% of the urban real estate in the municipal area that, for each use, has the highest cadastral value. To this end, the tax ordinance must indicate the corresponding value threshold for each or every use, above which the increased rates are applicable.

In municipalities where new cadastral values for rustic and urban property resulting from general collective valuation procedures come into force, municipalities may exceptionally establish, for a maximum period of 6 years, reduced tax rates that may not be less than 0.1% for urban property and 0.075% for rustic property.

If municipal boundaries are altered, local councils must apply the tax rate in force in the municipality of origin to rural and urban property that becomes part of their municipal boundaries, unless they agree to establish a different rate.

       

(b) Real estate with special characteristics . The tax rate applicable to this category of property is 0.6% and is of a supplementary nature.

The municipalities can establish a differentiated rate for each group of this category of goods existing in the municipality, which cannot be less than 0.4% or more than 1.3%.

       

Surcharges

The possibility of establishing and requiring certain surcharges on the tax liability in favour of

  1. Local councils can establish and demand a surcharge of up to 50% of the net tax liability for permanently unoccupied residential property. Within this limit, local councils may determine by tax ordinance a single surcharge or several surcharges depending on the length of the period of unoccupancy of the property.
  2. Metropolitan areas may establish a surcharge of up to 0.2% on the tax liability (taxable base of the surcharge) in respect of property located in their territory. This percentage must be unique for all these properties.

       

Tax period and accrual

The tax accrues on the first day of the tax period which coincides with the calendar year.

The facts, acts and businesses that must be declared or notified to the Real Estate Cadastre are effective in the accrual of the IBI immediately after the moment they produce cadastral effects.

       

Management

The tax is managed on the basis of the information contained in the Cadastre Register and other documents expressing its variations drawn up for this purpose by the General Directorate of Cadastre.

The Padrón  or  cadastral register is formed annually for each municipal district containing the information on real estate required to settle the tax. The data contained in it and in the other documents expressing its variations must be included in the collection lists, income documents and proof of payment of the tax.

       

Presentation to the Real Estate Cadastre of the declarations

Taxpayers must submit declarations leading to the registration in the Real Estate Cadastre of alterations to the property subject to cadastral registration and which are of significance for the purposes of the Real Estate Tax.


The Tax on Construction, Installations and Works (ICIO)

The Tax on Construction, Installations and Works (ICIO) is an indirect, municipal, voluntary establishment and management tax

       

Taxable event

The taxable event for the Tax on Construction, Installations and Works is constituted by the carrying out, within the municipal area, of any construction, installation or work for which a building or urban development licence is required, whether or not it has been applied for, and if so, whether or not it has been obtained yet, provided that it is issued by the executing municipality.

       

Cases  of non-subjection

Although the Local Finance Law does not expressly regulate the cases of non-subjection, case law and administrative doctrine have basically shaped them based on the analysis of the requirement or not of the corresponding license. Thus, we highlight, among others, the following cases:

  1. Illegal constructions or works, as long as their destination can only be demolition because they have been carried out without a license and are not susceptible to legalization.
  2. The demolition works because their purpose is not to build a specific building, but to leave the land free for any urban use.
  3. Building work on a municipal property parcel acquired by auction, in which the successful bidder undertakes to build in accordance with a programme and project of work previously drawn up and approved by the municipality, as the building licence had already been granted when the conditions of the auction and the project were approved.
  4. The urbanization works carried out in execution of an urbanization project do not need a town planning license, since the project itself is the act that legitimizes them, and it is an act of execution of the urban planning instruments that are immediately executive.

       

Passive subjects

They are ICIO taxpayers:

- As taxpayers, individuals, legal entities or entities of the General Tax Law Article 35.4 owners of the construction, installation or work, regardless of whether or not they are owners of the property on which it is carried out. For these purposes, the owner of the construction, installation or work is considered to be the one who bears the expenses or cost involved in carrying it out.

- When the construction, installation or work is not carried out by the taxpayer, those who apply for the licence or carry out the construction, installation or work are considered to be substitutes for the taxpayer. They are entitled to demand from the taxpayer the amount of the tax liability paid.

 

       

Taxable income

The taxable base for the Tax on Construction, Installations and Works is made up of the real and effective cost of the construction, installation or work, understood as the cost of its material execution regardless of the value of what is built or installed.

The following items are excluded from the tax base:

- VAT and other similar taxes specific to the special regimes;

- fees, public prices and other local public property services related to construction, installations and works;

- professional fees;

- the contractor's business benefit;

- any other concept that does not strictly integrate the cost of material execution.

 

       

Tax liability

The tax liability for Construction, Installations and Works Tax is the result of applying to the taxable base the tax rate set by the municipality, which cannot exceed 4%. The local council cannot establish different tax rates for different types of construction, installations or works.

 

Accrual

The Tax on Construction, Installations and Works is a tax that is payable instantly at the time of commencement of the construction, installation or works, even if the licence has not been obtained.

 

Management

The power to manage the tax lies entirely with each local authority, which may require it as a self-assessment, if this is established in the respective tax ordinance.

Two types of settlements can be distinguished:

- Interim settlement on account. This is obligatory when the mandatory licence is granted or when, having not yet applied for, granted or refused the aforementioned licence, construction, installation or work begins. The tax base of this settlement is made up of

  1. the budget submitted by the persons concerned, endorsed by the relevant official body where this is mandatory; or
  2. the indexes or modules that the tax ordinance establishes for this purpose.

- Final settlement. Once the constructions, installations and works have been completed, in view of those actually carried out and their real and effective cost, the municipality, by means of the appropriate administrative verification, must carry out the definitive settlement, modifying, if necessary, the taxable base for the provisional settlement. The taxable person must be reimbursed or required to pay the corresponding amount, as appropriate.


The Tax on the Increase in Value of Urban Land (IIVTNU)

The Tax on the Increase in Value of Urban Land (IIVTNU) is a direct, instantly accruing, so non-periodic,  municipal tax, voluntarily established by the local councils, which are responsible for its management.

       

Taxable event

The taxable event of the IIVTNU is the obtaining of an increase in value:

  1. by land of an urban nature; or
  2. for the lands integrated in the real estate of special characteristics.

In both cases the reference value is the one they had for the purposes of the IBI. On the other hand, it does not matter whether or not the land is included in the Cadastre and the Municipal Register as belonging to one of these two categories.

The increase in value can be seen as a consequence:

  1. of the transfer of its property by any title, whether for valuable consideration or free of charge, inter vivos or mortis causa; or
  2. of the constitution or transfer of any right in rem of limited enjoyment of dominion over the said lands.

       

Cases  of non-subjection

The Local Finance Act includes the following cases of non-liability:

  1. Transfer of land considered rustic for the purposes of the IBI.
  2. Contributions of property and rights made by the spouses to the marital partnership, the awards made in their favour and in payment thereof and the transfers made to the spouses in payment of their common assets.
  3. Transfers of real estate between spouses or in favour of their children in compliance with judgements in cases of nullity, marital separation or divorce, regardless of the marital regime.

 

Cases  where there is no increase in value

Jurisprudence and doctrine has not been clear regarding the treatment of transmissions in which there is no increase in value -the loss of assets being credited-. In some cases it has been considered that the taxable event was always produced, being applicable for the calculation of the taxable base, in any case, the provisions of the Law of Local Treasuries Article 107.2 , while, in other cases it was understood that the taxable event of the tax was not produced and this could not be demanded. It is this second opinion that has been gaining strength.

The Constitutional Court has been resolving the issue by declaring the unconstitutionality and nullity of certain provisions of the Local Finance Law, insofar as they subject to taxation situations of no increase in value.

As a consequence of the doctrine established by the Constitutional Court, there is currently a Bill to amend the Local Finance Law, which adds a new case of non-applicability of the law to land transfers for which the taxpayer proves the non-existence of the increase in value, due to differences between the real values of transfer and acquisition of the land.

 

IIVTNU. Cases  where the fee to be paid is greater than the increase obtained

The Constitutional Court declares the unconstitutionality of the Local Finance Law, Article 107.4, regarding the determination of the taxable base, when the resulting fee to be paid is higher than the increase actually obtained by the taxpayer.

The Constitutional Court considers the question of unconstitutionality raised by the court that must resolve the appeal filed by a taxpayer who acquired a home that he later transferred for a capital gain. Since the tax liability resulting from the tax assessment made by the competent municipality is higher than the capital gain obtained, it filed an appeal for reversal and, subsequently, the corresponding contentious administrative appeal before this court.

The court brought the matter up on the grounds that the articles of the Local Finance Act relating to the tax base (Local Finance Act, Article 107) and the rate of full and liquid levy and quotas (Local Finance Act, Article 108) could be contrary to the principles of economic capacity and progressiveness, as well as the prohibition of confiscation.

The Constitutional Court considers that the situation in question is not that of the taxation of a situation of no increase in the value of land of an urban nature, nor is it that of a decrease. Rather, by applying the tax rate to the taxable income calculated in accordance with the tax regulations, the derived tax liability exceeded 100% of the wealth actually generated.

This is requiring the taxable person to fulfil his duty to contribute to the support of public expenditure by imposing an excessive or exaggerated burden. It is one thing to tax a potential income - the increase in value that presumably occurs over time in all land of an urban nature - and quite another to tax an unrealistic income, because, if that were the case, the provision in question would be contrary to the principle of economic capacity, a principle that breaks down in those cases where the economic capacity taxed is non-existent or fictitious (TCo 26/2017 ; 59/2017 ; 72/2017).

Any tax that subjects non-existent wealth to taxation contrary to the principle of economic capacity, or that exhausts taxable wealth under the pretext of the duty to contribute to the support of public expenditure, would also be incurring a confiscation result (TCo 26/2017). Therefore, in those cases in which the application of the annual percentage applicable to the cadastral value of the land at the time of accrual (Law of Local Treasuries, Article 107.4) results in an increase in value greater than that actually obtained by the taxpayer, the resulting tax liability, for the part exceeding the benefit actually obtained, corresponds to the illegal taxation of non-existent income contrary to the principle of economic capacity and the prohibition of confiscation.

The Tribunal therefore decides to consider the question of unconstitutionality and to declare that the Law of Local Treasuries, Article 107.4, is unconstitutional because it violates the principle of economic capacity and the prohibition of confiscation (Const Article 31.1), in those cases in which the fee to be paid is greater than the increase in assets obtained by the taxpayer.

The unconstitutionality cannot be extended to the Ley Haciendas Locales Article 108.1 (tax rate), since the declared defect is found exclusively in the way of determining the taxable base and not in the way of calculating the tax liability.

The situations that may be reviewed on the basis of this ruling are those that, at the date of publication of the ruling, have not become final because they have been challenged in time and form and have not yet been the subject of a final administrative or judicial decision.

 

IIVTNU. Proof of sale at a loss

To prove the existence of a loss in the transfer of the land, the values set out in the deeds of acquisition and transfer of the land can be used.

The Constitutional Court upholds the appeal for protection lodged by an entity that submitted a request to the municipality for the return of undue income for the amount paid under the IIVTNU. Along with the request, it provided the deeds of acquisition and transfer, which reflected a lower sales value than the purchase value.

Once the application was rejected, the corresponding contentious-administrative appeal was lodged, arguing that there was no increase in the value of the property transferred. To this end, documentary and judicial expert evidence was requested, the latter being inadmissible on the grounds that the judicial body considered it to be inappropriate evidence which, moreover, the party had been able to provide and did not do so. The contentious-administrative appeal was dismissed on the grounds that the Court had not established that the increase in value of the land subject to the tax had not occurred.

For the Constitutional Court, when it handed down its judgement, the judicial body already considered that the loss  could be proved, so that, according to its own criteria, the evidence requested was relevant and pertinent.

The violation of the right to effective judicial protection  is produced by the lack of valuation of the deeds of sale, the veracity of which was not contested by the city council, so that their valuation by the judicial body was in this case unavoidable.

 

 

 

       

Exemptions

The exemptions applicable in the IIVTNU are the following:

Increases in value brought about by the following acts are exempt in the IIVTNU:

  1. Constitution and transmission of easement rights.
  2. Transfers of property located within the perimeter defined as a historical-artistic complex or which has been individually declared of cultural interest, in accordance with the provisions of Law 16/1985, provided that the owners or holders of real rights can prove that they have carried out conservation, improvement or rehabilitation work on the aforementioned properties.
  3. Transfers made by natural persons on the occasion of the giving in payment of the habitual residence of the mortgagor or guarantor thereof, for the cancellation of debts guaranteed by a mortgage that falls upon them, contracted with credit institutions or any other entity that, in a professional manner, carries out the activity of granting loans or mortgage credits. Also exempt are transfers of dwellings in which the above requirements are met, carried out in judicial or notarial foreclosures.
  4. Donations, donations and contributions of land to entities benefiting from the tax incentive system for patronage.

 

IIVTNU. Exemption from the transfer of a property by dation in payment

After a marriage break-up without liquidation of the marital partnership, the transfer of a property on the occasion of a dation in payment is only exempt in the IIVTNU for the part of the tax debt of the spouse who has been registered in an uninterrupted way during at least the 2 years previous to the transfer or from the moment of the acquisition if this period is less than 2 years, in proportion to the percentage of ownership of the property.

As a result of their marital breakdown, two spouses have transferred a property through a dation in payment, although only one of them has been registered at the property's address during the 2 years prior to the transfer of the property.

In addition, the consultant indicates that the other requirements for applying the exemption have been met, and that the marital partnership has not been liquidated.

The IIVTNU exempts the increases in value that occur as a result of transfers made by individuals on the occasion of the transfer in payment of the habitual residence of the mortgagor or guarantor of the same, for the cancellation of debts guaranteed by a mortgage that falls on the same, contracted with credit institutions or any other entity that, in a professional manner, carries out the activity of granting loans or mortgage credits (Local Finance Law Article 105.1.c). One of the requirements for the application of this exemption is that the transfer of the main residence of the individual who is the mortgagee or guarantor of a mortgage constituted on said residence must be carried out, considering the main residence, for these purposes, to be that in which the taxpayer has been registered continuously for at least 2 years prior to the transfer or from the time of acquisition if said period is less than 2 years.

The exemption is only applicable on the occasion of the dation in payment with respect to the tax debt corresponding to the spouse who does comply with the previous requirement, in proportion to the percentage of ownership of the dwelling. The exemption does not apply to the other spouse who does not meet the aforementioned requirement.

       

Passive subjects

 

 The status of the taxable person subject to the IIVTNU falls on:

  1. the purchaser of the land or person in whose favour the right in rem is constituted or transferred when the transfer of land or the constitution or transfer of the rights is made free of charge; and
  2. on the transferor of the land or the person or entity constituting or transferring the right in rem of enjoyment, where this is done for consideration.

If the taxpayer is an individual not resident in Spain, the person or entity that acquires the land, or in whose favour the right in rem is constituted or transferred, is the substitute taxpayer.

 

       

Taxable income

The tax base consists of the increase in the value of urban land shown at the time of accrual and experienced over the maximum period of 20 years. This increase is determined by applying to the value of the land at the time of accrual a percentage for the calculation of which the rules must be taken into account.

The Constitutional Court has declared the unconstitutionality and nullity of the Local Finance Law, Article 107.1, but only to the extent that it subjects to taxation situations of non-existence of increases in value .  For its part, the Supreme Court understands that this ruling declares this provision to be partially unconstitutional, considering it to be constitutional and fully applicable in all those cases in which the taxpayer has not been able to prove that the transfer of ownership of the land by any title -or the creation or transfer of any right in rem of enjoyment, limiting the ownership of the land in question-, has not shown an increase in value.

 

 

Land value

The value of the land at the time of accrual of the IIVTNU, according to the operation carried out is as follows:

- Ground transfers. Its value at the time of accrual coincides with its cadastral value. However, when the value is the result of a valuation report that does not reflect changes in approach approved after the approval of the report, the settlement made by taking the cadastral value is provisional, and a definitive settlement is made later by taking the cadastral value obtained from the collective valuation procedures that take into account the changes. The value is that referred to on the date of accrual, applying, where applicable, the updating coefficients established for this purpose in the General State Budget Law.

If a piece of land does not have its cadastral value determined at the time the tax accrues, the local council can make the settlement when the cadastral value is determined, referring the value to the time of accrual.

The Constitutional Court has declared the unconstitutionality and nullity of the Local Finance Law Article 107.2.a , but only to the extent that it subjects to taxation situations of non-existence of increases in value.  

- Constitution and transfer of the right to raise one or more floors above a building or land or the right to carry out construction under the ground without implying the existence of a real right of superficies. The part of the cadastral value of the land is taken that represents, with respect to the same, the module of proportionality established in the transfer deed or, in its absence, that which results from establishing the proportion between the surface area or volume of the floors to be built in the above ground or subsoil and the total surface area or volume built once these have been constructed.

For built up land, the cadastral value to be taken into account is exclusively that of the land, not that of the construction.

- Constitution and transmission of real rights of enjoyment that limit the domain. The value is taken to be that part of the cadastral value of the land which represents, with respect to this, the value of the said rights calculated by application of the rules set out in the ITP and AJD.

- Forced expropriation. The value to be considered is the part of the price that corresponds to the land. However, when the value defined for transmission purposes is lower, the latter shall prevail over the justification.

       

       

Percentage

On the value of the land at the time of accrual, the annual percentage determined by each municipality must be applied, without it exceeding the following limits

Period (years)

Percentage

From 1 to 5

3,7

Up to 10

3,5

Up to 15

3,2

Up to 20

3,0

The percentage to be applied is determined by multiplying the annual percentage in this table that corresponds to the specific case, by the number of years in which the increase in the taxable value has been shown, which is the period between the date of the tax to be liquidated and the date of the accrual of the previous transfer that has been subject to the tax.

The generation period of the capital gain must be calculated by whole years computed by default, considering only the full years that make up the period, without taking into account the fractions of the year of the said period. Capital gains generated in a period of less than one year are not taken into account and those generated in a period of more than 20 years must be understood to have been generated in 20 years in any case.

 

       

Tax liability

The full amount of the IIVTNU is the result of applying the corresponding tax rate to the tax base. For these purposes, the local authorities may set a single tax rate or a rate for each of the generation periods, without the rate or rates set being able to exceed the 30% limit.

       

Allowances

The most relevant for us  is the allowance performed by cause of death in favor of descendants and adoptees, spouses and ascendants and adopters, which may be up to 95% on the full quota.

 

 

       

Accrual

The IIVTNU arises:

  1. When ownership of the land is transferred, whether for valuable or lucrative purposes, between living persons or by reason of death: on the date of transfer.
  2. When constituting or transferring any real right of limited enjoyment of the domain: on the date the constitution or transfer takes place.

