Home swaps have been growing in recent months in Spain, as a result of the emergence of covid-19. This alternative to traditional sales and purchases have now totalled 1,230 transactions between January and September, according to the INE. This is the highest cumulative figure for the same period since 2015, although it is still well below the levels of the boom, when almost 7,100 transactions were recorded.
Although the number of transactions is not high, as it is growing it is worth knowing what a swap is. Article 1538 of the Civil Code establishes that it is a contract whereby the parties undertake to give one thing in order to receive another. It is generally governed by the provisions applicable to the contract of sale. It is therefore an interesting alternative for exchanging all types of goods that was already used in ancient times under the barter formula.
Salvador Salcedo, partner at the Ático Jurídico law firm, points out that if the exchange is of dwellings, the properties must first be appraised to ascertain their value. "If the houses to be exchanged have an even value, the operation will be much easier. Otherwise, the owner of the property of lesser value will have to hand over his property plus the amount of the difference in value between the properties to be exchanged," he points out.
Advantages of home swaps
The main advantage is that it makes it possible to change house without making a significant financial outlay, nor depending on mortgage financing to be able to close the operation.
Another advantage is that it allows you to change your home without waiting to sell the house you already own. In addition, the costs associated with the swap are usually lower than those of buying and selling a house, as both parties to the swap are interested in adjusting the valuation of the properties to reduce costs.
Disadvantages of home swaps
One of the main disadvantages is the difficulty of finding houses of similar value and that the two owners are reciprocally interested in the properties.
Another disadvantage is the existence of a mortgage on both houses or one of the properties to be exchanged. Salcedo reminds us that this is a circumstance that will have to be taken into account when valuing the properties, and which may condition the operation given that the bank will have to approve the change of mortgage holder.
Taxes to be paid when exchanging a home
There is no tax benefit that is a lure to encourage potential buyers. As in a traditional transaction, it is necessary to pay the Transfer Tax (ITP) established by the autonomous community in which the property is located, and the Stamp Duty (IAJD), a fixed rate, for the notarial document.
In a transaction of these characteristics, as there are two properties, there are two taxable bases, so each party must pay the corresponding Transfer Tax (for the value of the property purchased).
The taxable base of this tax will be the market value of the property acquired in the exchange. But be careful, because from the 1st of January 2022 this taxable base will be required to correspond to the Cadastral reference value assigned to the property.
The exchangers will also have to pay personal income tax and municipal capital gains tax on the respective transfers of the property which, until now, they owned.
Thus, each of the exchangers may have a capital gain for personal income tax purposes. As detailed by the Tax Agency, "the capital gain or loss will be determined by the difference between the acquisition value of the property or right that is transferred and the higher of the following two: the market value of the property or right delivered".
Salcedo emphasises that as far as personal income tax is concerned, the swap in principle synthesises two operations in a single act. That is to say, the obtaining of a gain through the transfer of the property and the reinvestment of this gain with the acquisition of another property that is received in exchange for the property that was transferred. This circumstance allows for the application of the exemption for reinvestment in the main residence in advance, if the final destination of the property is the taxpayer's main residence.
As if that were not enough, both taxpayers must also pay municipal capital gains tax on the urban land that, in each case, they transfer to the other party.
It should be remembered that this tax has undergone a major revision, through the recently approved Royal Decree-Law 26/2021. The new regulation exempts those who transfer in loss from paying the tax. It also provides for the calculation of the tax using two systems (objective and based on the real gain), and allows the taxpayer to choose the most advantageous one.