Division of Joint Tenancy or Dissolution of Joint Ownerships
Changes of ownership in Spain can also be known as Division of Joint Tenancy. Or Division of Joint Property Ownership or Dissolution of Joint Property Ownership. You will see a multiple of names for this process. Plus even sometimes a Purchase and Sale or a Donation (gift).
Clients may wish to change for several different reasons the ownership of a property in Spain. This can be a division of joint tenancy, most commonly is when a couple part. And due to this, it is agreed that a jointly owned property goes into one name. We also see many cases whereby friends or business partners owned a property years ago, for instance. Now their circumstances are different and they wish to change the ownership.
Molina Solicitors has dealt with these changes of joint ownerships for property all over Spain for years. Thus, we are often the ones instructed as not all firms seem to understand this process well.
For instance, in a number of cases, we have seen quotes include the payment of capital gains tax. When it is a division of joint ownership (also known as a DJPO), this is not correct. Capital gains tax does not need to be paid.
There are Supreme Court Judgement Precedents that capital gains tax does not need to be paid. Because under Spanish law no one is obliged to continue a co-ownership if they do not wish to. Thus, there have been specific legal proceedings developed to deal with splitting a property.
Division of Joint Property Ownership is not seen as a transaction for financial gain. But as a practical means of solving a problem. If done correctly with the Tax Office this method does not incur taxes or capital gains. We are very experienced at this method of changing property ownership. We arrange more than 20 per year when many other firms only get one occasionally. We explain further below.
Usually when purchasing a property or a share of a property there are purchase taxes. Which can be as high as 10% in some regions of Spain such as in the Valencia region. Plus if the seller or party with the outgoing share is non-resident, there will be 3% retained at the Notary for possible capital gains tax.
So the best way to change ownership of a joint property is using the division of joint tenancy or dissolution of joint ownership method. When using this legal method to arrange the transfer, there is stamp duty on the tax value of the property. In the Valencia region stamp duty is only 1.5% as opposed to the above higher taxes for purchase and sale of property shares. (Stamp duty does not vary greatly in other regions either). Total costs are therefore considerably cheaper. Stamp duty is only paid on the value of the outgoing share of the property being transferred, not on the whole value of the property.
The costs are usually paid by the person into whose name the property is being transferred. However, this method is only possible if the property will finally be held in one name. For instance, two names to one name or four names even to one name. Besides the cost of stamp duty, a client would have to pay notary fees, land registry fees, stamp duty, and legal fees.
If there is a mortgage, then there will be costs for removing this from the deeds. The clients would clear the mortgage. So we would deal with the rest of the transaction. If it is preferred that the mortgage remains, we can suggest how this should be dealt with. The process usually takes about a month to six weeks.
Please let us know regarding any questions you may have on division of joint property ownership.