If you own a property in Spain with a spouse, relative or friend and wish to transfer or sell the share to the joint owner or take full legal title to the property then read on.
Many problems can arise post completion of a purchase of a property in Spain such as divorce, disputes between the joint owners or potential heirs as a result of an inheritance proceeding or even dissolution of a business relationship and Spanish law is on hand to assist in these situations. The condominium or co-ownership of a Spanish property when two property owners own a property is regulated by article 392 of the Spanish Civil Code and provides the option for the co-owners to dissolve the joint ownership of the property if they do not wish to continue to own the property jointly.
If the property cannot be physically divided because it is not possible to do so and the property cannot be sold on the open market, then the co-owners can reach an agreement amongst themselves whereby they dissolve the joint ownership of the property with one of them becoming the 100% owner of the property and acquiring the other’s share. The co owners would have to agree a price for the share in the property to be purchased and then deal with the legal formalities. If they are unsure of the value of the property then it would be advisable to obtain a formal valuation of the property at their joint expense. If however the situation amongst the co owners has deteriorated beyond reaching an agreement to dissolve the ownership and they cannot agree on a sale on the open market, then it is possible that the co-owners or one of them could issue legal proceedings before a Spanish Court for the sale on the open market of the property. The disadvantage of this is that the price of the property is established by the Court and subsequently the property is sold at a public auction. Normally the price achieved in a public auction is much lower than the market value of the property or the value of the property as perceived by the parties. Therefore it is strongly advisable to set differences aside and reach an agreement with the other co owners and then sign what is known as a Deed of Dissolution of joint ownership before a notary. A Deed of Dissolution can only be signed between two joint owners of a Spanish property.
What are the tax implications of signing a Deed of Dissolution?
Dissolution of co ownership of a Spanish property is subject to payment of Stamp Duty in Spain, as opposed to Transfer Tax which is normally paid by buyers in a purchase of a property. The Spanish tax authorities reviewed Stamp Duty recently and this increased to 1.5% of the total taxable value of the property or of the purchase price of the property whichever is higher. If the co owner who is leaving the co ownership is a non tax resident in Spain then the remaining co owner will be obliged to retain 3% of the agreed price for the share of the property and pay this to the Spanish tax authorities on account of the potential capital gain made. If the departing owner is a Spanish tax resident then they will be obliged to declare any gain made in their tax declaration.
Both parties can attend the signing of the Deed of Dissolution in person or grant a power of attorney to lawyers. At the notary’s office, the Deed of Dissolution is signed between the co-owners/representatives and the agreed funds are paid to the departing co owner. The taxes associated with the dissolution are paid and subsequently the deed is registered at the Land Registry to update the registry records and ownership. It is also advisable to change the utilities for the property into the name of the new owner and inform the community of owner’s administrator about the change of ownership. In addition if the property is subject to a mortgage the owner who remains will have to satisfy the bank that they can afford the mortgage and the bank would have to agree to the dissolution and may charge for modifications to the mortgage deed.
Article courtesy of Alex Radford of Irwin Mitchell Abogados