In the particular cases of  Acts or contracts subject to conditions, once the condition has been qualified (Civil Code Article 1113 et seq.), it must be differentiated according to the condition:

  1. suspension: the tax is not due until it is paid; or
  2. Resolutory: the tax is required, subject to the condition that, once the condition is met, the amount is returned to the subject.

 

       

Tax management

The rule establishes a series of obligations for the taxable person, consisting of:

  1. to submit the return, where a self-assessment is not established, within 30 working days of the date on which the chargeable event occurs, which is 30 working days in the case of inter vivos acts and 6 months, which may be extended to one year at the request of the taxable person in the case of acts of mortis causa; and
  2. pay the tax, once the settlement is notified by the municipal administration.

When the local council, through the tax ordinances, has established the self-assessment, the payment of the tax debt must be made, within the 30 days or 6 months (extendable) indicated above.

   

Formal obligations of other persons

In addition to the obligations of taxable persons, others are established for the following persons:

- The following persons are obliged to notify the municipality of the occurrence of the taxable event, regardless of the formal obligations of the taxable persons and within the same time limit:

- in acts and contracts carried out for profit between living persons, the donor or the person constituting or transferring the right in rem in question;

- in acts and contracts performed for consideration, the acquirer or the person in whose favour the right in rem in question is constituted or transferred.

- The notaries must send to the respective town halls, within the first 15 days of each quarter:

  1. an index or list comprising all the documents authorised by them in the previous quarter containing facts, acts or legal transactions evidencing the occurrence of the taxable event, with the exception of acts of last will;
  2. a list of the private documents comprising such facts, acts or legal transactions that have been submitted to them for knowledge or legitimation of signatures.

They must include the cadastral reference of the property when the aforementioned reference corresponds to the property to be transferred.

In addition, notaries must expressly warn the parties to the proceedings in the documents they authorise of the following matters:

  1. the time limit for the taxable persons to submit the return; and
  2. the responsibilities they may incur for failure to file.

 

IIVTNU. Cases where there is no increase in value

 

Jurisprudence and doctrine has not been clear regarding the treatment of transmissions in which there is no increase in value -the loss of assets being credited-. In some cases it has been considered that the taxable event was always produced, being applicable for the calculation of the taxable base, in any case, the provisions of the Law of Local Treasuries Article 107.2 , while, in other cases it was understood that the taxable event of the tax was not produced and this could not be demanded. It is this second opinion that has been gaining strength.

The Constitutional Court has been resolving the issue by declaring the unconstitutionality and nullity of certain provisions of the Local Finance Law, insofar as they subject to taxation situations of no increase in value.

As a consequence of the doctrine established by the Constitutional Court, there is currently a Bill to amend the Local Finance Law, which adds a new case of non-applicability of the law to land transfers for which the taxpayer proves the non-existence of the increase in value, due to differences between the real values of transfer and acquisition of the land.

 

IIVTNU. Cases where the fee to be paid is greater than the increase obtained

 

The Constitutional Court declares the unconstitutionality of the Local Finance Law, Article 107.4, regarding the determination of the taxable base, when the resulting fee to be paid is higher than the increase actually obtained by the taxpayer.

The Constitutional Court considers the question of unconstitutionality raised by the court that must resolve the appeal filed by a taxpayer who acquired a home that he later transferred for a capital gain. Since the tax liability resulting from the tax assessment made by the competent municipality is higher than the capital gain obtained, it filed an appeal for reversal and, subsequently, the corresponding contentious administrative appeal before this court.

The court brought the matter up on the grounds that the articles of the Local Finance Act relating to the tax base (Local Finance Act, Article 107) and the rate of full and liquid levy and quotas (Local Finance Act, Article 108) could be contrary to the principles of economic capacity and progressiveness, as well as the prohibition of confiscation.

The Constitutional Court considers that the situation in question is not that of the taxation of a situation of no increase in the value of land of an urban nature, nor is it that of a decrease. Rather, by applying the tax rate to the taxable income calculated in accordance with the tax regulations, the derived tax liability exceeded 100% of the wealth actually generated.

This is requiring the taxable person to fulfil his duty to contribute to the support of public expenditure by imposing an excessive or exaggerated burden. It is one thing to tax a potential income - the increase in value that presumably occurs over time in all land of an urban nature - and quite another to tax an unrealistic income, because, if that were the case, the provision in question would be contrary to the principle of economic capacity, a principle that breaks down in those cases where the economic capacity taxed is non-existent or fictitious (TCo 26/2017 ; 59/2017 ; 72/2017).

Any tax that subjects non-existent wealth to taxation contrary to the principle of economic capacity, or that exhausts taxable wealth under the pretext of the duty to contribute to the support of public expenditure, would also be incurring a confiscation result (TCo 26/2017). Therefore, in those cases in which the application of the annual percentage applicable to the cadastral value of the land at the time of accrual (Law of Local Treasuries, Article 107.4) results in an increase in value greater than that actually obtained by the taxpayer, the resulting tax liability, for the part exceeding the benefit actually obtained, corresponds to the illegal taxation of non-existent income contrary to the principle of economic capacity and the prohibition of confiscation.

The Tribunal therefore decides to consider the question of unconstitutionality and to declare that the Law of Local Treasuries, Article 107.4, is unconstitutional because it violates the principle of economic capacity and the prohibition of confiscation (Const Article 31.1), in those cases in which the fee to be paid is greater than the increase in assets obtained by the taxpayer.

The unconstitutionality cannot be extended to the Ley Haciendas Locales Article 108.1 (tax rate), since the declared defect is found exclusively in the way of determining the taxable base and not in the way of calculating the tax liability.

The situations that may be reviewed on the basis of this ruling are those that, at the date of publication of the ruling, have not become final because they have been challenged in time and form and have not yet been the subject of a final administrative or judicial decision.

IIVTNU. Proof of sale at a loss

 

To prove the existence of a loss in the transfer of the land, the values set out in the deeds of acquisition and transfer of the land can be used.

The Constitutional Court upholds the appeal for protection lodged by an entity that submitted a request to the municipality for the return of undue income for the amount paid under the IIVTNU. Along with the request, it provided the deeds of acquisition and transfer, which reflected a lower sales value than the purchase value.

Once the application was rejected, the corresponding contentious-administrative appeal was lodged, arguing that there was no increase in the value of the property transferred. To this end, documentary and judicial expert evidence was requested, the latter being inadmissible on the grounds that the judicial body considered it to be inappropriate evidence which, moreover, the party had been able to provide and did not do so. The contentious-administrative appeal was dismissed on the grounds that the Court had not established that the increase in value of the land subject to the tax had not occurred.

For the Constitutional Court, when it handed down its judgement, the judicial body already considered that the loss  could be proved, so that, according to its own criteria, the evidence requested was relevant and pertinent.

The violation of the right to effective judicial protection  is produced by the lack of valuation of the deeds of sale, the veracity of which was not contested by the city council, so that their valuation by the judicial body was in this case unavoidable.

Central Administration Taxes
Personal Income Tax

Real estate or rights in rem to use and enjoy it can generate various types of income for its owners:

  1. The lease or the constitution of rights or faculties of use or enjoyment generates returns on real estate assets.
  2. The fact that the property is at the disposal of its owners, without constituting their habitual residence, generates imputed income that is taxed in the Income Tax.
  3. If the property or rights are affected by the business or professional activity of the owner, they will generate income from economic activities.
  4. The transfer of the property may generate a capital gain or loss for the taxpayer.
Income from real estate assets

These are returns from the ownership of real estate, rural or urban, or from rights in rem that fall upon them, all of which are derived:

  1. of the lease of such property or rights in rem;
  2. of the constitution or transfer of rights or powers of use or enjoyment over them.

 

Total Income

In the two cases likely to generate income from real estate capital, leasing of real estate and constitution or assignment of rights or faculties of use or enjoyment thereof,  the amount received from the lessee, sublessee, acquirer or assignee for all concepts, excluding Value Added Tax, is computed as income or full income.

 

Deductible expenses

The expenses that can be subtracted from the total income to determine the net income are those necessary to obtain the income, including the amortization of the real estate.

However, expenses that are not directly related to income are not deductible, nor are payments made in respect of claims (fire, flood, subsidence, etc.) that result in a reduction in the value of the taxpayer’s assets. In these cases the proper treatment of capital gains and losses applies.

Nor is the amount of improvements made to the property deductible, without prejudice to the recovery of their cost by way of depreciation.

The excess can be deducted in the following 4 years with this same limit. In other words, in each of these years the rule continues to apply that the expenses of that year for financing, repairs and maintenance added to the amount to be deducted in that year for the excess not deducted from previous years cannot exceed the total Income for that year corresponding to the dwelling.

However, if there are several leases in the year on the same property, the maximum limit of the amount to be deducted for interest and maintenance and repair expenses is calculated taking into account the amounts paid in the year and the total income obtained in the year, so that, for some of the leases, the amount deducted for interest and maintenance and repair expenses may exceed the income obtained.

Interest and financing costs

Deductible expenses are interest on the capital invested in the acquisition or improvement of the property from which the income is derived and other financing expenses, provided that they are actually borne by the owner or holder of the right in rem.

The usual thing is that it is a mortgage loan, regardless of whether the mortgage guarantee falls on another property, but nothing prevents it from being a personal loan. The difference lies in the greater difficulty of proving the purpose of the loan. To this end, sufficient evidence should be left in the bank accounts and purchase deeds. Thus, for example, the deposit of the loan stub in a current account and subsequent payment of the property from that account; or the statement in a public deed that the financing is carried out with the personal loan.

The only requirement for the deductibility of interest and other financing costs is that the capital be invested in the acquisition or improvement of the leased property, or of the element generating the income from the property (e.g. the loan applied for to acquire a right of usufruct over a property to be subsequently leased).

 

Tributes

Non-state taxes and surcharges are deductible, as well as state fees and surcharges, whatever their denomination, provided that

– have an impact on the computed income or on the goods or rights that produce it; and

– have no sanctioning character.

Non-state taxes include Property Tax payments and the most common rates include cleaning, garbage, lighting, etc.

If the taxes are passed on to the tenant, the amount is deductible income and expense.

In relation to the incidence of Value Added Tax and IGIC there are two cases:

In the case of subject and nonexempt leases – business premises, garage spaces, leases to legal entities, etc. – the deductible expenses (services) must be computed excluding Value Added Tax, and these payments may be deducted from the Value Added Tax charged to the lessee in the value-added tax settlement.

– In the leases of dwellings exempt from Value Added Tax, said taxes on the services that constitute deductible expenses imply a greater value of the same, being deductible as an expense, together with the price of the service on which it falls.

 

Services provided by third parties

Deductible expenses are the amounts accrued by third parties in direct or indirect consideration or as a result of personal services. Thus, the expenses of administration, advice, guard or sworn watchman, porter’s lodge, gardening or similar.

Also deductible are the amounts paid to employment agencies, compulsory mutual insurance companies and social security and orphan’s school contributions for such personal services, which may be provided by employees.

These expenses are deductible by the owner or usufructuary in the part that corresponds to them, according to the coefficients of ownership, although the expenses are invoiced in the name of the community of owners. If the rented property is under a horizontal property regime, personal services are normally included in the community charges receipt. These have been expressly qualified as deductible.

 

Legal expenses

Expenses incurred in the formalisation of the lease, sublease, assignment or constitution of rights and those of a legal defence, relating to the goods, rights or income derived from them, are deductible.

Among these expenses, it is worth mentioning those derived from the execution of the contract (lawyer’s or advisor’s fees…), or those resulting from lawsuits filed in defense of your property, for the claim and collection of due rent, for eviction, etc., both the amount of the procedural costs and the fees of the lawyer himself.

 

Doubtful balances

Any rent that the lessor considers to be of doubtful collection, as long as this circumstance is sufficiently justified, is a deductible expense. Such justification is understood to be achieved:

– When the debtor is in a situation of insolvency.

– When more than 6 months have elapsed between the time the taxpayer’s first request for collection and the end of the tax period and the credit has not been renewed, without it being possible to defer these doubtful balances to subsequent tax periods.

When a doubtful balance is collected after it has been deducted, it is recorded as income in the year in which it is collected.

 

          Conservation and repair

Expenses incurred in the maintenance and repair of the goods producing the income are deductible. These expenses, together with interest expenses, may not exceed, for each property or right, the amount of the total Incomeobtained. The excess can be deducted in the following four years with the same limit.

They have this consideration:

– Those that are carried out regularly in order to maintain the normal use of the material goods, as long as they do not cause the modification of the structure, configuration, or living area of the property. By way of example, the standard itself refers to painting, plastering or repair of installations.

– Those of replacement of elements, such as heating installations, elevator, security doors and others. On the other hand, it is expressly stated that the amounts destined for expansion or improvement are not deductible as expenses. Such amounts are considered to be investments, since they increase the capacity or habitability of the property or extend its useful life, and they increase the acquisition value of the property, which must be taken into account when it is transferred to determine the capital gain or loss.

 

In practice, it is not always easy to distinguish these amounts from those for enlargement and improvement. Improvement is understood to be the set of activities through which an alteration is produced in an element of the fixed assets, increasing its previous productive efficiency. Repairs and maintenance are those aimed at maintaining the useful life of the property and its production or use capacity, while improvements lead to an increase in the capacity or habitability of the property or to an extension of its useful life.

 

Insurance

The owner or usufructuary may deduct, provided that they are effectively at his expense, the premiums of insurance contracts on the goods or rights producing the income.

The contracts may cover civil liability, fire, theft, glass breakage or circumstances of a similar nature.

When an incident occurs and compensation is received, the capital gain or loss must be calculated.

 

Compensation

Most of the allowances to be paid by the landlord to the tenant are considered improvements and therefore are not a deductible expense. Thus, the compensation paid by the owner of a property to the lessee for the termination of the lease and the amount paid by the owner of business premises to the lessee for the right of transfer have been considered improvements. As a higher acquisition value, this amount can be depreciated while the property is still leased. If these compensations are financed by a loan, the interest paid will be considered a deductible expense from the moment the property is rented again.

Also an improvement is the compensation paid to the lessee for the amount of work carried out agreed in the contract in the event of early termination of the contract.

Also an improvement is the compensation paid to the tenant for the eviction of the business premises due to the dilapidated state of the building, together with the legal interests.

 

Supplies

In the case of leased property, the amounts intended for the acquisition of services or supplies are deductible, provided that they are paid by the owner or usufructuary.

The landlord cannot deduct any expenses that he has not incurred. If it is the tenant who pays for the services and supplies of the property itself – water, gas and electricity – nothing has to be deducted by the owner or usufructuary. However, in cases where the amount of these items is actually borne by the landlord, as agreed in the contract, they are deductible.

 

Amortization

The amounts for the depreciation of leased properties are deductible if they correspond to an effective depreciation. The difficulty of proving such effective depreciation is overcome by the fiction that such requirement is deemed to be met if depreciation does not exceed the result of applying certain percentages. These differ depending on whether the property itself or the assets transferred with it are involved.

In any case, depreciation is applied exclusively in proportion to the time the asset has been leased, if the lease has not covered the entire tax period.

The depreciable assets are:

Real estate. The maximum percentage of depreciation to be applied in each financial year is 3%. Said percentage is applied to the greater of the following values:

– the cost of acquisition satisfied; or

– the cadastral value.

 

The acquisition cost paid includes the expenses and taxes inherent to the acquisition (notary, registration, value added tax, transfer tax and stamp duty, etc.) paid by the purchaser. In both cases the calculation does not include the acquisition cost or the cadastral value of the land. This part is not depreciated. When acquiring a property, normally the part of the cost that corresponds to the land is not differentiated from the part that corresponds to the building. In this case, if the cost of acquisition is used as a basis, the part of the land, which is not to be depreciated, can be calculated by reference to the cadastral value of the land in relation to the total cadastral value of the property, by apportioning the cost of acquisition paid between the cadastral values of the land and the construction for each year. An additional problem is that not all IBI receipts specify the breakdown of the cadastral value. In this case, the breakdown can be requested from the body responsible for cadastral management. If this assessment cannot be obtained either, an imperfect but reasonable solution is to apply an estimation criterion. On average, the value of non-depreciable land may be between 25 and 40% of the total property.

Movable property transferred with the property. In the case of movable assets, which can be used for a period of more than one year and are transferred together with the property, the maximum percentage of depreciation is that corresponding to the item in question, based on the depreciation tables approved for assets assigned to economic activities under the simplified direct estimation method. The value to which the percentage indicated in the tables must be applied is the acquisition value.

Right or power of use or enjoyment. If the income comes from the ownership of a right or faculty of use or enjoyment, it can be amortized, provided that its acquisition has entailed a cost for the taxpayer: – if the right or faculty has a fixed term, the deductible amortization is that resulting from dividing its acquisition cost by the number of years of duration; – if it is for life, the result of applying 3% to the acquisition cost. The annual amount of the amortization of the rights or faculties of use and enjoyment cannot exceed, in addition, the total Incomefrom each right.

Finally, the following principles must be taken into account when calculating the depreciation made:

– The sum of depreciations made may not exceed the acquisition value.

– Depreciation in one year cannot be deducted in another year. No deduction can be made for depreciation after the maximum depreciation period.

 

Tax compensation

For “old income” contracts prior to May 9, 1985, a tax offset is established. Thus, when these contracts do not have the right to review the income, it is allowed to include additionally, as a deductible expense, while such situation subsists and as compensation, the amount corresponding to the amortization of the property.

In other words, in addition to the ordinary depreciation to which they may be entitled, the lessor may additionally compute 3% of the acquisition cost paid.

To be entitled to this additional expense, the landlord must be registered in the Census of Landlords.

 

Net Return

The difference between the total Income and the tax-deductible expenses constitutes the net return on real estate capital. However, the return calculated in this way may be reduced if the following circumstances apply.

 

Housing lease

Landlords of properties used for housing by their tenants are entitled to reduce the net yield by 60%. Although this reduction is only applicable against  the positive net income declared by the taxpayer in his personal income tax return prior to the commencement of any verification or inspection procedure, and not in the case of negative income or positive income discovered by the Administration.

If the sublease occurs, the owner or usufructuary cannot apply the corresponding reductions to the sublease, even if the subtenant uses the property as a dwelling.

In the case of partial renting, for example of a room in the residential property, you are entitled to a reduction in the net yield for the part of the rent. The same criterion applies if the tenant uses the property as a dwelling and for the exercise of a professional activity, the reduction is only applied to the net income corresponding to the residential part of the property.

In principle the reduction is not applicable when the tenant is a legal entity. However, it does apply if it is proved that the property is intended for the housing of natural persons as defined in the contract, as the tax regulations do not refer to the status of the tenant.

 

Yields generated in more than 2 years

When the income from real estate has a generation period of more than 2 years, the net income resulting from deducting the deductible expenses from the total income, has to be reduced by 30% before being included in the general taxable base. The amount of net yield that can be reduced cannot exceed 300,000 euros per year.

