When you move out of a co-ownership in Spain, you will owe a division tax. Usually this tax is lower than Spanish registration fees. This article will explain the end of co-ownership from a tax point of view.
Registration tax vs distribution duty
In principle, if property is sold to another party, registration duties are due. However, the end of co-ownership in Spain is not considered a sale transaction.
Registration fees on property transactions amount to between 8 and 10%, depending on the region. At the end of a co-ownership, only 0.5 - 1.5% tax has to be paid, also depending on the region. A typical situation is a divorce where one partner takes over half the property from the other partner. This is thus similar to the Flemish distribution right (also called 'bully tax').
An example. A couple, married in community of property, buy a villa in Marbella worth 400,000 euros. Both partners, A and B, each acquire 50% of the property. The registration tax is then 8%, or a total of 32,000 euros.
After several years, A files for divorce. The property in Marbella is to be divided. A wishes to acquire full ownership and thus buy over B's 50%. A will then pay only 1.5% partition duty on 200,000 euros, i.e. 3,000 euros.
Read more about additional costs when buying a property in Andalusia.
Beware of an exchange
When your co-ownership is terminated and an exchange takes place, think of another co-ownership, the transaction is considered a sale. So in that case, you will pay the registration tax of 8%.
Beware of a donation
When no consideration is provided for the transferor, it is a gift, with progressive rates ranging from 7,65% to 34%. Gifts in Spain are taxed higher because they cannot benefit from the some exemptions in, for example, inheritance tax.
Read more about gifting in Spain.
What happens to the mortgage?
If a mortgage was taken out in Spain at the time of purchase, the bank may refuse to recognise the end of co-ownership. This means that the transferring party, in example B above, will still be jointly liable for the mortgage. This even after the land register was updated.
You can avoid this situation by making new arrangements with the bank beforehand. In the first step, the co-ownership will be lifted. In a second step, the mortgage will then be adjusted.
