Restructuring Co-Ownership of Spanish Property for Non-Residents

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Owning property in Spain is a dream for many, but sometimes restructuring Co-Ownership of Spanish Property for Non-Residents becomes a good idea.

Multiple individuals—often family members or friends, maybe as a result of an inheritance, often jointly own a property as non-residents. What begins as a shared asset can later become an administrative and financial burden. In particular, all co-owners are independently liable for paying the non-resident imputed income tax annually. Even if the property is not rented out. When this burden becomes disproportionate to the use or benefit received, many owners begin to consider restructuring the ownership.

A Solution

One practical solution is to transfer the property into the name of a single owner, as the method chosen for this transfer can have significantly different tax consequences. In Spain, a dissolution of joint ownership (extinción de condominio) can offer substantial tax advantages compared to a standard purchase of shares between co-owners.

The Problem with Joint Ownership for Non-Residents

Let’s consider the example of three siblings who inherited a holiday home in the Costa del Sol. Each owns one-third of the property. As non-residents, each is required to:

–             File a separate non-resident income tax return every year.

–             Pay imputed income tax based on the cadastral value of their share.

–             Coordinate decisions about the property (e.g., maintenance, usage, rental, or sale).

Over time, one sibling may wish to keep the property while the others prefer to cash out. At this point, the issue arises: how should the transfer be structured?

Option 1: Buying Each Other’s Shares (Standard Sale)

If one co-owner buys out the others in a normal purchase transaction, the operation is subject to Property Transfer Tax (ITP), currently ranging from 6% to 10% depending on the region in Spain. Additionally:

Capital gains tax may apply to the sellers based on the increase in value since acquisition.

The buyer pays notary, land registry, and legal fees.

This option may be straightforward, but it is also expensive in terms of taxes.

Option 2: Dissolution of Joint Ownership (Extinción de Condominio)

In contrast, under Spanish law, when co-owners divide a jointly owned property through a dissolution of joint ownership, only Stamp Duty (Actos Jurídicos Documentados – AJD) applies—typically 1% to 1.5% of the full value of the property.

The requirements for a valid dissolution include:

–             The property must be owned jointly.

–             The ownership must be ended, with only one co-owner taking full title.

Advantages of dissolution over standard sale:

–             Significantly lower tax burden

–             Generally no capital gains tax.

–             Legal and notarial costs are often lower or similar, making the total transaction more efficient.

Important Notes

–             The transaction must be well documented and structured correctly to qualify as a dissolution. It must not be a disguised sale.

–             The dissolution must be done before a Spanish notary and properly inscribed in the Land Registry.

Conclusion

For non-resident co-owners in Spain, holding a property jointly can become cumbersome, particularly when only one party wants to keep it. In these cases, the dissolution of joint ownership can be a smart and tax-efficient way to consolidate ownership and avoid the high costs associated with buying out shares via a standard sale.

Molina Solicitors are experts in these transactions, attempted by many not so familiar with property law and taxation, who are unable to answer questions pertinent to the transaction.  With the right legal guidance, you can save thousands in taxes while simplifying ownership and avoid future problems of co-ownership and increasing taxes and costs.