In relation to leases this circumstance will occur when the rent corresponding to several years of rent is received at once.

If the rental contract is for more than 2 years, it can be reduced by 30% provided that it is not paid in instalments. To apply the reduction, income with a generation period longer than 2 years must be attributed to a single tax period. Therefore, in cases where the income is received in instalments over several tax periods, the reduction does not apply.

In relation to expenses corresponding to tax periods in which there is no full income, because these are accrued with a generation period longer than 2 years, given that the property is leased and there is a lease contract, the taxpayer can deduct the expenses incurred.

However, when the reduction on net income is made, it should be considered whether negative net income for years when there is no income but only expenses should also be reduced by 30%. In our view, the reduction applies whether the return is positive or negative, since the aim is to mitigate the effects of progressivity.

This reduction operates after the reduction for rental property for housing purposes.  In other words, the basis of the reduction operates on the balance resulting from applying, where appropriate, the reduction for housing rentals to the net yield. Therefore, if the general reduction of 60% is applied, the reduction for this concept will be 30% on the yield reduced by 60%, in such a way that the sum of the two reductions can reach 72% of the net yield prior to the application of the reductions.

 

 

Notoriously uneven yields

Due to their special character, in relation to leases, they are considered to have only this consideration:

– The amounts obtained by the lessor with its participation in the transfer or assignment of the business premises lease.

– The compensation received from the tenant, subtenant or assignee for damage to the property.

In these cases, the net yield is reduced by 30%, provided that they are also allocated to a single tax period.

 

Estimated yields

It is understood that certain returns have been obtained in the following cases:

Presumption of hardship. It is presumed that, in the absence of proof to the contrary, the provision of goods or rights capable of generating income from real estate capital is remunerated. The valuation of this estimated income must be made at its normal market value.

Thus, once these services have been provided, the law presumes that a taxable event has been generated, unless the taxpayer misrepresents it through his evidentiary activity.

This presumption is justified by the fact that services in general and between independent parties are performed for consideration. The effect of this is that the burden of proof is reversed, but in any case the general principles of our legal system on the burden of proof and its assessment apply, which in this case is borne by the taxpayer, who has the greatest facility to provide such proof.

Since it is a question of proof of a negative fact – non-remuneration of certain benefits – it is very difficult to obtain certainty of the non-existence of remuneration, so that if reasonable evidence of non-remuneration is not admitted, excesses may be committed in its application.

 

Kinship. When the tenant or subtenant is the spouse or a relative, including related persons, up to and including the third degree of the taxpayer, a minimum net return is established.

The degree of kinship up to the third degree, can be direct or collateral.

For this special rule to apply, it is not required that the relatives be the ones who enter into the lease at the beginning, it is enough that they become the owners of the relationship, even if it is by subrogation.

The minimum net yield to be considered, which as such a valuation rule does not admit proof to the contrary, is the result of applying the cadastral value of the property or, in general, that which would result from applying the rules specific to the allocation of real estate income:

  1. 2%, generally speaking; or
  2. 1%, in the case of properties whose cadastral values have been reviewed, modified or determined by a general collective assessment procedure and have come into force in the tax period itself or within the ten previous tax periods.

No expenses can be deducted.

 

Imputed income of real estate ownership

Ownership of properties, excluding the main residence and the land, which does not generate income, nor is there any effect on economic activities, is subject to income tax as imputed income.

 

Conditions of the property

The following conditions must be met for the real estate rent to be imputed:

  1. That it is urban, or rustic with constructions that are not indispensable for the development of agricultural, cattle or forest exploitations.
  2. That it is not business related, nor does it generate income as real estate capital.
  3. That it is neither the habitual residence nor plots of land.
  4. The property is not under construction, nor is it unusable for urban planning reasons, such as properties built in areas that are not classified as urban or developable; properties that do not have a first occupation planning permission; properties built without respecting the corresponding ordinance; properties that are declared to be in ruins, etc.

 

Quantification

As a general rule, the amount resulting from the application of 2% of the cadastral value of the property is considered to be imputed rent, determined in proportion to the number of days corresponding to each tax period. It is not possible to deduct any expenses from the imputed rent.

However, there are special rules of imputed rent for the following cases:

– For properties whose cadastral values have been reviewed  and have come into effect in the tax period or within the ten previous tax periods, the imputed income is 1.1% of the cadastral value.

– If, on the date of accrual of the income tax, the properties do not have a cadastral value or, even if they do, the owner has not been notified of this, 50% of the higher of the following values must be taken as the basis for allocation:

  1. that which the government has verified for the purposes of other taxes; or
  2. the price, consideration or value of the acquisition.

In this case, the percentage to be applied is 1.1%.

– In the case of timeshare rights, the allocation is made to the holder of the right in rem, with the cadastral value being apportioned according to the annual duration of the period of use. The percentage to be applied is 2% or 1.1% if the cadastral value has been subject to revision, modification or determination.

When this cadastral value cannot be determined or has not been notified to the holder, the acquisition price of the right of use is taken as the basis for allocation. The percentage to be applied is 1.1%.

There is no need to allocate property income to holders of timeshare rights if the duration of the timeshare right does not exceed 2 weeks per year. When the duration exceeds this period, it is not reduced, however, by the above-mentioned 2 weeks.

 

Apportionment

The allocation of real estate income is, in general, subject to apportionment. This means that it is proportional to the number of days in each tax period in which the taxpayer was the owner or holder of a real estate right of enjoyment over an urban or rural property capable of generating such income.

The apportionment applies whether the condition of owner or holder of a real right of use has been held for a certain number of days per year – except in rights of use where the cadastral value has been established – or whether, even if this condition is held throughout the year, the property generates, over this period, different types of income.

If the property has been rented or constitutes the habitual residence during part of the year and the rest is unoccupied, the allocation must be calculated in proportion to the number of days that the property has not been rented or has not constituted the habitual residence of the taxpayer.

Capital gains and losses

Three requirements are established for a capital gain or loss to be understood to have been produced:

– that there is a change in the value of the assets;

– that there is an alteration in the composition of such assets; and

– that the income obtained is not otherwise subject to tax. Capital gains and losses do not include all those cases to which the law itself assigns another classification, such as income from work, capital, economic activities or from income allocations.

In general, three types of capital gains or losses can be distinguished by the nature of the capital gain or loss from which they arise:

Expensive transfers, which is the most frequent and normal case of property alteration: some goods or rights leave the property and others (generally money) enter in substitution of those. Personal income tax covers all transfers for consideration, including those arising from compulsory purchase.

Lucrative or free transmissions: are those transmissions that occur without consideration, by acts inter vivos (donation) or mortis causa (inheritance, legacy).

– A third, residual, case is the incorporation of assets or rights into the taxpayer’s estate. This includes, for example, prizes.

 

 

 Delimitation of profits and losses

          Assumptions of non-clamping

The generic concept of capital gains and losses is supplemented in the LIRPF with an extensive list of cases in which it is not applicable, either because the basic characteristics are not present or because various reasons make it advisable not to tax certain capital gains or, on the contrary, to establish limits on the inclusion of certain capital losses.

In addition to these assumptions, which are developed below, there are other general exclusions that affect all income:

– Earnings subject to Inheritance and Gift Tax. Profits obtained by the purchaser in cases of inheritance, legacy, donation or similar are subject to another specific tax (Inheritance and Gift Tax) and are therefore expressly exempt from income tax. On the other hand, the capital gain obtained by the transferor is subject to income tax.

Exemptions. Obviously, exempt earnings are not taxed, e.g., compensation for personal injury or literary, artistic and scientific prizes under certain conditions.

Also noteworthy is the exclusion from taxation of public aid received to compensate for the temporary or permanent eviction of the taxpayer’s habitual residence due to fire, flood, subsidence or other natural causes.

In relation to real estate, the income that becomes apparent in the following situations is not subject to the tax.

 

Dissolution of communities

It is estimated that there is no gain or loss in the assumptions of:

– Division of the common thing, dissolution of communities of property or separation of co-owners.

– Dissolution of the partnership or extinction of the economic-matrimonial regime of participation.

There is no gain or loss in the award of goods, but at the moment when the goods or rights leave the patrimony of the awardee. The value and date of acquisition are taken to be those corresponding to the initial acquisition and not to the award, so that the updating of values does not take place. This is justified because the co-proprietor was the owner, even if he was a co-owner or community, of the goods or rights awarded to him.

 

Profitable transmission by cause of death of the taxpayer

Capital gains and losses in the event of the taxpayer’s death – the so-called “capital gain of the deceased” – are excluded, regardless of who is the beneficiary of the estate. If we take into account that lucrative inter vivos transfers cannot give rise to patrimonial losses, it turns out that lucrative transfers are only taxed in the personal income tax of the transferor when they are caused by inter vivos acts and, moreover, generate patrimonial gains.

 

Termination of the separation of property regime

There is no capital gain or loss when, on the expiry of the economic matrimonial regime of separation of property, by legal imposition or judicial resolution, awards are made for reasons other than the compensatory pension between spouses. In these cases, neither does the spouse who receives the aforementioned asset or, where appropriate, the monetary compensation, have a patrimonial gain when the delivery of such property or money is imposed by legal imposition or judicial resolution. In no case may this situation give rise to an increase in the value of the goods or rights awarded.

 

Contributions to the assets of people with disabilities

No tax is payable on capital gains or losses that become apparent to the contributor on the occasion of non-monetary contributions made to the protected assets of persons with disabilities. Such contributions must be valued according to the provisions established for the calculation of the basis of deductions for donations made in favour of the entities benefiting from the sponsorship.

 

Exemptions

The situations that, in relation to real estate and capital gains, generate income considered exempt from personal income tax by the law are set out below.

 

Exemption for reinvestment in the habitual residence

Capital gains produced by the transfer of the taxpayer’s habitual residence are excluded from taxation, provided that the amount obtained is reinvested in the purchase of a new habitual residence, and certain conditions are met. The exemption of the gain can be total or partial; by definition, the exemption refers only to the gains and not to the capital losses.

– The reinvestment must be made with the acquisition of another habitual residence, to which the cases of rehabilitation are assimilated, with certain requirements.

The habitual residence is considered to be that in which the taxpayer resides for a continuous period of 3 years. However, the dwelling is considered to have been inhabited for that period of time when, despite the fact that this period has not elapsed, death occurs or other circumstances occur that necessarily require a change of dwelling, such as a marriage, separation, transfer to another job, obtaining a first job or a change to a more advantageous job or other similar justified circumstances. When the dwelling has been effectively and permanently inhabited by the taxpayer within a period of 12 months, counting from the date of acquisition or completion of the works, the indicated period of 3 years is calculated from this last date.

In addition, the taxpayer is considered to be transferring his or her habitual residence when said building constitutes his or her habitual residence at that time or would have had such consideration up to any day in the 2 years prior to the date of transfer. In this way, the taxpayer is allowed to stop actually residing there by having an additional period for its sale without the loss of the corresponding exemption.

 

– As regards the amount, total or partial reinvestment of the amount obtained from the transfer is permitted, with the following consequences:

– total reinvestment: exemption of the total profit produced; and

– Partial reinvestment: the capital gain produced is exonerated in proportion to the amount that has been reinvested.

When the transferred house has been financed by a loan, the amount to be reinvested is the difference between the transfer value and the outstanding amount of the loan. When the acquired dwelling has been financed by means of a loan, it is understood that the amounts destined, before the end of the term of 2 years from the transfer of the habitual residence, to satisfy the part of the purchase price that has not been financed by means of a loan plus the amounts destined for the cancellation of the latter, have been reinvested.

 

– The reinvestment of the amount obtained from the transfer must be made, in one go or successively, within a period not exceeding 2 years. The intention to reinvest must be stated in the annual income tax return when the reinvestment is not made in the same year as the disposal. It is also possible to first acquire the new main residence and then, in the following two years, transfer the previous residence, provided that the amount received for this is used to satisfy the price of the same. An exception is made to the deadline rule when the price of the transferred home is collected in instalments or with a deferred price; reinvestment is not considered to be made outside the deadline when the instalments collected are used to pay for the new main residence within the tax period in which they are received.

 

Transfer of habitual residence

There is no capital gain when taxpayers over 65 years of age or people with severe or great dependence transmit their habitual residence.

It is understood that the habitual residence is being transferred when the building constitutes such at the time of the transfer or has had such consideration up to any day of the 2 years prior to the date of transfer. In this way, the taxpayer is allowed to stop actually residing in said dwelling, having an additional period for its sale without the loss of the corresponding exemption.

 

Dation in payment of the habitual residence

The capital gain that may be generated in the debtors or guarantors of the debtor on the occasion of the giving in payment of his habitual residence for the cancellation of debts guaranteed by a mortgage that falls on it, contracted with credit institutions or with any other entity that, in a professional manner, carries out the activity of granting loans or mortgage credits, is exempt. Also exempt are capital gains that become apparent on the transfer of the home in which the above requirements are met, carried out in judicial or notarial foreclosures.

For the application of this exemption it is necessary that the owner of the habitual residence does not have other goods or rights in sufficient quantity to satisfy the totality of the debt and avoid the alienation of the residence.

 

Transfer of urban properties

50% of the capital gains that become apparent on the transfer of urban property acquired for valuable consideration between 12 May 2012 and 31 December 2012 are exempt. The exemption does not apply when the property has been acquired or transferred to the spouse, to any person related to the taxpayer by blood or marriage up to and including the second degree, or to an entity in respect of which any of the circumstances set forth in the CCom Article 42 apply, regardless of residence and the obligation to prepare consolidated financial statements.

This exemption is compatible with the exemption for reinvestment in the habitual residence. In this case, when the amount reinvested is less than the total amount received in the transfer, the proportional part of the capital gain obtained, once the aforementioned exemption of 50% has been applied, which corresponds to the amount reinvested, is exempt from taxation.

 

Payment of tax debt with historical assets

The payment of the tax debt resulting from the self-assessment of the personal income tax can be made through the delivery of goods that are part of the historical heritage. The payment of this debt to the State is not a donation, but a transfer for a fee. In order to avoid the taxpayer’s withdrawal from this means of payment, any capital gains that may arise on this occasion are not subject to personal income tax.

 

Ground clause 

The amounts returned to the taxpayer, either in cash or by adopting an equivalent compensation measure, together with the corresponding compensatory interest, as a result of agreements entered into with financial institutions or arising from compliance with judgments or arbitration awards, are not included in the taxable income for personal income tax purposes.

The non-inclusion in the taxable base of such amounts is established with retroactive effect, applying therefore to agreements, awards or judgments produced in previous years not prescribed at the time of the entry into force of RDL 1/2017 , on 21-1-2017

The amounts returned for this reason are not included in the tax base, regardless of the classification of the income obtained from such return. In general, the classification of the income that should not be included in the tax base will be that of capital gain. However, if the interest that is now being repaid was considered at the time to be a deductible expense for the calculation of the return on economic activity, its classification would be that of income from economic activity.

This rule is applicable to all types of agreements reached with financial institutions and not only those derived from the out-of-court procedure provided for in RDL 1/2017.

To the extent that the taxpayer is going to recover the interest paid in excess, without such return generating taxable income for income tax purposes, he must regularize the self-assessments filed in previous years when such interest would have formed part of the deduction for investment in housing or regional deductions or deductible expenses for calculating the corresponding income, since the return of such amounts determines that they have not been effectively paid by the taxpayer.

 

 

 Amount of capital gain or loss 

 

In order to determine the amount of the capital gain or loss, there are general rules which, for certain cases of particular complexity, require certain nuances, constituting the so-called special rules. Since the latter have hardly any impact on real estate, the general rules applicable are set out below.

 

Expensive transmissions

These are the most frequent cases, in which an asset or right leaves the taxpayer’s estate in exchange for another, which usually consists of money. As a general rule, the amount of the capital gain or loss in cases of onerous disposal is determined by the difference between the acquisition and transfer values of the assets.

 

Acquisition value

The acquisition value is determined by adding three items and subtracting a fourth:

– (+) Actual amount of acquisition. When the acquisition of the item now being transferred has taken place for payment, its acquisition value is the actual amount for which it was acquired; if the acquisition was for profit, it is taken at the value that was set at the time for Inheritance and Gift Tax purposes, with the limit of the market value.

– (+) Cost of investments and improvements If investments and improvements have been made in the items acquired, their cost is added to the acquisition value.

– (+) Expenses and ancillary taxes. All expenses and taxes inherent to the acquisition that have been paid by the purchaser are added together to calculate the amount of the acquisition value, with the exception of interest.

– (-) Depreciation.  Depreciations corresponding to depreciable assets reduce the acquisition value, calculating in any case the minimum depreciation, regardless of whether it has been carried out or not. For these purposes, minimum depreciation is considered to be that resulting from the maximum period of depreciation or the fixed percentage that corresponds (3%), according to each case. All items will be considered as being depreciated annually, at least in the amount of the depreciation that could have been computed in accordance with the general rules, regardless of whether or not they are actually considered to be deductible expenses.

When the value declared in the acquisition has been subject to verification by the Tax on Property Transfers and Documented Legal Acts, based on the principle of the uniqueness of the Administration, it has been determined that the value assigned by the Autonomous Administration in relation to said tax should be taken into account as the acquisition value, for the purpose of determining the property gain or loss in a subsequent transfer.

 

In the case of a lease with a purchase option, the amount of the purchase option premium forms part of the acquisition value of the property for the purposes of calculating any capital gain or loss that may arise as a result of the transfer of the property after the option is exercised. However, the amounts paid for the lease of the property are not included in the acquisition value of the property, even though it has been agreed that they will be deducted from the exercise price of the purchase option.

 

Transmission value

The transmission value is determined by counting two items:

– (+) Actual amount of disposal.

– (-) Expenses and ancillary taxes.

When the transfer is made for consideration, the actual amount of the disposal is that actually paid, provided that it is not less than the normal market value, in which case the latter prevails. The above amount is reduced by the expenses and taxes inherent to the transfer which have been paid by the transferor.

The rule refers to the expenses and taxes that have been paid by the transferor, such as the real estate agent’s commission, lawyer’s fees, notary’s fees or the cost of issuing energy efficiency and habitability certificates and the status of debts to the owners’ association.

When the amount of an expense inherent in the transfer is not known, the statement of income for the year will calculate the capital gain or loss taking into account a transfer value without reducing this expense, and may subsequently correct the self-assessment presented when in a subsequent year the amount of this expense is specified, reducing the amount of the transfer value initially declared.

The transfer value is reduced by the total municipal capital gains tax due to the seller when it has been paid by the latter. If it is agreed that the buyer will pay this tax, it constitutes a higher acquisition value of the property and does not reduce the transfer value of the seller.

