The Supreme Court ruling of October 9, 2018, determines the taxable base of the AJD in cases of termination of joint ownership
When a marriage or partnership ends, or siblings inherit property, the question often arises of who gets the real estate and what taxes are payable upon the dissolution of joint ownership. This is a very common scenario that affects many taxpayers. Therefore, we would like to inform you about the recent Supreme Court ruling regarding the determination of the taxable base for Stamp Duty (Impuesto sobre Actos Jurídicos Documentados - AJD) in cases of dissolution of joint ownership.
What is the termination of condominium ownership?
The termination of joint ownership is the technical name given to the division of common property, and consists of the transfer of ownership of a property jointly owned by more than one person, which then becomes the property of only one of them.
The termination of joint ownership usually occurs in real estate because it involves indivisible elements, and is common to resolve inheritances between siblings or separations of married couples or partners in which there is a property in common, and they decide that one of them should keep it.
The termination of joint ownership implies the end of the co-ownership regime, with the property then belonging to a single individual.
How was tax levied on the termination of joint ownership?
The termination of joint ownership is treated differently than a sale and results in tax savings. It is considered that there is no actual transfer of ownership, but rather a mere specification of rights. Since there is no transfer, it is not subject to Property Transfer Tax (ITP), whose tax rate ranges from 4% to 11% depending on the autonomous community, but rather to Stamp Duty (AJD), whose tax rate ranges from 0.75% to 1.5% depending on the autonomous community.
For years, a Supreme Court ruling of June 28, 1999, has served as the basis for the Administration to maintain that the taxable base in AJD in these cases is the value of the entire property affected by the operation.
What is the Supreme Court's new criterion?
On October 9, 2018, the Supreme Court issued a ruling regarding the determination of the taxable base for the Stamp Duty on the termination of joint ownership, which will require the Tax Administration to change its criteria. From now on, the taxpayer who keeps the property will only pay Stamp Duty on the portion of the property awarded to them, not on the total value of the property.
The Supreme Court considers that tax should only be levied on the portion acquired "ex nuovo" and strictly covered by the public deed, and not on the entire property. Furthermore, the ruling clarifies that the act by which a taxpayer acquires the remaining undivided share of a property they already own, compensating the other co-owners, does not constitute an excess allocation.
Likewise, the Supreme Court explains that a termination of joint ownership of a property related to a taxable economic activity in the Corporate Operations (OS) modality, and the taxable base would be the assets, rights or portions allocated to each co-owner, and not the total value of the property.
Consequences of the Supreme Court ruling
From the date of the ruling, in joint ownership termination operations, taxpayers will only pay Stamp Duty on the awarded portion of the property, not on the total value of the property as before.
In addition, taxpayers may request the correction of the AJD self-assessments submitted in the last four years, and request the refund of undue payments.
If you require further information or have any questions, please contact us via email at ambit@ambitassessor.com or at our offices.
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A graduate in Business Administration from the University of Barcelona, she continued her education with a Postgraduate Diploma in Accounting and Management Control from Pompeu Fabra University, and completed various courses in tax and fiscal matters offered by the Terrassa Chamber of Commerce, the Barcelona Bar Association, and the Center for Financial Studies. Before joining Àmbit Assessor in 2001 as a tax and accounting consultant, she worked as an administrative assistant at Caixa Manresa and Banc Sabadell and as a tax information call center operator at the Spanish Tax Agency. For three years, she served as treasurer of the L'Alzinar Recreational and Cultural Society, a position she held concurrently with her work at Àmbit Assessor.
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