Dissolution of Joint Property Ownership

Photo by Tierra Mallorca on Unsplash
Photo by Tierra Mallorca on Unsplash

COVID-19 has brought in its wake a host of nasty effects, both direct and indirectly.

Directly, by infecting and killing hundreds of thousands of vulnerable people the world over, from all ages.

Indirectly, by drastically changing our lifestyles as we struggle to cope and adjust to our new reality. Governments, in order to protect the most vulnerable elements of our society, are forced to curtail our fundamental rights and limit our ability to move freely, even forcing non-essential businesses to shut down. But more fundamentally, it has forced people into a seemingly never-ending lockdown, trapped within the walls of their own homes.

Amid a challenging financial context, with soaring unemployment, couples are now forced to live 24/7 under the same roof - with kids! Understandably, this may spark great tensions, or even drive a rift, putting relationships under severe strain.

Not everyone has what it takes to come out on top. Escaping from this ordeal unscathed is proving quite the task for most couples, and as a result we are sadly witnessing a sharp increase in divorce filings over the last months.

In this article, we explain a special legal procedure that can be followed in Spain to re-arrange property holdings which saves joint buyers a considerable amount in taxes. A Dissolution of Joint Property Ownership (or DJPO, for short) allows joint owners to re-arrange their share on a property in a tax-efficient manner as it enables the outgoing joint owner to transfer his share to an existing co-owner legally waiving the extreme Property Transfer Tax (taxed at 8%, or more, depending on the region in Spain) and paying in lieu only 1.5% Stamp Duty.

In plain English, this procedure saves you 86% in taxes, or more.

Interested? Read on.

Definition

A Dissolution of Joint Property Ownership is a legal procedure to re-arrange property holdings amongst joint owners that optimizes the tax burden of transferring outgoing shares. 

DJPO requirements

  • Both buyer and seller must be pre-existing owners of a property i.e. a married couple who own a property under joint names.
  • One of them wishes to terminate the situation and sell his/her share to the other joint owner.
  • If there is an outstanding mortgage on the property, a lender’s permission may be required to release the outgoing borrower/owner from his commitments.

Applicable cases

A DJPO is suitable in a number of cases involving joint property ownership:

  1. In a divorce or separation. Couples owning property jointly may decide to split up. Taking for granted they own a property in equal shares, one of them decides to sell their 50% to his ex-partner. The ex-partner will pay him/her his quota and this transaction.
  2. Re-arranging inheritances. Beneficiaries of an inheritance transferring their quota on a property to a fellow heir. E.g. Sisters who inherit property transfer a share between them.
  3. Re-arranging property holdings between family and friends. Stakeholders such as family, friends or investors co-owning a property may decide to re-arrange their holdings.

Associated taxes & expenses

Both buyer and seller stand to pay taxes on transferring ownership of the outgoing share.

Buyer:

  • Pays 1.5% Stamp Duty on the outgoing share.*
  • Lawyer’s fees
  • Notary fees
  • Land Registry fees

*In some regions of Spain, due to devolved competencies in tax matters, it is in fact well-below this quoted tax rate.

Seller:

  • Pays Capital Gains Tax on the outgoing share.
  • If the seller is non-resident, a 3% retention may be practiced on the outgoing share.

Pro-tips:

  1. You can legally waive paying up to to 86%, or more, in Property Transfer Tax on following a DJPO. It is optimal from a tax mitigation point of view.
  2. A DJPO may only be followed by existing joint property owners; not by external third parties.

In conclusion

A Dissolution of Joint Property Ownership is optimal to mitigate a buyer’s tax burden. In fact, you save 86% in taxes, or more, in a legal manner.

However, a DJPO may not apply in all cases. Seek legal advice on the matter.

A non-contentious DJPO works almost like a conveyance and can be arranged within a few days providing both parties agree to it. It can be arranged without any need to fly over to Spain by way of granting your appointed Spanish lawyer a specific power of attorney. The new re-arranged ownership will then be lodged at the Land Registry after the associated taxes are settled.

A DJPO neatly puts to rest the financial side of couples’ ongoing marital disputes, legally saving them a great deal in taxes. It’s a win-win.

At LNA we can represent you following a DJPO for a very competitive fee, regardless of your property’s location in Spain. We act nationwide. Ask us free of compromise. Larraín Nesbitt Abogados, small on fees, big on service.

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