 

Profitable transmission

Gainful transfers, which occur without any real consideration, may result in capital gains for the transferor, which are subject to specific rules regarding the acquisition and transfer value.

The gain produced in the patrimony of the acquirer is not taxed in income tax, but in the Inheritance and Gift Tax.

Transmission for profit or free of charge can take place by inter vivos acts (donations) or mortis causa (inheritance, legacy):

– Profitable inter vivos transmissions are only likely to produce patrimonial gains (never losses) in the transferor or donor.

On the other hand, mortis causa transmissions are not likely to generate profits or losses in the income of the deceased (“capital gain of the deceased”).

 

Transmission value

When the item is subject to inter vivos lucrative transmission (donation) the transmission value is the value that corresponds for the purposes of Inheritance and Gift Tax without it exceeding the market value.

As in the case of onerous transmissions, the transmission value is reduced by the expenses and taxes inherent in the transmission that are paid by the transferor. In most cases, however, no such expenses are incurred, since they are paid by the acquirer (in particular, inheritance and gift tax) and not by the transferor. Thus, the transfer value may never be reduced by the amount of the Inheritance and Gift Tax itself, since this is not a tax for the donor; in fact, the payment by the donor, if applicable, of the Inheritance and Gift Tax corresponding to the recipient transforms the tax into a new donation.

 

Acquisition value

In lucrative inter vivos transmissions, the element that is now being transmitted may have been acquired for a fee or for profit.

Onerous acquisition: this value is calculated in the same way as if the current transmission were onerous.

– For-profit acquisition: in the case of real estate, the actual amount of acquisition is replaced by the value assigned to the donation for the purposes of Inheritance and Gift Tax, up to the market value, and the expenses and taxes inherent in the acquisition that have been paid by the purchaser are added, as well as the investments and improvements, and depreciation is reduced

The expenses and taxes inherent to the acquisition of a property for profit include, among others, the costs of the notary’s office, the Property Registry, the agency, the advisor, the Tax on the Increase in Value of Urban Land corresponding to the property paid by the purchaser, in addition to the Inheritance and Gift Tax, the certificate obtained from the General Registry of Acts of Last Will and Testament, or the energy certificate of the property.

 

Particular assumptions

The following is an analysis of a series of cases related to real estate with its own particularities.

 

Transfer

The capital gain produced in the transferor (lessee) as a result of a transfer is computed in the amount corresponding to him in the transfer, after deducting the amount corresponding to the owner for his participation in the transfer. If the right was acquired at a price, it is considered to be of acquisition value and must be reduced by tax-deductible depreciation.

 

Compensation and insurance for property damage

The amounts received for damages to assets may generate a gain or loss of assets. These amounts may derive either from an insurance contract taken out by the taxpayer himself to cover damage to his assets, or from the tortfeasor as compensation for civil liability, whether he pays them directly or is covered by insurance and the amount derives from it.

In both cases, the capital gain or loss will be computed by the difference between:

– the amount received or the market value of the goods, rights or services received; and

– the proportional part of the acquisition value corresponding to the damage.

 

Exchange of land for flats or premises to be built on in the future

A capital gain or loss is produced by the owner of the land at the time of its transfer, which is calculated as the difference between the market value of the flats or square metres not yet built at that time – which will coincide with the market value of the land – and the acquisition value of the land – to which the general rules apply.

The gain can be attributed at the time of delivery of the flats, when more than one year has passed between the transmission of the plot and the delivery of the flats, by application of the special rule of forward transactions.

 

Constitution, transmission or extinction of rights in rem of enjoyment or use

The creation of rights in rem on movable or immovable property constitutes an event that generates income from movable or immovable capital, respectively, for the holder of such property, for the full amount received.

The transfer and extinction of the usufruct and other rights in rem generates capital gains and losses for the usufructuary or holder of the right in rem.

For the calculation of the capital gain or loss, the following assumptions must be differentiated:

– In general, the capital gain or loss must be quantified in accordance with the general rules, i.e. by the difference between the transfer value (zero, in the event of extinction) and the acquisition value.

Consequently, when the right of usufruct and other rights in rem is extinguished or transferred, the amount of depreciation that may have been deducted for tax purposes must be deducted from the acquisition value.

– In the case of immovable property that does not generate a return on capital, the right in rem should be understood to be consumed by use and, consequently, the amount of acquisition should be reduced in proportion to the time during which no return is generated.

Valencian Region Deductions

In the Region of Valencia it is possible to apply the following deductions related to real estate.

 

Acquisition of first habitual residence by young people

5% of the amounts paid during the tax period for the purchase of the first main residence is applied, except for interest. For this purpose, it is required:

– that the sum of the general tax base and savings does not exceed twice the IPREM for the tax period;

– that the age of the taxpayer on the date of the accrual of the tax is equal to or less than 35 years; and

– that the delivery of the monetary amounts derived from the legal act or business that gives right to its application is carried out by means of credit or debit card, bank transfer, nominative check or deposit in accounts in credit institutions.

This deduction requires that the amount of the taxpayer’s assets at the end of the tax period exceeds the value of the assets at the beginning of the period, at least the amount of the investments made, without taking into account the increases or decreases in value during the tax period of assets that continue to form part of the taxpayer’s assets at the end of the period.

The deduction is compatible with the deduction for the acquisition of a habitual residence by a person with a disability.

 

Purchase of habitual residence by people with disabilities

5% of the amounts used during the tax period for the purchase of the dwelling, except for interest, which constitutes or will constitute the habitual residence, is deductible:

– of people with physical or sensory disabilities of 65% or more;

– psychic, with a degree of 33% or more; or

– a judicially declared incapacity even if it does not reach that degree.

It is required that the sum of the general tax base and the savings do not exceed twice the IPREM for the tax period.

Likewise, the deduction is conditioned to the delivery of the monetary amounts derived from the legal act or business that gives right to its application being made by credit or debit card, bank transfer, nominative check or deposit in accounts at credit institutions.

This deduction requires that the amount of the taxpayers assets at the end of the tax period exceeds the value of the investments made at the beginning of the period, without taking into account the increases or decreases in value of the assets that continue to form part of the taxpayer’s assets at the end of the period.

This deduction is compatible with the deduction for the purchase of a primary residence by taxpayers aged 35 or under.

 

Acquisition or rehabilitation of the habitual residence with public aid

This deduction is applied to the amount that comes from the following:

– 102 euros per taxpayer, provided that the taxpayer has actually spent, during the tax period, on the purchase or refurbishment of the home that constitutes or will constitute his or her habitual residence, the amounts from a grant for this purpose awarded by the Generalitat.

If, by application of the rules for temporary allocation of income in the state tax legislation, such aid must be allocated as income over several years, the amount of the tax credit is pro rata to the years in which it is allocated.

– The amount resulting from the application of the average general regional tax rate on the amount of public aid, provided that the taxpayer has effectively used, during the tax period, the amounts from public aid for this purpose granted by the Generalitat for the purchase or rehabilitation of the home that constitutes or will constitute his or her habitual residence, in the field of building rehabilitation and urban regeneration and renewal in those neighbourhoods or groups of buildings and dwellings that require the demolition and replacement of their buildings, the redevelopment of their open spaces or the revision of their equipment and facilities, including, where appropriate, the temporary relocation of residents.

The deduction is conditioned to the delivery of the monetary amounts derived from the legal act or business that gives right to its application being made by credit or debit card, bank transfer, nominative check or deposit in accounts at credit institutions

The application of this deduction is excluded when the taxpayer is entitled to the deduction for a first habitual residence up to the age of 35 or for amounts destined for the acquisition of a habitual residence by persons with disabilities.

The deduction requires that the amount of the taxpayer’s assets at the end of the tax period exceeds the value of the assets at the beginning of the period, at least the amount of the investments made, without taking into account the increases or decreases in value during the tax period of assets that continue to form part of the taxpayer’s assets at the end of the period.

 

Lease of the main residence

The deduction is set at 15% of the amounts paid during the tax period for the rental of the main residence, with a limit of 550 euros.

The percentage rises to 20%, with a limit of 700 euros, if the tenant is 35 years old or younger.

The same percentage of deduction is applicable, with the same limit, if the tenant is a person with a physical or sensory disability, with a degree of disability equal to or greater than 65%, or a mental disability, with a degree of disability equal to or greater than 33%.

The deduction is 25%, with a limit of 850 euros if the tenant is aged 35 or under and also has a physical or sensory disability of 65% or more, or a mental disability of 33% or more.

The limit of this deduction is prorated by the number of days the lease remains in force within the tax period and when the personal circumstances required for the application of the different deduction percentages are met.

 

In addition, when two or more taxpayers are entitled to the application of this deduction for the same dwelling, the limit is apportioned equally between them.

These are requirements:

– that it is the lease of the taxpayer’s habitual residence, actually occupied by him, with a contract after 23-4-1998 and duration of one year or more;

– that the taxpayer, as a tenant, has presented the corresponding self-assessment of the Tax on Property Transfers and Documented Legal Acts derived from the lease of this main residence – with an exemption for contracts signed from 6-3-2019;

– that, for at least half of the tax period, neither the taxpayer nor any member of his family unit holds full ownership or a real right to use or enjoy another dwelling less than 100 kilometres away from the rented one;

– that the taxpayer is not entitled in the same tax period to any deduction for investment in a habitual residence;

– that the delivery of the monetary amounts derived from the legal act or business that gives right to its application is carried out by means of credit or debit card, bank transfer, nominative check or deposit in accounts in credit institutions;

– that the sum of the general taxable base and the savings do not exceed 30,000 euros or 50,000 euros in individual or joint taxation, respectively.

The full amount of this deduction is only applicable, in general, to taxpayers whose sum of the general taxable base and savings is less than 26,000 euros in individual taxation, or 46,000 euros in joint taxation.

When the sum of the general taxable base and the taxpayer’s savings is between 26,000 and 30,000 euros in individual taxation, or between 46,000 and 50,000 euros in joint taxation, the amounts and limits of deduction are as follows:

– In individual taxation, the result of multiplying the amount or limit of deduction by a percentage obtained from the application of the following formula 100 × (1 – the coefficient resulting from dividing by 4,000 the difference between the sum of the general taxable base and the taxpayer’s savings and 26,000)

– In joint taxation, the result of multiplying the amount or limit of deduction by a percentage obtained from the application of the following formula 100 × (1 – the coefficient resulting from dividing by 4,000 the difference between the sum of the general taxable base and the taxpayer’s savings and 46,000)

This deduction is compatible with the deduction for housing rental in a different municipality.

 

Renting a house in a different municipality

For the rent of a house, as a result of carrying out an activity, for oneself or for others, in a municipality other than the one in which the taxpayer previously resided, 10% of the amounts paid in the tax period are deductible, with a limit of 204 euros. The following requirements must be met:

– That the rented property, located in the Autonomous Region, is more than 100 kilometers from the one where the taxpayer resided immediately before the lease.

– That the taxpayer, as the tenant, has presented the corresponding self-assessment of the Tax on Property Transfers and Documented Legal Acts derived from the lease of this property.

– That the rent is not paid by the employer.

– That the delivery of the monetary amounts derived from the legal act or business that gives right to its application is carried out by means of credit or debit card, bank transfer, nominative check or deposit in accounts in credit institutions.

– That the sum of the general taxable base and the savings do not exceed 30,000 euros in individual taxation, or 50,000 euros in joint taxation.

When the sum of the general taxable base and the taxpayer’s savings is between 26,000 and 30,000 euros in individual taxation, or between 46,000 and 50,000 euros in joint taxation, the amounts and limits of deduction are as follows:

– In individual taxation, the result of multiplying the amount or limit of deduction by a percentage obtained from the application of the following formula 100 × (1 – the coefficient resulting from dividing by 4,000 the difference between the sum of the general taxable base and the taxpayer’s savings and 26,000)

– In joint taxation, the result of multiplying the amount or limit of deduction by a percentage obtained from the application of the following formula 100 × (1 – the coefficient resulting from dividing by 4,000 the difference between the sum of the general taxable base and the taxpayer’s savings and 46,000)

This deduction is compatible with the deduction for renting a permanent home, and the limit is pro-rated when the contract is in force for less than one year.

When two or more taxpayers are entitled to the application of this deduction for the same dwelling, the limit is apportioned equally between them.

 

Income derived from housing leases

A new deduction of 5% is applied to the total income of the tax period from housing rentals whose income does not exceed the reference price of private rentals in this Autonomous Region, provided that the following requirements are met

– that the full return derives from housing leases, in accordance with urban leasing legislation, commenced during the tax period;

– if the property has been previously rented for a period of less than 3 years, the tenant cannot coincide with that established in the previous contract;

– the agreed monthly rent cannot exceed the reference price of private rentals in the Valencian Region;

– the rented property must be located in the areas indicated, for this purpose, by the competent housing authority when establishing the reference price for private rentals in the Region of Valencia;

– Before the end of the tax period, the deposit of the bond referred to in the legislation on urban leases, in favour of the Generalitat, must have been made.

The maximum annual base for this deduction is 3,000 euros.

 

Investments for the use of renewable energy sources in housing

This deduction is applied for investments in facilities for self-consumption of electrical energy or for the use of certain renewable energy sources in the homes of the Region of Valencia, as well as for the share of investments in collective facilities where the homes are located.

The deduction amounts to 20% of the amounts invested in installations carried out in the homes and in collective installations of the building that are used for any of the purposes indicated below, provided that they are not related to the exercise of an economic activity, understood to be in accordance with state income tax regulations:

– Installations for self-consumption of electricity.

– Installations for the production of thermal energy from solar energy, biomass or geothermal energy for the generation of domestic hot water, heating and/or air conditioning.

– Installations for the production of electricity from photovoltaic solar energy and/or wind power, for the electrification of homes that are isolated from the electricity distribution network and whose connection to the network is not technically, environmentally and/or economically feasible.

The deduction applies to investments made in the domestic sphere in any type of home, both those that are habitual residence and those that constitute second homes, provided that they are located within the territory of the Region of Valencia. The deduction does not apply in the case of mandatory installations (Royal Decree 314/2006).

The actions subject to deduction must be carried out by installation companies that meet the requirements established by regulation.

The basis for the deduction is the amounts actually paid in the year by the taxpayer, by credit or debit card, bank transfer, cheque or deposit in accounts at credit institutions.

 

Works of conservation or improvement of the quality, sustainability and accessibility in the habitual residence

Taxpayers whose sum of the general taxable base and savings does not exceed 25,000 euros in individual taxation or 40.000 in joint taxation, may deduct for work carried out during the period on the usual residence they own or hold a real right of use and enjoyment, or on the building in which it is located, provided that the purpose is to preserve it or improve its quality, sustainability and accessibility, under the terms provided by the state plan for the promotion of housing rental, building rehabilitation and urban regeneration and renovation, or in the regional regulations on rehabilitation, design and quality in housing, which are in force on the date of accrual, 20% of the amounts paid in the tax period, by credit or debit card, bank transfer, cheque or deposit in accounts at credit institutions, for the work carried out. In no case does it apply to amounts paid by means of money deliveries of legal course. The maximum annual base for the deduction is 5,000 euros.

If there are several taxpayers who are entitled to take the deduction in respect of the same property, the maximum annual deduction base is weighted for each of them according to their percentage ownership of the property. The full amount of this deduction is only applicable, in general, to taxpayers whose sum of the general taxable base and savings is less than 23,000 euros in individual taxation, or less than 37,000 euros in joint taxation.

When the sum of the general taxable base and the taxpayer’s savings is between 23,000 and 25,000 euros in individual taxation, or between 37,000 and 40,000 euros in joint taxation, the amounts and limits of deduction are as follows:

– In individual taxation, the result of multiplying the amount or limit of deduction by a percentage obtained from the application of the following formula 100 × (1 – the coefficient resulting from dividing by 2,000 the difference between the sum of the general taxable base and the taxpayer’s savings and 23,000).

– In joint taxation, the result of multiplying the amount or limit of deduction by a percentage obtained from the application of the following formula 100 × (1 – the coefficient resulting from dividing by 3,000 the difference between the sum of the general taxable base and the taxpayer’s savings and 37,000).

The deduction does not apply to:

– works carried out in parking lots, gardens, parks, swimming pools and sports facilities and other similar elements;

– investments for the use of renewable energy sources in the habitual residence to which the deduction applies.

– the part of the investment financed by public subsidies.

In order to apply this deduction, identification by means of the NIF of the persons or entities that materially carry out the works is required.

Inheritance and Gift Tax

The Inheritance and Gift Tax, regulated by Law 29/1987 and Royal Decree 1629/1991 (Inheritance and Gift Tax Regulations), is a tax of a direct and subjective nature that taxes increases in wealth obtained for profit by individuals. Profitable increases obtained by legal entities are subject to corporate tax. The Inheritance and Gift Tax is applied throughout the national territory, without prejudice to the peculiarities of the foral regimes of Concert with the Basque Country and Convention with Navarre, nor to the provisions of International Agreements and Treaties.

Inheritance and Gift Tax  income is assigned to the Regional Administration under the common system, which also have important regulatory powers.

Within its regulation there are few specific references to the taxation of real estate, which is subject to the tax according to the general regime, as the rest of the goods.

Inheritance

Increases in assets obtained for profit by inheritance, legacy or any other inheritance title – for example, a donation mortis causa or inheritance contracts or agreements – are subject to Inheritance and Gift Tax.

In direct relation with the real estate field this type of legal business has an impact on the following tax issues.

 

Reductions

The taxable base for Inheritance and Gift Tax is obtained by applying the appropriate reductions to the taxable base, firstly those granted by the State and then, where applicable, those created by the Autonomous Community itself.

In relation to real estate, the following applies.

 

Central Administration Reductions

Main residence

In acquisitions mortis causa, a 95% reduction of the value corresponding to the habitual residence of the deceased is applied to the taxable base, in favour of the spouse, ascendants, descendants or collateral relatives over 65 years of age, it being necessary in the latter case that they had lived with him during the previous 2 years and that they are established in a common habitual residence, which must belong, at least in part, to the person causing the succession.

In order to determine the value of the property, any charges or liens of a perpetual or temporary nature that reduce its value must be deducted, as well as the proportional part of debts and general expenses that form part of the related assets.

There is a maximum reduction limit for each taxable person, set at EUR 122,606.47.

Likewise, in order to apply the reduction, among the requirements, it is necessary that the acquisition be maintained for a period of 10 years following the death of the deceased, unless the acquirer dies within this period, with complementary liquidation being carried out if the period is not complied with.

However, the destination is not required to be the habitual residence of the deceased. The requirement of permanence is applicable to all the successors who have acquired the dwelling so that if one of them were to fail to comply, all the purchasers benefiting from the reduction in the inheritance would lose such benefits, since the tax advantage falls on an asset of the inheritance conceived as a unitary good, the habitual residence.

