The division of common property. Concept.
THE division of common property, means the termination of the state of division on a property. For example, a property that is owned by two owners on a 50 per cent basis is divided and two properties are created with two separate owners.
Division of real estate properties.
It is not always possible for a real estate property to be divided. For example, a villa, where municipal planning does not allow it to be divided into different properties.
Here, the solution will be either the sale of the property, or the award of the entire property to one of the owners, who will have to compensate the other.
The division of the common property for Capital Gains tax.
Division of the common property where each owner is awarded with assets according to his entitlement, does not imply an alteration of the assets or wealth.
Income Tax Law in Spain says in its article 33.2; that the division of the common asset does not imply an alteration in the composition of the wealth and therefore, does not generate capital gains.
Income Tax of Non-Residents in Spain.
On one hand, the income tax for non-residents law, in article 24, says:
1.- In point number 6, for tax payers, resident in the European Union, article 33.2 is applicable, and therefore the division of the common asset does not generate capital gains.
2.- But in point 4, it refers to tax payers, resident outside of the European Union. For them, it indicates that article 33.2 does not apply and the division of the common property will generate capital gain.
This is a clear and unacceptable tax discrimination, which we believe to be illegal.
Award of the entire property to one of the owners who compensates the other with money.
As we have seen (except for non-residents out of the EU), when with the division of properties, property is awarded to each of the owners according to the share they are entitled to, there is no patrimonial modification, nor patrimonial or capital gain.
But, in most cases, a real estate property is not divisible, and the whole property is awarded to one of the owners, who compensates the other with money.
In such cases, it is said that there is an excess of adjudication, and it is understood that there is an alteration of the wealth and there may be Capital Gains Tax to be paid. In these cases, article 33.2 no longer applies.
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The information provided in this article is not intended to be legal advice, it merely conveys information related to legal issues.
Carlos Baos (Lawyer)
White & Baos
Tel: +34 966 426 185
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