 

Agricultural holdings

The reductions in the base applicable to the Tax on Transfer of Property and Documented Legal Acts are expressly declared applicable to acquisitions mortis causa. Reductions from 50% to 90% of the base are also established in relation to the transfer of rustic areas dedicated to forestry.

These reductions are incompatible with those provided for in the Inheritance and Gift Tax Act, which means that where the two coincide in the same event, the person concerned may choose to apply one or the other, so that the same good cannot give rise to two reductions.

 

 

 Valencian Region

In the Region of Valencia, the following reductions are applied to real estate.

 

Main residence

In the case of acquisitions mortis causa of the habitual residence of the deceased, a 95% reduction in value is applied, provided that the beneficiaries are the spouse, ascendants or descendants of the deceased, or a collateral relative over 65 years of age who lived with the deceased during the 2 years prior to the death, and that the acquisition is maintained during the 5 years following the death of the deceased, unless the purchaser dies within this period.

This reduction is applied with a limit of 150,000 euros for each taxable person.

 

Agricultural holdings

When the taxable amount of an acquisition due to death includes an agricultural holding located in this Autonomous Region, or of usufruct rights over it, this reduction is applied provided that some of the following circumstances are met

– Acquisition by spouse, descendants or adoptees, ascendants or adopters and collateral, by blood up to and including the third degree of the deceased, provided that the acquirer is a professional farmer in terms of the dedication of the work and the origin of the income and that he or she maintains the agricultural holding in his or her possession for the five years following the accrual of the tax, except in the event of death or compulsory purchase of the plots.

– Acquisition by spouse, descendants or adopted children, relatives in the ascending line or by adoptive parents, and collateral relatives up to and including the third degree of kinship of the deceased, provided that the purchaser is a professional farmer with regard to the dedication of the work and the origin of the income and that they are the owners of an agricultural holding to which the transferred assets are attached or members of an agricultural processing company, cooperative, civil society or grouping registered as a GI (common management initiatives) which owns the agricultural holding to which the transferred assets are attached. The agricultural holding must be maintained in its assets for five years after the tax becomes due, except in the event of death or compulsory purchase of the land, or if there are exceptional and duly proven circumstances which make it impossible to carry out an agricultural or complementary activity.

The time of affectation cannot be less than 5 years following the accrual of the tax, unless the purchaser dies or the plots are affected by expropriation proceedings.

 

Rustic properties

When the taxable base of an acquisition by reason of death includes the value of rural properties located in this Autonomous Region, or of usufruct rights over these, provided that the acquirer mortis causa transfers these plots within one year, to a person having the status of a professional farmer as regards the nature of his work and the source of his income and who is the owner of an agricultural holding to which the transferred assets are attached or a member of an agricultural processing company, cooperative, civil society or grouping registered as a GI (common management initiatives) which owns the agricultural holding to which the transferred assets are attached.

The transfer or assignment can also be made directly to IGC or to the Land Network. The time of assignment cannot be less than 5 years following the accrual of the tax, unless the acquirer dies or the plots are affected by expropriation proceedings.

 

 

 Tax debt

 

Full quota

In order to determine the tax debt, i.e. the amount to be paid, it is necessary to first determine the total tax liability, which is obtained by applying the scale approved by the respective Autonomous Communities or, failing that, the State scale to the taxable base:

 

Settlement basis

(up to euros)

Full quota

(euros)

Other net base

(up to euros)

Applicable rate

(percentage)

0,00 7.993,46 7,65
7.993,46 611,50 7.987,45 8,50
15.980,91 1.290,43 7.987,45 9,35
23.968,36 2.037,26 7.987,45 10,20
31.955,81 2.851,98 7.987,45 11,05
39.943,26 3.734,59 7.987,45 11,90
47.930,72 4.685,10 7.987,45 12,75
55.918,17 5.703,50 7.987,45 13,60
63.905,62 6.789,79 7.987,45 14,45
71.893,07 7.943,98 7.987,45 15,30
79.880,52 9.166,06 39.877,15 16,15
119.757,67 15.606,22 39.877,16 18,70
159.634,83 23.063,25 79.754,30 21,25
239.389,13 40.011,04 159.388,41 25,50
398.777,54 80.655,08 398.777,54 29,75
797.555,08 199.291,40 from now on 34,00

 

The progressiveness of the tariff is graduated according to the amount of what is acquired and regardless of the relationship between the acquirer and the transferor. The tariff is not applied in basic steps but, in a similar way to that for personal income tax, the first column of the tariff must be located, where the payable bases are listed, the closest by default, in order to directly obtain the part of the total quota corresponding to this basic portion located in the tariff, and to the part of the quota thus obtained, the part resulting from applying to the rest of the base the marginal rate appearing in the last column of the tariff must be added.

 

The following is a  list of the Autonomous Communities that have approved their own scales, indicating the rules in which they are included. The rest of the Communities apply the State scale:

 

Autonomous Region
Andalusia
Asturias
Balearic Islands
Cantabria
Catalonia
Galicia
Madrid
Murcia
Navarra
Basque country
Valencian Region

 

Tax liability

In order to obtain the tax liability, the multiplier coefficient must be applied to the total tax liability depending on the amount of the pre-existing assets and the degree of kinship. This coefficient is the one approved by the Autonomous Communities or, failing that, the one set by state regulations:

 

Preexisting assets Groups
I and II III IV
From 0 to 402,678.11 1,0000 1,5882 2,0000
From more than 402,678.11 to 2,007,380.43 1,0500 1,6676 2,1000
From more than 2,007,380.43 to 4,020,770.98 1,1000 1,7471 2,2000
More than 4,020,770.98 1,2000 1,9059 2,4000

 

Below is a summary table of the Regions that include the multiplier coefficients.

For these purposes, it should be borne in mind that in Navarre and the three provincial territories of the Basque Country and the tax liability coincides with the full tax liability, since no correction coefficient is applied on the basis of the taxpayer’s pre-existing assets and the degree of kinship.

Autonomous Region
Asturias
Balearic Islands
Cantabria
Catalonia
Galicia
Madrid
Valencian Region

 

 

Deductions and state subsidies

Ultimately, in order to obtain the tax debt, the deductions and allowances established by the State and, where appropriate, those approved by the respective Autonomous Communities must be subtracted from the tax liability.

At the state level, the deduction for international double taxation is applicable, as well as the allowances approved for the territories of Ceuta and Melilla.

 

International double taxation

When the taxpayer is personally liable and the assets and rights acquired include some that have been subject abroad to a tax similar to the Inheritance and Gift Tax, the taxpayer is entitled to apply a deduction from the tax liability to the lesser of these two amounts:

– the amount paid abroad for the tax on the gainful acquisition subject to inheritance and gift tax in Spain; or

– the amount resulting from applying the effective average rate (TME) of this tax to the capital gains corresponding to assets and rights located outside Spain, subject to the foreign tax. TME = (tax liability/liable base) × 100 (the rate is expressed to two decimal places).

 

 

Deductions and Allowances Valencian Region

The following discounts can be applied to mortis causa acquisitions in the Region of Valencia:

– The following taxpayers may apply a tax relief that proportionally corresponds to the goods and rights declared by the taxpayer

– group I of kinship: 75%;

– family group II: 50%; and

– disability: of 75%, applicable to persons with physical or sensory disabilities with a degree of disability equal to or greater than 65%, or persons with a degree of mental disability equal to or greater than 33%.

The application of this Allowance excludes the application of the previous ones.

– In the case of land restructuring, in general, a 99% rebate on the tax liability will be applied to all acquisitions through inheritance of rural properties authorised in the public and private land restructuring processes provided for in Valencian Regional Law 5/2019 , provided that no more favourable rebate or exemption is granted by the sectoral legislation.

In both cases, restructuring must be authorised in advance by the body responsible for land restructuring.

 

For the purposes of the application of the allowance for kinship, habitual residence in the Region of Valencia on the date of accrual of the tax is not required as it has been declared unconstitutional and void in relation to new cases or proceedings in which no final decision has been taken as it is contrary to the principle of equality before the law.

Donation

In addition to mortis causa acquisitions, the acquisition of goods and rights by donation or any other legal transaction free of charge and inter vivos also constitutes a taxable event for the Inheritance and Gift Tax. With respect to this type of tax, we highlight the following aspects related to real estate.

 

 Reductions

 

As a general criterion in acquisitions by gift or comparable title, the net base coincides with the taxable base, unless, as an exception, any of the reductions provided for apply.

For their part, the Autonomous Communities are competent to regulate reductions in the taxable base for Inheritance and Gift Tax on inter vivos acquisitions in their territory.

 

to State

 

Agricultural holdings

The following reductions are declared applicable to acquisition by donation:

– 90%, applicable to the full transfer, either through the transfer or acquisition by any title of full ownership or life usufruct of an agricultural holding, carried out in favour of or by the owner of another holding that is a priority or that reaches this condition as a result of the transfer. The reduction is increased to 100% when the purchaser is a young farmer or an agricultural employee (Law 19/1995Article 9 and 20.2).

– 75%, applicable to the transfer of full ownership or life usufruct of a rural property or part of a farm, in favour of a priority farm owner who does not lose or achieve this condition as a result of the acquisition. The reduction is 85% if the purchaser is a young farmer or an agricultural employee.

– 50%, applicable to the transfer of land to complete 50% or more of the surface area of a farm under a single boundary, provided that the public deed of acquisition states the indivisibility of the resulting property for a period of 5 years, except in cases of force majeure (Law 19/1995 Article 10.2).

– In addition, reductions from 50% to 90% of the base are regulated in relation to acquisitions by donation of rustic forest areas.

 

Historical Heritage Properties

A reduction is established for acquisitions by donation in favour of the spouse, descendants or adoptees, of goods of the Spanish Historical Heritage or Historical and Cultural Heritage of the Autonomous Communities, which are considered to be exempt from wealth tax.

The amount of the reduction is 95% of the value of the goods received, provided that the following requirements are met

– the donor is 65 years of age or older or is permanently disabled (total or severe disability); and

– that the recipient keeps what he or she has acquired and the right to the exemption in the IP for 10 years, unless he or she dies within that period.

The recipient does not violate the duty to maintain what has been acquired if he donates the goods, purely, simply and irrevocably, to the State or other territorial or institutional public administrations.

 

 

 Tax debt

 

Tax liability

Obtaining the tax liability requires the prior calculation of the full liability, which is determined by applying the state tariff to the payable base, without prejudice to the tariff that may have been applied by each Autonomous Community.

Subsequently, by applying the corresponding state multiplier coefficient to the total tax liability, without prejudice to the multiplier coefficients approved by the Autonomous Community, the tax liability is obtained.

 

          Deductions and Allowances

In the case of inter vivos acquisitions, a state subsidy of 50% of the part of the quota corresponding proportionally to the properties located in Ceuta or Melilla is applied.

Likewise, several Autonomous Communities have approved deductions and rebates on the quota in use of their powers, although none directly related to real estate.

 

Andalusia

From 11-4-2019, a 99% reduction in the tax liability is applied to inter vivos acquisitions by those taxpayers included in Group I and II of kinship or in cases of equalization, being a necessary requirement for the application of this reduction the formalization in a public document.

However, if the object of the donation or of the legal transaction, free of charge and inter vivos, is cash or any of the goods and rights of the LIP Article 12 , the rebate is only applicable when the origin of the funds is justified and this is stated in the public document formalising their transfer.

          The rebate is incompatible with any of the reductions provided for in the Inheritance and Gift Tax in this territory in cases of inter vivos acquisitions.

 

Balearic Islands

A Allowance is applied to donations resulting from the excess value of the property being ceded over the lifetime maintenance allowance that the transferee of the property constitutes in favour of the transferor.

The following amounts are applicable to the total quota, depending on the degree of relationship between the transferor and the transferee:

– At 70%, when the relationship of the person transferring the asset to the assignor is one of those in Group III of kinship (second and third degree collateral, ascendants and descendants by affinity).

– At 73%, when the relationship of the person transferring the asset to the assignor is one of those in Group IV of kinship (fourth degree collateral, more distant and strange degrees).

To apply this Allowance, the following requirements must also be met:

– the relationship of the person transferring the property to the person transferring it must be one of those in Group III or IV of the relationship;

– the person handing over the property must be over 65 years of age or have a degree of physical, psychological or sensory disability equal to or greater than 65%;

– it must be the first transfer of immovable property to the transferor in exchange for an annuity;

– the property to be transferred must have a value of not more than

– such transferred property must remain in the assets of the transferee for at least 10 years from the date of acquisition, unless the transferee dies during that period.

 

On the other hand, in inter vivos lucrative acquisitions in favor of the spouse, ascendants or descendants, a deduction can be applied whose amount is the result of subtracting from the liquid quota the amount derived from multiplying the liquid base by a percentage rate T of 7%. That is to say:

Autonomous Community deduction = net share – (net base × 0,07)

When the result of multiplying the payable base by T is greater than the amount of the liquid quota, the amount of the deduction is equal to zero.

 

Madrid

For inter vivos acquisitions, taxpayers included in Groups I and II of kinship apply a 99% reduction in the tax liability derived from them. The donation must be formalised in a public document.

Likewise, taxpayers who are second-degree collateral by blood of the deceased, included in Group III of kinship, may apply a 15% discount; those of the third degree by blood a 10% discount. In this case, the relief is only applied to the part of the quota corresponding to the goods and rights declared in full by the taxpayer voluntarily.

 

Murcia

In the case of inter vivos acquisitions by taxpayers included in Groups I and II of kinship, a regional deduction of 99% of the quota resulting after applying the appropriate state and regional deductions is applied, and the donation must be formalized in a public document.

 

Valencian Region

With regard to land restructuring, in general, in all acquisitions by donation of rural properties authorised in the public and private land restructuring processes provided for in Valencian Region Law 5/2019, a 99% rebate is applied to the inheritance and gift tax liability, provided that there is no more favourable rebate or exemption under sectoral legislation.

 

 

Transfer Tax & Documented Legal Acts

The tax on property transfers and documented legal acts (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados) is an indirect tax on various taxable events, grouped into three categories:

Transfer of assets for consideration (Transfer of assets for consideration): this tax is levied on assets of a civil nature or between private individuals.

Corporate operations (Corporate Operations): it contemplates the most relevant aspects of business financing, derived from the company contract and the patrimonial displacements linked to it, such as the incorporation of companies, merger, etc.

Documented legal acts (Actos Jurídicos Documentados): through notarial documents ( Documentos Notariales ), such as deeds or commercial documents (DM), such as bills of exchange.

The basic regulation of the tax is contained in the Texto Refundido de la Ley del Impuesto (LITP) and by its Regulations (RITP).

The yield of the Tax on Property Transfers and Documented Legal Acts is assigned to the Autonomous Communities, which have regulatory powers over it.

 

Incompatibilities

The possibility that different taxable events may occur as a result of a single act which, in principle, could be taxed under more than one heading of the tax, gives rise to the following incompatibilities:

– Although the same act may give rise to taxable events as an onerous transfer of assets and as a corporate transaction, in no case may it be settled under both concepts.

– In a more limited way, the gradual taxation of documented legal acts that falls on notarial documents does not apply when, among other conditions, the acts or contracts are previously subject to one of the other two types of tax, onerous transfers or Corporate Operations, but it does apply when the subjection of the said act or contract occurs in relation to Value Added Tax.

 

The above-mentioned incompatibilities, together with others that occur within the tax, are noted in the attached table.

 

COMPATIBILITIES

Onerous Transfer of Assets

Incompatible with

Corporate Operations, Documented Legal Acts ( Notarial Documents )

Onerous Transfer of Assets

Incompatible with

Value Added Tax

Corporate Operations

Incompatible with

Transfer of assets and documented legal acts (notarial documents)

Corporate Operations

Compatible with

Value Added Tax

Documented Legal Acts (DM)

Compatible with

Onerous Transfer and Corporate Operations

Documented Legal Acts

Compatible with

Value Added Tax

Documented Legal Acts ( Notarial Documents )

Incompatible with

Onerous Transfer, Corporate Operations and Inheritance and Donations Tax

 

Onerous Assets Transfer: Onerous Assets Transfer.

Corporate Operations: Corporate Operations.

Documented Legal Acts: Documented Legal Acts.

Notarial, Commercial Documents (modalities of Documented Legal Acts).

Inheritance and Gift Tax: Inheritance and Gift Tax.

ITP & AJD General Rules

Spatial scope of application

The dominant principles in the delimitation of the scope of application of the Tax on Transfer of Property and Documented Legal Acts are that of territoriality and residence. However, two complementary nuances must be made:

– the possible impact of special regimes by reason of territory and international treaties and conventions; and

– the existence of certain specific rules modulating the chargeability of the tax.

In general, onerous transfers of real estate are subject if the property is located in Spanish territory, while documented legal acts formalized in Spain with respect to the same give rise to the requirement of the tax always and without limitation.

 

Competences of the Autonomous Communities

Firstly, it must be specified when the general system of the common territory is applicable and when the regional system is applicable.

  1. a) In the common system, the Tax on Property Transfers and Documented Legal Acts is one of the taxes whose income is transferred to the Autonomous Communities. Therefore, once the application of this regime has been determined, the Autonomous Community to which the income belongs must be established.

The Autonomous Communities are empowered to regulate various matters of the tax in their territory:

– The type of encumbrance of the following transactions : – administrative concessions; – transfer of movable and immovable property and the creation and assignment of rights in rem falling on such property, except for security rights; – leasing of movable and immovable property; – encumbrance of Documented Legal Acts falling on notarial documents.

– Deductions and rebates from the fee.

– The management of the tax.

  1. b) In addition, under the foral regime, the Basque Country and Navarre are responsible, within certain limits, for the regulation and yield of the tax.

 

 

Rating

The enforceability of the tax requires that circumstances such as the true nature of the act or contract that is the object of the liquidation, the legal qualification of the same, the possible concurrence of more than one business subject to the tax individually, etc. are taken into consideration. Specifically, the various acts or contracts subject to Transfer Tax and Stamp Duty are qualified by the Administration according to their true legal nature, and must be liquidated in accordance with the same, regardless of the defects -of form or intrinsic- that may affect their validity or effectiveness. Consequently, the name given by the parties to the act or contract to be liquidated is irrelevant. In any case, the invalidity of the act or contract due to any type of defect does not prevent administrative action. Without prejudice to the fact that, once its invalidity has been firmly declared, the amounts paid in will be returned.

 

Suspensive or resolutory condition

If there is a condition in the act or contract, it must be distinguished:

– If the condition is suspensive, the tax is not liquidated until the condition is met. The postponement of the liquidation must be recorded in the registration of goods in the corresponding public registry.

– The existence of a resolutive condition does not suspend the assessment, regardless of whether the condition, in itself, may constitute a taxable event.

– In relation to specific cases, the reservation of title clause is qualified as a resolutory and non-suspensive condition until full payment of the agreed price.

 

          Plurality of conventions

A single document or contract may contain several conventions, agreements or declarations of intent. Some of them are subject to the tax and others do not verify any of the cases of subjection.

All subject conventions must be subject to the separate liquidation that corresponds to them, except in cases where it is expressly determined otherwise, as in the case of guarantees, pledges, mortgages and antichresis, in guarantee of a loan, where tax is levied exclusively on the concept of the loan. Once the lien has been satisfied, it cannot be the cause of new demands for payment of the same tax.

 

 

LIQUIDATIONS

Onerous Transfer of Assets

Corporate Operations

Documented Legal Acts

Private document that only contains acts subject to Onerous Assets Transfer

x

A deed that only contains acts subject to Transfer of Property

x

Deed containing acts subject to Onerous Assets Transfer and others not subject to this title (1)

x

x (2)

Writing containing only acts to Corporate Operations

x

Deed containing only acts subject to Onerous Assets Transfers and Corporate Operations

x

x

Writing that contains acts subject to Corporate Operations and others that are not

x

x (4)

Deed containing only acts not subject to Transfer of Property and Corporate Operations (3)

x

(1) E.g., deed of segregation of land and transfer of the segregated property.

(2) Only on acts not subject to transfer of property.

(3) E.g., deed of declaration of new construction and horizontal division of a property.

(4) Only on acts not subject to Corporate Operations.

 

          Guarantee of payment of tax debts

In addition to the generic guarantees established in the area of collection, the rules of the Transfer Tax and Stamp Duty establish another specific and real guarantee, consisting of the assignment of the assets and rights transferred to the payment of the corresponding debt.

The formalization of the condition is done in two ways:

– by the timely warning of the notaries in the documents they authorize; and

– through registration, if the property is suitable.

ITP & AJD Exemptions

The following are the exemptions applicable equally to the three types of tax (Transfer Pricing, Corporate Operations and Documented Legal Acts). However, in each one of the modalities, those that have some specificity are developed or are applicable with exclusive character to them.

Likewise, in general, the applicable exemptions and rebates are exclusively those included in the LITP, however:

– there are a number of exemptions established by special rules; and

– there are entities with tax benefits recognized by solemn agreements with the State.

 

Subjective exemptions

The application of exemptions to the three forms of the tax is only fully confirmed for this type of exemption. If the entities satisfy the quotas corresponding to the tax, as they are exempt, they are entitled to a refund of the amounts paid.

They are exempt from tax:

– The State, including the territorial and institutional public administrations, and their charitable, cultural, social security, educational or scientific institutions. The exemption is also applicable to entities whose tax regime has been put on an equal footing by law with the State or the aforementioned administrations.

– Non-profit entities that use the tax regime for these entities regulated by Law 49/2002 Title II.

– Savings banks and banking foundations, in respect of acquisitions that go directly to their social work.

– The Catholic Church and other churches, confessions and religious communities that have signed cooperation agreements with the Spanish State

– The Spanish Red Cross, the National Organization for the Blind (ONCE) and the Obra Pía de los Santos Lugares.

– The Institute of Spain and the Royal Academies integrated in it, as well as the institutions of the autonomous communities with similar purposes.

– Political parties with parliamentary representation.

 

Objective exemptions

– Acts, transfers and contracts granted by treaties or conventions that have become part of the internal order are exempt.

– Acts, contracts and transfers dictated to overcome the ineffectiveness of previous ones are exempt from the tax.

– In order to facilitate the construction, promotion and acquisition of VPOs, a series of exemptions have been provided for the purposes of Transfer Tax and Stamp Duty.

– The purpose of guardianship is to take care of the person or property of a person who, being under parental authority, is incapable of governing himself or herself (minors, orphans, those declared disabled, etc.). For these purposes, the exemption covers all acts relating to the guarantee provided by guardians in the exercise of their duties.

Land consolidation, in general terms, consists of grouping together the plots of one or more owners in the smallest possible number and thus facilitating their cultivation. For the purposes of this tax, a number of tax benefits are recognised

Tax on property transfers

The Tax on Property Transfers and Documented Legal Acts (Tax on Property Transfers) is exclusively on transactions between individuals that do not constitute acts, habitual or otherwise, of business traffic.

 

Taxable event

They are considered to be subject to property transfers:

Onerous transfers of any kind of property or rights, provided that the property or rights form part of the assets of natural or legal persons.

– The constitution of rights in rem, loans, guarantees, leases, pensions and administrative concessions, except when the purpose of the latter is to transfer the right to use railway infrastructure or real estate or facilities in ports and airports. In this sense:

– the explicit conditions of termination of the sale, as referred to in LH Article 11, are equated to mortgages;

sharecropping and subleasing contracts are equated with leasing;

– some concessions.

– The subsequent extension of the content of the rights, when they imply an increase in assets for the holder.

– The acts that are comparable to property transfers, for tax purposes, such as

– awards in payment and for payment of debts, and express awards in payment of assumption of debt;

– declared excess awards, except in certain cases of the Civil Code Articles 821 , 829 , 1056 , and 1062;

– the domain records;

– the minutes of notoriety;

– the complementary acts of public documents;

– certifications issued for the purposes of the Mortgage Act; and

– domain recognitions in favor of specific individuals.

– the supply or lease of real estate, as well as the constitution and transfer of rights in rem of enjoyment and use thereof when they are exempt from Value Added Tax.

– the supply of real estate included in the transfer of the entire business assets.

– In the case of a deceased persons succession, the excess of the amount awarded is liquidated as an Onerous Assignment, when the proven value of what was awarded to each heir or legatee exceeds 50% of the value that would correspond to him by virtue of his title, unless the declared values are equal to or greater than those resulting from the rules of the IP.

 

Relationship between Transfer Tax and Stamp Duty (Onerous Transfer) and Value Added Tax

Depending on the circumstances, certain acts or transactions may be subject either to Value Added Tax or to Transfer Tax and Stamp Duty (Transmissions of Assets and Documents). In relation to the former, this refers to onerous transfers of assets by persons liable for value added tax that affect assets related to their business or professional activity. On the other hand, Transfer Tax and Stamp Duty is levied on non-business or professional transactions. This justifies its incompatibility with Value Added Tax, as the same act cannot be subject to taxation by both taxes at the same time.

It is expressly stated that transactions subject to value added tax are not subject to transfer of assets for consideration, except in the following cases:

– the supply and leasing of real estate which is declared subject to and exempt from value added tax, unless the exemption is waived, and

– the constitution or transfer of rights in rem of enjoyment or use that fall upon real estate. in this case, the exemption cannot be waived.

Therefore, in the delimitation between Value Added Tax and Tax on Property Transfers and Documented Legal Acts (Onerous Property Transfers) the determining factor is the condition of the person transferring the property or right, so that if he is a businessman, his transfers are subject to Value Added Tax and, on the contrary, if he is an individual, to the Tax on Property Transfers and Documented Legal Acts (Onerous Property Transfers), the legal condition of the acquirer of the property or rights being irrelevant for these purposes.

As a result, real estate transfers made by the following are considered to be subject to the Onerous Assets Transfer mode

– Persons who do not have the status of Value Added Tax taxpayers.

– Subjects liable to value added tax, provided that the transfers are considered to be exempt from the payment of value added tax and that such exemption has not been waived.

The coordination of Value Added Tax and Transfer Tax requires that all business transfers of real estate subject to and not exempt from Value Added Tax are settled without exception for this tax. If, despite this, they are self-assessed for Transfer Tax and Stamp Duty (Transmisiones Patrimoniales Onerosas), the taxpayers are not exempted from their Value Added Tax obligations, without prejudice to their right to request a refund of income. On the other hand, if the liquidation by the Onerous Assets Transfer modality is carried out unduly, the taxpayer of that modality must comply with its obligation, without prejudice to the right of the seller to the refund of the undue income for Value Added Tax.

 

Non-subject operations

Operations are not subject to Onerous Transfer when:

– They are carried out by businessmen or professionals in the exercise of their activity, with the exception of deliveries of real estate included in the transfer of the entire business assets.

– When they constitute the delivery of goods or the provision of services subject to Value Added Tax. As an exception, provided that the exemption from Value Added Tax is not waived, the supply of goods or leasing of real estate which, although subject to Value Added Tax, are exempt from payment is subject to Transfer of Assets. The same applies to the constitution or transfer of rights in rem of enjoyment or use of real estate, subject to and exempt from Value Added Tax.

– On the other hand, they are assumptions of non-subjection:

– the recovery of the domain as a consequence of the fulfilment of an express resolutory condition of the purchase-sale;

– the reversion of ownership to the expropriated as a result of failure to comply with the purposes justifying the expropriation; and

– the excesses of adjudication declared in the dissolution of the marriage or the change of its economic regime.

 

Exemptions

The exemptions detailed here are those specific to the modality of Onerous Assets Transfers that are related to real estate operations.

 

Officially protected housing (VPO)

The transfer of land and plots and the assignment of surface rights for the construction of buildings in the form of social housing (VPO) are exempt.

The exemption is granted on a provisional basis and is conditional upon the fulfilment of the requirements for VPO.

For its recognition, it is necessary that in the formalization of the contract it is shown that it is granted for the purpose of building VPOs and it becomes void if 3 years pass from its recognition without obtaining the qualification or provisional declaration -4 years, in the case of land.

The limitation period begins to run after the expiry of the period of recognition of provisional exemption of 3 or 4 years respectively.

From that moment, the administration has the right to demand the tax provisionally declared exempt. Consequently, since the period for voluntary payment does not end on the day of the initially exempt transfer, but on the date of the 3 years following the failure to comply with the exemption requirement, together with the statutory period for payment, i.e. within 30 days following the 3 months following the transfer, it is from that date that the period of

This exemption also applies to the VPOs recognized by the various autonomous communities, for which they may not exceed the limits established by state regulations regarding the parameters of the maximum protectable surface area, the price of the dwelling and the limit on the purchasers’ income.

 

This exemption for social housing, in addition to the transfer of land for the construction of social housing, extends to

– The execution of work, with or without the contribution of materials, by virtue of contracts directly entered into between the developer and the contractor for the development of land intended for the aforementioned purpose.

– The transfer of land and the execution of works directly formalized between the developer and the contractor, for private community equipment.

– The execution of work, with or without the contribution of materials, as a result of contracts directly entered into between the owner of the dwelling and the contractor, which have as their objective the protected rehabilitation of dwellings or the carrying out of improvements that produce savings in energy consumption.

In relation to the first transfer of VPOs, the exemption has lost its real validity, since in practice the first transfer of these homes is subject to Value Added Tax, without exemption. For this reason, they are no longer subject to Transfer Tax and Stamp Duty (Transmisiones Patrimoniales Onerosas) and, only when they are documented in a public deed, once the final qualification is obtained, are they taxed by Stamp Duty (Documentos Jurídicos Documentales), although with exemption.

 

Compensation boards

The benefit falls on the following transfers, provided that they are made in compliance with the required urban planning requirements:

– in the initial contribution of land by the owners of the execution unit to the respective Meeting;

– in the allotments of land made by the board to the owners of the industrial estate, in proportion to the land contributed;

– the same acts and contracts, with the same conditions, in the operations of reparcelling.

 

Financial leasing and transfer of buildings

The exemption covers the transfer of buildings to companies that habitually carry out financial leasing operations when

– the purchased building is to be leased to a person other than the seller – with this condition the leaseback transactions are excluded from the exemption;

– the transfer is exempt from Value Added Tax, but subject to this tax, so that the sale to the leasing company by a non-business or professional individual is not exempt, i.e. not subject to Value Added Tax; however, the sale made by a natural person who leases goods is included, as he is subject to Value Added Tax, for which it is required to prove that the property sold is used for a business activity of the seller; and

– there is no relationship between the transferor, the acquirer or the lessee.

The exemption always refers to the modality of Onerous Patrimonial Transmissions and never to that of Documented Legal Acts (Notarial Documents).

 

Agricultural holdings

The following operations are exempted:

– Transfer or acquisition by any title of full ownership or life usufruct of an agricultural holding, of part of it or of a rural property, in favour of a young farmer or an agricultural employee, for his first installation on a priority holding.

– Transfer of land to complete the area of a priority agricultural holding under one boundary. For this purpose, the public document must state that the property is indivisible for five years, except in the case of force majeure.

Voluntary exchanges of rural properties which, being formalised in a public deed, are authorised by the Administration or the Autonomous Community provided that at least one of the exchangers is the owner of a priority agricultural operation and the purpose of which is to eliminate interlocking plots, remove rights of way or restructure agricultural operations.

 

Land consolidation

The exemption covers transmissions and other acts and contracts to which it gives rise:

– land consolidation proper;

– the forced exchanges of rustic properties;

voluntary exchanges of rural property, when authorised by the Directorate-General for Rural Development of the Ministry of Agriculture (formerly IRYDA) or an equivalent body;

access to property in rural leases; and

awards by the Directorate-General for Rural Development (formerly IRYDA) or equivalent in favour of farmers for personal and direct cultivation.

 

Legal disclaimer

Acquisitions verified in the exercise of the right of withdrawal, established by law, are exempt when the person against whom it is exercised (the previous purchaser of the property) has already paid the tax. The most common case of application is the right of withdrawal of the lease.

 

Operations covered by the bank restructuring

With regard to the operations subject to this modality in which the Asset Management Company from the Banking Restructuring or the Banking Asset Funds (FAB) participates – which are formed by the groupings of assets and liabilities of this Company -, a subjective exemption is recognized for the transfer of assets and liabilities, as well as the concession of guarantees of any nature, which is available for the aforementioned Asset Management Company.

The following transactions are also exempted

– the transfers of assets and liabilities made by the aforementioned Company to its direct or indirect investees of at least 50% of the capital, equity, profits or voting rights of the investee at the time immediately prior to or as a result of the transfer; and

– transfers of assets and liabilities made by the Asset Management Company from the Banking Restructuring, or by the entities set up by it to fulfil its corporate purpose, to the Asset Funds, as well as those made by them to other Banking Asset Funds.

For the purposes of transactions between Banking Assets Funds, it is only applicable during the period in which exposure to the assets is kept separate from the Banking Orderly Restructuring Fund .

 

Housing lease

In principle, leases of buildings or parts thereof intended exclusively for housing or for subsequent lease by entities managing public housing support programs or by companies under the special regime of entities engaged in housing leasing for corporate income tax purposes are subject to Transfer Tax.  As well as the garages and annexes to the dwellings when they are rented out together with them.

However, the tax exemption has been established for housing leases, for stable and permanent use, which are signed from 6-3-2019, and those signed between 19-12-2018 and 23-1-2019. This exemption covers furniture, storage space, parking spaces and any other premises, rented space or services provided as accessories to the property by the lessor.

 

Passive subject

The quality of passive-taxpayer, obliged to comply with all the formal and material services, is independent of the stipulations established by the parties.

As a general rule, it is the beneficiary of the asset transfer who is always obliged to pay.

          In short:

Operation

Passive subject

Transfers of property and rights

Acquirer

Files of ownership, notary acts, complementary acts of public documents and certifications of LH Article 206

People who promote them

Domain acknowledgements

Persons in whose favour it is carried out

Establishment of rights in rem

Persons in whose favour the following are constituted

Constitution of loans

Borrower

Posting of Bonds

Secured creditor

Constitution of leases

Tenant

Constitution of pensions

Pensioner

Constitution of administrative concessions

Dealer

Acts and contracts equated with the concession

Beneficiary

 

Taxable income

The taxable base is constituted by the real value of the transferred good or the right that is constituted or assigned, and the Administration can, in any case, verify the declared value.  From the value verified by the administration, only the charges (census, pensions, easements) that reduce the real value of the goods are deductible, but not the debts, even if they are guaranteed by a pledge or mortgage.

 

Reductions

In relation to some of the operations that are taxed by this type of tax, the special laws have established a series of reductions in the taxable base, with its particularities.

In particular, the following reductions are provided for in relation to agricultural holdings:

– Of 90%: complete transfer of the operation, carried out in favour of or by the owner of another priority agricultural operation (100% if the purchaser is a young farmer or an agricultural employee). A public deed and certain registry entries are required. The reduction is 100% if the holding is continued by the surviving spouse.

The same reduction applies to domain name files, notary acts and any other procedure for immatriculation or for resuming the interrupted registration process at the Land Registry of properties that are part of a priority operation or of those that, with their integration, allow it to be constituted.

– Of 75%: transfer of a rustic property or part of an agricultural operation in favour of a priority agricultural operation owner (85% if the purchaser is a young farmer or an agricultural employee.

– 50%: transfer of land to complete 50% or more of a farm’s surface under one boundary.

 

Tax liability

The setting of tax rates is one of the powers assumed by the Autonomous Communities. Where this power is exercised, the rates fixed by them apply.  Where no rates of their own have been set, the rates governed by State regulations apply, as set out below.

 

Tax rates

The quota is obtained by applying the following tax rates to the payable base:

(a) General rate: 6% applicable a:

– the transfer of real estate;

– the creation and assignment of rights in rem in immovable property (other than security rights); and

– acts or contracts covering both movable and immovable property, without specifying the share of value corresponding to each class.

(b) Special types:

  1. From 4% applicable to:

– the transfer of movable and semi-movable property;

– the creation and assignment of rights in rem in the above assets (other than security interests);

– administrative concessions; and

– other acts not specifically taxed at 6% or 1%.

  1. From 1% applicable to:

– the establishment of security rights, pensions and guarantees;

– the constitution of loans, including those represented by bonds; and

– the assignment of receivables of any nature.

The 4% is also applied to the transfer between individuals of timeshare rights in real estate for tourist use (timeshare) not subject to value added tax.

 

Taxation scales

In the constitution of leases and in the transfer of securities, the quota is obtained, as an exception to the application of rates, by using the following scale of taxation. Depending on the case, there may be the possibility or the obligation to settle the instalment using stamp duty.

 

Rentals. The applicable scale is as follows:

 

Leases

Euros

Up to 30.05 euros

0,09

From 30.06 to 60.10 euros

0,18

From 60.11 to 120.20 euros

0,39

From 120.21 to 240.40 euros

0,78

From 240,41 to 480,81euros

1,68

From 480.82 to 961.62 euros

3,37

From 961.63 to 1,923.24 euros

7,21

From 1,923.25 to 3,846.48 euros

14,42

From 3,846.49 to 7,692.95 euros

30,77

From 7,692.96 euros onwards

0.024040 for every

 

In urban property leases, the option of using stamped bills or cash payment is established. The leases affected are those not subject to Value Added Tax, or subject but exempt from its payment.  Business premises leases are subject to Value Added Tax without exemption, and not to Transfer Tax.

Transmission of values. Although the specific tariff for transmission of values remains theoretically valid, it has no practical application. The entry into force of the LMV/88 (currently repealed, the matter being regulated by the LMV Article 314 ) caused these transfers to be either exempted (by application of that precept) or subject to taxation as transfer of real estate.

 

Tax rates in the Autonomous Communities

In use of the powers attributed to them, the Autonomous Communities have regulated different types of taxation in their territory.

Autonomous Region

Andalusia

Aragon

Asturias

Balearic Islands

Canary Islands

Cantabria

Castile-La Mancha

Castile and Leon

Catalonia

Extremadura

Galicia

Madrid

Murcia

Navarra

Basque country

La Rioja

Valencian Region

 

Deductions and Allowances

The net tax liability in this mode is obtained by applying to the total tax liability the deductions and allowances provided for by State legislation, as well as those approved by each of the Autonomous Communities within their regulatory powers and provided that they are compatible with those of the State.

Within the state scope, a series of rebates of the quota of the Tax of Patrimonial Transmissions and Documented Legal Acts applicable in the modality of Onerous Patrimonial Transmissions are recognized, of which we emphasize those of the real estate scope. It should be remembered that when the tax yield corresponds to Ceuta and Melilla, there is a 50% rebate.

 

Investment companies in the real estate market

A 95% reduction in the tax liability is recognised both for the acquisition of housing intended for rental and for the acquisition of land for the development of housing intended for such activity, provided that, in both cases, the property comprising the company’s assets is leased for at least 3 years. For the purposes of the calculation, the time that the properties have been offered for lease is taken into account, with a maximum of one year.

 

Collective investment schemes

In addition to the corresponding exemptions applicable to the Corporate Operations modality, real estate investment companies and funds receive a 95% rebate on the tax liability for the acquisition of housing intended for rental and for the acquisition of land for the development of housing intended for the same.

As a requirement for the application of this benefit, the property must be maintained in the assets of the companies or funds for 3 years from the date of acquisition, unless authorised by the National Securities Market Commission (CNMV).

The aforementioned exemptions and rebates are also provisionally applicable to newly created real estate investment funds and companies, provided that within 2 years from their registration with the CNMV, they reach the required investment percentage; if they do not reach it, the entire tax due on the transactions carried out plus interest on arrears must be paid.

 

Regional scope

The Autonomous Communities have established different deductions and Allowances.

 

Autonomous Region

Andalusia

Aragon

Asturias

Canary Islands

Cantabria

Castile-La Mancha

Castile and Leon

Catalonia

Extremadura

Galicia

Madrid

Murcia

Navarra

Basque country

Valencian Region

 

 Most common operations

 

In general, the analysis of tax liability should begin with the incidence of Value Added Tax on the transaction under study. Only after determining that it is a non-taxable operation, or one that is subject and exempt, can the possible liability to Transfer Pricing be considered.

 

a Onerous transmissions

 

Real estate and rights in rem

The purchaser of the property is the taxable person.

The tax base is made up of the actual value of the property transferred.

The tax rate applicable to the transaction is 6% unless the Autonomous Communities have established a different rate.

These rules do not apply in the case of security rights (pledge, mortgage and antichresis).

 

Transmission of securities

The exemption from Transfer Tax and Stamp Duty and Value Added Tax for the transfer of securities, whether or not they are admitted to trading on an official secondary market, is declared. The exemption extends to the transfer of subscription rights.

Exempted from this exemption are transfers of securities not admitted to trading on an official secondary market carried out on the secondary market, having to pay the tax to which they are subject as onerous transfers of real estate, when such transfers would have been intended to avoid payment of the taxes that would have been levied on the transfer of the real estate owned by the entities to which such securities represent.

For these purposes, it is understood that in the transfer of real estate it is acting with the intention of avoiding payment, unless there is proof to the contrary, in the following cases:

– When control is obtained over an entity whose assets consist of at least 50% of real estate located in Spain and not used for business or professional activities, or when, once control is obtained, the interest in the entity increases.

– When control is obtained over an entity whose assets include securities that enable it to exercise control over another entity whose assets consist of at least 50% of real estate located in Spain and which is not involved in business or professional activities, or when, once such control is obtained, it increases its share of ownership. For the purposes of both exceptions to the exemption, in relation to the transfer and acquisition of these securities, administrative concessions and the assets assigned to them are not considered to be property, which are treated as infrastructure in the service concession arrangements in accordance with IFRIC 12 (Regulation EC/254/2009).

– When securities received for contributions of real estate made on the incorporation or increase of companies, or the increase in their capital stock, are transferred, provided that the assets are not affected by any business or professional activity and that a period of three years has not elapsed between the date of contribution and the date of transfer.

 

For the purposes of applying this exemption derogation, the following rules should be taken into account:

Calculation of the percentage of assets. The calculation of 50% of the assets constituted by real estate must be made according to these rules:

– the net book values of all assets are replaced by their respective actual values determined at the date of transfer or acquisition;

– on that date the taxpayer must form an inventory of the assets, which must be sent to the tax authorities when required.

Control. In the case of commercial companies, control is deemed to have been obtained when a direct or indirect holding of over 50% in the capital stock is achieved, and the securities of the other companies belonging to the same group of companies are also included as holdings of the acquirer.

– The above-mentioned circumvention is considered to have occurred when the transfer of the securities is made to the company holding the property for subsequent redemption, in which case the shareholder who obtains control of the company is itself obliged to do so.

Tax rate. The rate corresponding to the onerous patrimonial transfers of real estate in the Tax of Patrimonial Transfers and Documented Legal Acts is applied (6% or the one indicated by the respective autonomous community).

Taxable income. This is the proportional part of the real value of the property calculated in accordance with the rules contained in the regulations of the Tax on Property Transfers and Documented Legal Acts. To this end, in the determination of the taxable base, the proportional part of the real value of the real estate is taken into account, presenting particularities according to the case in question.

 

          Other transfers of rights

In the case of transfers of rights, the exercise of which allows certain goods to be obtained, there is no direct transfer of the rights. However, the acquired rights leading to their possession produce identical results. For this reason, the tax is payable as if the goods had been acquired, and is payable for the same items and at the same rate as would have been applicable to the goods (6% or 4%).

Subrogation of the creditor’s rights by pledge, mortgage or antichresis is assimilated to the acquisition of rights. The assimilation is not total, as the tax rate is always 1%.

 

          Transfer of the entire business assets

The transfer of real estate included in the transfer of all business assets is considered to be subject to Transfer of Assets for a consideration, when this operation is not subject to Value Added Tax.

 

 

b Rights in rem and others

          The demarcation between Value Added Tax and Transfer Tax (Onerous Transfer) means that they can only be subject to Onerous Transfer:

– the constitution or transfer of rights in rem carried out by individuals who are not subject to value added tax; and

– the constitution or transfer of rights in rem of enjoyment or use of real estate, subject to and exempt from Value Added Tax. In this case it is not possible to waive the exemption.

As a residual rule, rights in rem not expressly mentioned in the following numbers must be attributed for the capital, price or value that the parties would have agreed to when they were established, if it is equal to or greater than that resulting from the capitalization to the Bank of Spain’s basic interest -currently the legal interest on the money- of the annual income or pension, or this if it is the lowest.

 

          Usufruct and dismemberment of the domain

The holder of full ownership of a property, whether movable or immovable, may proceed to its dismemberment into naked ownership and usufruct through an onerous or lucrative procedure. Only those originated by onerous title, specifically those that give rise to a real transfer of assets, are subject to Transfer of Assets for a consideration.

Dismemberment admits various possibilities, depending on whether the holder of full ownership:

– reserves ownership and constitutes a right of usufruct in favour of a third party: only a liquidation is created as a right in rem to be paid by the beneficiary;

– transfers the naked property and reserves the usufruct: the transfer of the naked property must be liquidated as corresponds to the nature of the acquired property; however, no liquidation takes place because of the right of usufruct that remains in the possession of the owner; and

– transfers the usufruct and the bare ownership to different persons: two liquidations are originated, one by constitution of usufruct, and another by the transfer of the bare ownership, both in charge of their respective acquirers.

 

Settlement of the constitution of the usufruct

The taxable person is the person in whose favour the usufruct is constituted. The tax rate is 6% (immovable) or 4% (movable). The determination of the taxable amount depends on the type of usufruct constituted. The main rules are:

– In the temporary usufruct, its value is reputed to be proportional to the total value of the goods on which it falls. It is quantified at 2% of the total value of the asset for each year of duration, and may not exceed 70% of the value of the asset. Fractions of time less than a year are not taken into account for the calculation, although the usufruct for time less than a year is computed in 2% of the value of the goods.

 

TEMPORARY USUFRUCT

ALLOCATION OF PROPERTY

Duration

Usufructuary (%)

Owner knot (%)

1 year

2

98

2 years

4

96

35 or more

70

30

 

– In the case of life usufruct, also starting from a maximum value of 70% of the value of the property, it is reduced by 1% for each year in which the usufructuary exceeds 20 years. The result cannot be less than 10% of the total value of the property.

 

Settlement of the naked property

The value of the naked property is always calculated as the difference between the total value of the property and the value of the usufruct, calculated in accordance with the above rules.

 

Domain consolidation

We must distinguish by virtue of whether the domain has been dismembered for valuable or lucrative title:

  1. a) If the domain was dismembered by lucrative title, the consolidation liquidation is governed by the rules of the Inheritance and Gift Tax, whatever the title of consolidation, onerous or lucrative.

(b) In the case of ownership dismembered for valuable consideration, several cases must be distinguished:

– The consolidation takes place in the node of ownership, due to the fulfilment of the foreseen term or the death of the usufructuary. The naked owner is required to make a payment for the value of the usufruct, which is paid into his or her estate; this value is the result of applying to the new value that the property may have at the time of consolidation the percentage corresponding to the usufruct at the time of dismemberment, for which he or she has not paid the tax.

The same concept and title will be applied to this basis of liquidation as that applied when the knotty owner acquired the naked property; but if the rate of encumbrance has changed since that time, the new rate in force at the time of consolidation will be applied.

– The consolidation takes place in the node owner, by another legal business different from the previous one (donation or transfer for a fee). The largest of the following liquidations must be carried out:

– the one that would have been applicable by applying the above rules (compliance with the time limit, death of the usufructuary); or

– that which corresponds to the donation (according to the rules of the Inheritance and Gift Tax), or to the onerous transmission (according to the rules of the Tax on Patrimonial Transmissions and Documented Legal Acts).

– If consolidation takes place at the level of usufructuary, the settlement to be made by the usufructuary is that which corresponds to the onerous or lucrative nature of the transaction.

– If the consolidation takes place in a third party acquiring both the usufruct and the naked ownership, the liquidation is that which corresponds to the acquisition of full ownership of the asset in question.

 

          Rights of use and room

The purchaser of the right is a taxable person. The tax rate depends on the nature of the goods on which it is turned. The taxable amount in the constitution of this right in rem is determined according to the perpetual or temporary character by which it is constituted, using for this purpose the rules of usufruct (life or temporary). In both cases, the resulting value must be multiplied by 0.75.

 

          Security rights: creation of mortgages, pledges and antichresis

The person in whose favour the act is carried out is the taxpayer when the security rights are created.

The tax base is valued:

– for the amount of the guaranteed capital (principal, interest with a maximum of 5 years, compensation, penalties for non-compliance or other similar concept);

– for the amount of the principal plus 3 years’ interest, if the guaranteed capital is not expressly stated.

We highlight two cases in which there is no liquidation of the right in rem of mortgage, pledge or antichresis:

(a) Where the right is provided as security for a loan, the tax must be levied only on the concept of the loan, and the creation of the right is not liquidated

  1. b) In the case of mortgages constituted to guarantee the deferred price in business transfers of real estate (subject to Value Added Tax) on the same assets transferred, without prejudice to the treatment of documented legal acts (notarial documents), to which the operation is normally subject.

The tax rate is in any case set at 1%.

 

          Explicit terms and conditions

Some of the conditions that can be stipulated in a contract are subject, when they are constituted, to the Tax of Patrimonial Transmissions and Documented Legal Acts. This is the case of the explicit resolutory conditions of the purchase-sale referred to in the LH Article 11 (those stipulated in a purchase-sale contract and established as a guarantee of the payment of the price deferred in the same), which are assimilated to mortgages for the purposes of the Tax on Property Transfer and Documented Legal Acts.

 

c Leases and similar contracts

The settlement as onerous transfer of leases subject to value added tax is not appropriate. On the other hand, property leases subject to and exempt from Value Added Tax are subject to Transfer Tax and Stamp Duty. In this case, the exemption cannot be waived.

Also, housing leases signed from 6-3-2019 are exempt from the tax.

The tenant is liable for the tax. The lessor is liable to pay the tax when he has received the first installment of the rent without requiring him to justify the payment of the tax.

To determine the tax base, the following rules must be considered:

– if the duration of the contract is stated, it coincides with the total amount to be paid during its term;

– In the case of urban property contracts subject to compulsory extension, a minimum of 3 years must be taken into account;

– where the duration is not stated, a minimum of 6 years is counted, with the total amount to be paid during that period forming the basis. If the contract remains in force after the 6 years, the excess not computed must be settled.

With regard to the tax rate, it is established that the lease subject to Transfer Tax and Documented Legal Acts is taxed, in all cases (whether urban or rural property…), by the scale of taxation.

Parking and subletting

The share-cropping and subleasing contracts are assimilated to the lease contract, for the purposes of tax settlement. In sharecropping contracts for rustic properties, the base is set at 3% of the cadastral value assigned to the property under the contract in the IBI, multiplied by the number of years of the contract.

 

d Administrative concessions

          They are subject to the constitution of:

– administrative concessions for public services;

– the concession of any other form of indirect management of public services: interested management, concert and mixed economy society;

– administrative concessions on public property, involving a particular and exclusive use or exploitation thereof; and

– other comparable administrative acts and business, whatever the name given by the parties, by which private individuals enjoy a patrimonial displacement by an authorization or license to manage public services, to use privately or to take special advantage of the public domain.

However, administrative concessions are excluded from taxation (subject to value added tax).

The constitution of the concession is taxed at the rate of 4%, regardless of its nature, duration and the assets on which it falls, except in cases where the autonomous communities have set their own rates. The taxable person is the concessionaire.

The transfer of the rights of the concession or of the comparable businesses is settled at the expense of the acquirer, at the rate of 4 or 6%, depending on the nature (movable or immovable) of the assets on which it falls (except for types of autonomous communities). However, this usually involves the transfer of a right of a business nature which, in principle, is subject to Value Added Tax and not to Transfer Tax and Stamp Duty.

 

The tax base is constituted:

– When the Administration requires a total amount for the entire concession period, for the total amount indicated.

– When the Administration demands the payment of a fixed and periodic amount, (royalty, profit sharing, etc.):

– if the concession period is less than a year, for the total amount to be paid during the period; and

– if it is more than one year, capitalizing, depending on the term of the concession, at 10% the amount to be paid annually.

– When the Administration requires a variable and periodic amount:

– if the reason for the change is a preset price index, by the amount resulting from capitalising at 10% the amount set for the first year; and

– if the reason for the variation is not linked to a price index, but is known at the time the concession is granted, the basis is the arithmetic average of the annual amounts to be paid.

– When the obligation to revert certain assets to the government is established, for the net book value of the assets to be reverted at the date of the reversion, estimated according to the average percentage resulting from the corporate income tax depreciation tables, plus the expenses foreseen to carry out the reversion.

– When the remuneration set by the Administration includes the application of more than one of the above rules, the basis is set at the sum of the amounts corresponding to each of them.

– Where none of the above rules apply, the following rules apply:

– the basis is equal to the value of the assets assigned to the operation multiplied by 0.02 and by the number of years of the concession. The result cannot be less than 10%, nor more than 100% of the value of the assets;

– if the first rule cannot be applied, the basis is the same as the valuation set by the granting authority; and

– if neither the first nor the second rule can be applied, the basis is the value declared by the person concerned, subject to administrative verification.

The accrual of the tax takes place on the day the act or contract is carried out, which is the date of award.

 

 

  1. Corporate Operations

          The “corporate transactions” (SO) heading of the Transfer Tax and Stamp Duty taxes the performance of certain transactions by companies and certain entities assimilated to them.

This tax is incompatible:

– with that corresponding to Onerous Patrimonial Transmissions of the same tax;

– with that of Documented Legal Acts, in reference to the same act.

On the other hand, when a transaction constitutes a taxable event for both Value Added Tax and Transfer Tax, there is no impossibility to combine the two taxes.

The following statement is limited to a brief study of the fundamental aspects of this type of tax.

 

          Subject operations

Among all the transactions subject to this title, we highlight the following ones because of their greater importance from the real estate point of view:

– The incorporation of companies, capital increases and contributions made by shareholders that do not involve an increase in share capital.

– The dissolution of companies and reduction of share capital.

– The transfer to Spain of the effective management or the registered office of a company, when neither one nor the other are located in a Member State of the European Union.

However, the capital increase is not subject to the reserve constituted exclusively by the share premium.

 

Companies and similar

For Corporate Operations tax purposes, not only certain transactions by companies in the strict sense are taken into account. This should be made clear:

  1. a) On the one hand, that includes all types of companies, civil and commercial.
  2. b) Other, which are assimilated to companies:

– non-corporate legal entities that pursue profit-making purposes;

– the joint account contracts;

– the co-ownership of the vessels;

– the community constituted by inter vivos acts, when carrying out business activities;

– the community of property constituted mortis causa, when the exploitation of the business of the tortfeasor continues under a regime of indivisibility for a period of more than 3 years.

 

Exemptions

The incorporation of companies, increases in capital, contributions made by shareholders that do not involve an increase in capital and the transfer to Spain of the effective place of management or the registered office of a company established in a State outside the European Union are exempt.

The exemptions detailed here are those related to the real estate activities of those specific to the Corporate Operations modality.

 

Investment companies in the real estate market

Exempt are the operations of incorporation, capital increase and nonmonetary contributions to investment companies in the real estate market (SOCIMI).

Officially protected housing (VPO)

The incorporation of companies and the increase of capital are exempted when their sole purpose is the promotion or construction of buildings under official protection. This exemption also applies to publicly protected housing included in the legislation of the corresponding Autonomous Community, provided that the parameters of maximum protectable surface area, price of the housing and income limit of the purchasers do not exceed the state regulation for these purposes.

 

for undertaking for collective investment: real estate investment companies and funds

These institutions enjoy exemption in Corporate Operations for incorporation, capital increase operations, as well as for nonmonetary contributions made to them when, as non-financial collective investment institutions, their exclusive corporate purpose is the acquisition and development, including the purchase of land, of any type of urban property for lease.

As a requirement for the application of the latter benefit, the property must be maintained in the assets of the companies or funds for 3 years from the date of acquisition, unless authorised by the CNMV.

This exemption is also provisionally applicable to newly created real estate investment funds and companies, provided that within 2 years from their registration with the CNMV they reach the required investment percentage. If they do not reach this percentage, all the tax due on the transactions carried out must be paid, plus interest for late payment.

 

Passive subject

They are obliged to pay the tax, as a taxpayer:

– in the incorporation of companies, the increase in capital and the contributions made by the members that do not involve an increase in the share capital, the company;

– in the dissolution of companies and reduction of the share capital, since it is a question of a patrimonial flow from the company to the partners, the latter, for the goods and rights received; and

– in the transfer to Spain of a company’s effective centre of management or registered office, when neither is located in a Member State of the European Union, the company itself.

 

Taxable income

The taxable base is made up of the total amount of capital, i.e. the total contributions of the members, including the operations materially carried out by the members, as well as those promised or committed in the subscription.

However, their determination varies according to the corporate transaction in question:

– When increasing capital and setting up companies, a distinction must be made according to the form of the company:

– in companies that limit the liability of the shareholders (public limited companies, limited liability companies, etc.): the taxable amount is the nominal amount by which the capital is initially fixed or increased, plus any share premiums that may be required; and

– in other companies (in which the liability of the members is not limited), and in contributions by members that do not involve an increase in the share capital: the basis is the net value of the contributions (real value of the goods and rights minus deductible charges and expenses and debts that remain payable by the company as a result of the contribution).

– In the reduction of the share capital: the taxable base is constituted by the real value of the goods delivered to the partners, without deduction of expenses or debts.

– In the dissolution of companies: the basis is determined by the value of the assets and rights (in the case of adjudication), or the liquidation quota (in the rest of the cases).

– In the case of transfers of the effective management or tax domicile: the tax base coincides with the liquid assets of the company whose head office or domicile is transferred on the day the agreement is adopted.

 

Tax rate

The tax rate is, for all subject operations, 1%.

Documented Legal Acts

Within the great diversity of taxable events taxable by Documented Legal Acts, we can highlight the following general rules:

– The document becomes the nexus of the acts subject to this title. This does not mean that the charge for Documented Legal Acts is always based on documents. Thus, in the variable encumbrance of notarial documents, the tax takes into account the legal acts contained in them, and as many liquidations must be made as there are acts subject to encumbrance.

Notarial, commercial and administrative documents are subject to taxation. However, from the point of view of real estate transactions, the importance of notarial documents is particularly noteworthy, which we will focus on, as the other documents only affect them indirectly.

– With regard to notarial documents, depending on whether the document has as its object, or may have as its object at some time, a quantity or thing that can be evaluated, it is satisfied by means of variable fees, or by means of fixed fees (if such evaluation is not possible). The acts contained in the document have a non-valuable object when at no time can the amount of the base be determined.

– The tax for the gradual payment of the “notarial documents modality is incompatible with the taxation by the other modalities of the tax (Onerous Patrimonial Transmissions, Corporate Operations), and with the Inheritance and Gift Tax.

No incompatibility is established:

– between the Value Added Tax and the facts taxable by Documented Legal Acts: whenever appropriate, the concurrent tax can be combined; and

– between the modalities of Transfer of Ownership and Corporate Operations and taxation by Documented Legal Acts (DM).

 

 

Notarial documents

The taxable event is constituted by the deeds, minutes and notary’s testimonies in view of the acts or contracts they document. If more than one act or contract is formalised in the same deed, all those drawn up by the grantors must be taxed.

Notarial documents issued abroad are excluded from taxation under the concept of Documented Legal Acts (Notarial Documents). The taxable event does not occur until the notarization of the foreign document by a Spanish notary.

 

          Exemptions

The detailed exemptions are those specific to the modality Documented Legal Acts or common to the three modalities but with specific and individual regulation for this modality that have special incidence in the real estate operations.

 

Financial exemptions

The exemption for this purpose applies to the following documents:

– certificates of delivery of amounts that are made by credit and savings institutions, when they are made in execution of mortgage loan deeds, and provided that the tax – that which falls on the constitution of the loan – has been liquidated or declared exempt; and

– notarial documents that collect interest-free advances granted by the State and public, territorial and institutional administrations.

 

Officially protected housing (VPO)

The exemption is granted on a provisional basis and is conditional upon the fulfilment of the requirements for VPO. In particular, it applies in the following cases:

Mortgage loans requested for the acquisition of land, plots and surface rights for the construction of buildings under a VPO.

– The public deeds granted to formalize acts or contracts related to the construction of buildings under the VPO regime, provided that the regime has been requested from the competent Administration.

– The public deeds granted to formalize the first transfer of VPO, once the final qualification has been obtained.

Mortgage loans requested for the exclusive acquisition of VPO and its inseparable annexes, with the maximum limit of the price of the mentioned housing, and whenever this last one does not exceed the maximum prices established for VPO.

For the recognition of the exemptions provided for in points a) and b) above, it is necessary that in the formalization of the contract it is shown that it is granted for the purpose of building VPOs and it becomes void if 3 years pass from its recognition without obtaining the qualification or provisional declaration (or 4 years, in the case of land). The limitation period begins to run after the end of the 3 or 4 year provisional exemption recognition period, respectively.

These exemptions apply to the VPOs recognized by the various autonomous communities, for which they may not exceed the limits established by state regulations regarding the parameters of the maximum protectable surface area, the price of the home and the limit on the purchasers’ income.

 

Mortgages

The exemption applies in the following cases:

– the first copy of the notarial deed documenting the cancellation of the mortgage, but not the cancellation of the explicit conditions of the resolution.

– public deeds documenting the operations of incorporation, subrogation, modifying novation and cancellation of reverse mortgages;

– mortgage-backed loan deeds in which the borrower is certain persons or entities.

In relation to mortgage market securities, it is established that the acts of issue, transfer, repayment and cancellation of mortgage bonds and shares are exempt from this tax.

 

          Bank restructuring

The constitution of guarantees for the financing of the acquisition of real estate from the Bank Restructuring Asset Management Company to entities directly or indirectly participated by said company in at least 50% of the capital, equity, results or voting rights of the participated entity at the moment immediately prior to the transfer, or as a consequence of the same, or to the Bank Asset Funds, is declared exempt from the gradual quota as long as the exposure to said entities by the Bank Restructuring Orderly Fund is maintained, regardless of who the taxpayer of the operation is. The elevation to public status of loans granted by financial institutions for the acquisition of real estate to the SAREB is excluded from the application of this exemption.

 

Agricultural holdings

The exemption from the gradual encumbrance of Documented Legal Acts is declared for the first copies of deeds that document the constitution, modification or cancellation of mortgage loans subject to Value Added Tax in the following cases:

– those granted to holders of priority agricultural holdings (PADs) for the implementation of improvement plans and to holders of holdings which, although not priority holdings, achieve that status through purchases financed by the loan; and

– those granted to young farmers, or agricultural workers (AJ/AA), for their first installation on a priority holding.

 

Loans

The exemption extends to the encumbrance of documented legal acts (DM) on promissory notes, bonds, debentures and similar securities, when they are issued in series, for a period not exceeding 18 months and are representative of outside capital, where the remuneration is paid by the difference between the issue price and the reimbursement price. The exemption includes cash bonds issued by industrial and business banks.

However, the exemption does not extend to the taxation of documented legal acts (notarial documents) that may be imposed on mortgage loans granted by persons liable for value added tax (granted in the course of a business or professional activity).

Finally, both the deeds of subrogation in mortgage loans and the deeds of novation modifying these are also exempt.

 

Compensation boards

The operation constituting a clearing board that has been documented in a public deed is a registrable operation subject to documented legal acts.

 

Land consolidation

The public recording of acts and contracts resulting from land consolidation is exempt from this form of tax.

 

Poor Mortgage Borrowers

Exempt from the gradual quota of Documented Legal Acts (Notarial Documents) are the deeds of formalization of contractual novations, both loans and credits, guaranteed by a real estate mortgage on the habitual residence, whose debtors are located in the exclusion threshold included in RDL 6/2012.

 

Passive subject

In determining the taxable person, a certain order of priority must be followed: as a general rule, the person acquiring the goods or rights is the taxable person; otherwise, this is the person who instigates or requests the document, or the person in whose interest it is issued.

In the specific case of loans with mortgage guarantees, subject to Value Added Tax, with effect from 10-11-2018, it is stated that the taxpayer is the lender. However, with effect from 16-6-2019, they are excluded from the application of the tax benefits and subjective exemptions that may be granted in any law, as is the case with Law 5/2019, which regulates real estate credit contracts, in relation to this type of operation.

 

          Taxable income

These rules are valid for the variable tax, for the fixed tax, the tax liability is directly indicated.

As a general rule, the value declared in the document itself serves as a basis for the first copies of deeds and notarial acts, without prejudice to administrative verification.

In collateral rights and mortgage loan deeds, the basis is the amount of the obligation or principal, including interest, compensation and other amounts included in the guarantee. Where this amount is not expressly stated, the basis is the principal and 3 years’ interest.

As for the mortgage rank, in the postponement or improvement of the same, or of any other guarantee right, the basis is constituted by the amount of the liability of the right that worsens the rank. However, in the equalization of rank the basis is the amount of liability of the first-ranked security right.

 

Tax liability

The levy is articulated in two forms or modalities:

  1. a) A fixed charge of30 euros per sheet or 0.15 per sheet, at the choice of the notary. The matrices, the first, second and successive copies of deeds, the notarial acts and the notarial testimonies are subject to it. Simple copies are not subject.
  2. b) A variable tax at the rate of 0.50%, unless the respective autonomous community has established a different rate. The tax is levied on the first copies of deeds and on the notarial acts, if both types of documents meet the following three conditions

– that the copies and records subject to it are for a quantity or valuable thing. The acts contained in the document have a non-valuable object when at no time can the amount of the base be determined;

– containing acts that may be entered in the property, commercial or industrial property registers or in the register of movable property; and

– that the acts contained therein are not subject to the Onerous Transfer or Corporate Operations titles of this tax, nor to the Inheritance and Gift Tax.

 

Tax rates in the Autonomous Communities

Using the powers conferred on them, the Autonomous Communities have regulated the rates of taxation in their territory

 

Deductions and Allowances

The net tax liability in the Documented Legal Acts modality is obtained by applying to the total tax liability the deductions and allowances provided for by State legislation, as well as those approved by each of the Autonomous Communities within their regulatory powers and provided that they are compatible with those of the State.

Within the state scope, there are none of interest from the real estate perspective. It should be remembered that when the tax yield corresponds to Ceuta and Melilla, there is a 50% rebate.

 

Regional scope

The Autonomous Communities have established different deductions and Allowances.

 

Most common operations

In the transactions listed below, it is always assumed that they are granted in a public deed, as a necessary condition for their encumbrance. The following list is only indicative of the most frequent transactions, which are subject to the gradual 0.5% levy.

 

Operations with real estate

With regard to operations with properties subject to documented legal acts, we can highlight

Transmission of buildings. Subject to documented legal acts (notarial documents) are transfers that are subject to and not exempt from value added tax, or those that are exempt, but for which the value added tax exemption has been waived.  This is the case with:

– first deliveries of buildings;

– second deliveries of buildings, when the exemption has been waived;

– deliveries occurring in the exercise of the purchase option inherent in a financial lease contract;

– delivery of buildings for rehabilitation; and

– deliveries of buildings for demolition.

Transmission of land. Subject to documented legal acts (notarial documents), with the same conditions as in the previous case, the transfer of land:

– building land;

– Non-building land, when the Value Added Tax exemption is waived;

– rustic land, when the value added tax exemption is waived; and

– land developed or in the process of being developed, with buildings in progress, or with finished buildings.

Rentals. Leases subject to Value Added Tax and not exempt are subject to Documented Legal Acts (Notarial Documents).

The registration of lease contracts in the Land Registry is only limited by the condition that it is granted in a public deed, as the other conditions referred to in the LH have been eliminated previously.

Therefore, all deeds that document rental contracts, as well as sublease contracts, rental subrogation contracts and contracts for the extension and modification of registered contracts, are subject to the tax of Documented Legal Acts (Notarial Documents), when they comply with the other conditions of subjection.

 

Rights in rem on real estate

We refer to the operations related to the usufruct, use, habitation, emphyteusis, mortgage, census and servitude. These operations can be registered in the Land Registry.

(a) Constitution of rights in rem. A distinction must be made:

– Real rights of enjoyment and enjoyment. As with leases, in the constitution of rights in rem of enjoyment and use subject to value added tax and exempt, there is no possibility of waiving the exemption. Therefore, those carried out by taxpayers subject to value added tax are subject to documented legal acts (notarial documents) when they are taxed without value added tax exemption. In the case of:

– rights constituted on land for the parking of vehicles, deposit or storage, or installation of business activities;

– rights to furnished housing, with provision of hotel services;

– rights to buildings for subletting; and

– surface rights.

Security rights. The constitution of these rights is taxed by documented legal acts (notarial documents) when it is carried out by persons liable for value added tax. In these cases, there is no possibility of waiving the Value Added Tax.

(b) Cancellation of rights in rem. As it does not constitute a taxable event for the modality of Transfer of Property Rights – with the exception of the usufruct in the consolidation of the domain -, it is always subject to Documented Legal Acts.

 

Other real estate operations

It refers to acts not subject in any case to Onerous Transfer, Corporate Operations or Inheritance and Gift Tax, which are operations that can be registered in the Land Registry:

  1. a) New construction. The taxable amount in the declaration of new construction is determined exclusively by the value of the construction, without including the value of the land. The declaration of new construction seeks to document before a notary the existence of the construction, for the purposes of its access to the Land Registry. The horizontal division has its own substance, being the title that constitutes the property in parts. Even if both occur simultaneously and are recorded in a single document, they should be encumbered separately. The taxable base in the horizontal division is given by the value of the construction plus that of the land.

(b) Clusters. In the deeds of grouping of properties, the taxable base is constituted by the value of the grouped properties, without the addition of the value of the flight to the land.

(c) Aggregations and segregations. The taxable base is made up of the value of the property added to a larger one or of the property segregated from another to constitute a new independent one, respectively.

  1. d) Constitution of horizontal property. The tax base of these deeds includes both the real cost value of the new work and the real value of the land. For this purpose, the existence of leases in any of the properties subject to the horizontal property declaration is not taken into account.

 

Explicit terms and conditions

It is necessary to emphasize the particularities that are presented to the different situations:

  1. a) In the case of the transfer of real estate in the exercise of a business activity, the subject to documented legal acts (notarial documents) depends on the person who constitutes it.
  2. b) The cancellation of explicit resolutory conditions of the transfer of real estate constitutes an act that can be liquidated by documented legal acts, as it can be registered in the Land Registry and does not constitute a taxable event for the other modalities of the Tax on Property Transfers and Documented Legal Acts or for the Tax on Inheritance and Donations.

(c) The enforcement of the condition and the subsequent termination of the contract as a result of non-payment of the deferred amounts cannot be equated with termination by mutual agreement of the parties.

 

Loans subject to Value Added Tax, with mortgage guarantee

In general, the constitution of loans secured by a guarantee, pledge, mortgage and anticresis generates a single settlement for Onerous Asset Transfers, unless the loans are subject to Value Added Tax, in which case the aforementioned settlement cannot be made. In the latter case, as it is a loan not subject to Transfer of Assets for Real Estate, the public deed formalizing it would therefore generally be subject to documented legal acts.

 

Subrogation in a mortgage loan

The deed that documents the subrogation operation provided for in the Law on Subrogation and Modification of Mortgage Loans is exempt in the modality of Documented Legal Acts (Notarial Documents).

 

Modifying novation

The gradual or variable modality of Documented Legal Acts exempts the public deeds of novation modifying mortgage loans agreed by mutual agreement between creditor and debtor, provided that the creditor is a Bank and the modification refers to the conditions of the interest rate, both ordinary and delayed, initially agreed or in force.

Together with the change of type, the alteration of the deadline can be agreed.

 

 

  1. Checking values

          In the area of Transfer Tax and Stamp Duty, some specific issues of this tax should be highlighted. The application of the proven value depends on whether it is higher or lower than the value declared by the taxpayer:

– If the actual value ascertained is lower than the declared value, the latter is maintained as the taxable amount. Likewise, if the verified or declared value is lower than the agreed price or consideration, the latter must be taken as the taxable amount.

– If the value established is greater than that declared, the self-assessment should be amended to bring the taxable amount up to the relevant amount, also amended, where appropriate, because of other discrepancies in the subjection or qualification of the acts contained in the document. In this case, moreover, if the value established is greater than that resulting from application of the corresponding IP rule, it has effect on the assessments to be made by the acquirer for that tax, on the current and on subsequent years.

 

Exceptions

The value check is not applicable in the following cases:

– on VPO transmissions. The market price must match the legal maximum price.

– at public auctions. The taxable base is always made up of the auction price, plus any charges that the successful bidder assumes and which are not deductible; and

– in the transfer of property and rights in insolvency proceedings, where the value set by the judge must be accepted.

This rule also affects assignments of claims under the judicially approved convention and disposals of assets in liquidation.

 

          Opposition: contradictory expert appraisal

Once the act of verification of the values has been notified, together with the settlement that will take into account the new values, the taxpayer may choose to challenge them by filing an appeal for reversal or an economic-administrative claim, or request their correction by promoting the practice of contradictory expert appraisal.

In addition to the taxpayer, the act of verification of values may also be challenged by the interested parties, who may also file an appeal for reversal or an economic-administrative claim, or promote contradictory expert appraisal.

Contradictory expert appraisal should be promoted within the following time limits:

– where the act of verification of securities is notified together with the settlement, within the same time limit as the first recourse or claim against the settlement, that time limit being one month from the day following the notification of the act being challenged, and

– if the contradictory expert appraisal is promoted by the transferors, the application must be submitted within 15 days of the date of separate notification of the values resulting from the appraisal.

 

Tax Service

Estate Taxation

 

 

Regional and Local Taxation

Buying or selling a real estate property is a decision of great importance  in anyone’s economic sphere. Real estate is often your most valuable asset and will be one of the biggest investments you will make and, for most people, a major life event.

Not only is it a big decision in terms of financial commitment, but it can also be a complex and worrisome process.  If, in addition, you buy property in a country other than your own, with a different legal system than the one you know, the possibility of something going wrong increases.

 If you are about to make a decision of this scope, do not hesitate to hire the best professionals in the field. We keep what is easy easy, and simplify what is complex, so that it is equally easy, or at least manageable.

Juan Bertomeu, Senior Lawyer