Life is complicated, and sometimes, your circumstances may change. As a result, you might wish to carry out a transfer of property ownership. In this article, we explain your options and why the ‘extinction of co-ownership’ may be the best route to take. Generally speaking, this is because, in most regions, the process only requires one tax payment: stamp duty. Stamp duty in Spain is very reasonable compared to other countries, so it could save you money. Below, we explain more.
Defining the extinction of co-ownership
A particular type of property transfer under Spanish law is the extinction of co-ownership. The best way to explain what this really means is to start with the definition, which is really quite self-explanatory. The process involves cases that comprise ‘co-ownership’ – that is, there are several owners of one property – and ‘extinction’, meaning the process aims to extinguish or dissolve this agreement. Ultimately, there is a decision to end co-ownership and transfer the property to just one owner.
Scenarios which may require an extinction of co-ownership
To clarify, we’d like to give you some examples. As we mentioned initially, life changes; the most common instance where extinction of co-ownership is required is if a couple divorces. The situation generally unfolds as follows; the couple has married and now they want to divide their assets. Under the Consent Order, the property will be assigned to one of the ex-spouses. As such, we proceed with the extinction of co-ownership.
Although this instance is the most typical example, there are other cases. For example, let’s imagine siblings purchase a property together in Spain. One party may have a 60% stake, while the other has 40%. Later down the line, they may decide that one of the parties no longer wishes to have a stake in the property. Therefore, one of the siblings may wish to ‘buy out’ the other’s stake. However, this isn’t really a sale or purchase: it’s the extinction of co-ownership.
Another common example is inheritance. In this case, there may be several co-owners; maybe five or six, as the will specifies several beneficiaries. Often this leads to a situation where the beneficiaries do not want to share ownership, and instead, one owner ‘buys out’ all of the others.
Finally, there’s also the potential that a couple married under a jurisdiction that establishes a ‘common marital regime’ as a general rule – for example, France or Sweden – decides to transfer the property to one spouse as a private asset. Here again, we would proceed via extinction of co-ownership here in Spain.
The transfer of property against compensation
Hopefully, these examples should clarify how we proceed with the extinction of co-ownership in Spain. To summarise, the following circumstances would apply:
- There are multiple owners.
- The desired result is that there’s one sole owner.
- The transfer has to be made on the basis of a legal agreement, for instance, a Consent Order, or simply, a contract between co-owners, similar to a sales contract.
This transfer has to take place against compensation. When we talk about compensation, in numerous cases, it could be the price. There is the value assigned to the property, and subsequently, there’s a price to be paid for the share that is to be taken over.
However, within divorce agreements, this compensation could take a different form, which would be established in the Consent Order. It doesn’t necessarily need to be money; the compensation could be any kind of other assets that equal the value of the share in the Spanish property. For example, it could be another property in their home country that could be assigned to the ex-spouse.
The advantages of extinction of co-ownership
As you can see, there are many examples in which we could proceed with the extinction of co-ownership process. But why go forward with this particular scenario? This is because it has numerous advantages, which include:
- It’s a very swift process. In most cases, we’ll proceed by power of attorney, which makes it very simple for everyone involved, in divorce cases and others. The power of attorney is granted in each party’s home country, and from here, we proceed with the process in Spain on that basis.
- Arguably the main advantage is the tax and expenses involved. This type of property transfer or share is cheap from a tax point of view; it is exempt from plusvalía or local tax, which normally applies in other types of transfer. The only other type of tax that arises is stamp duty. The stamp duty in Spain generally sits around 1.5%, as it does in the Valencian Community. Compared with transfer tax – which is currently 10% – this is far cheaper. The expenses involved have improved even further as a result of recent court decisions. For instance, stamp duty in Spain only apples on the share that is transferred.
Finally, it is recommended to proceed via the extinction of ownership in a divorce. Sometimes, confusion can arise if the transfer of property is specified in the Consent Order; however, this transfer can’t be formalised by this means alone. The property transfer needs to executed on the Spanish side via a formal extinction of co-ownership, otherwise, it does not legally apply.
Why paying stamp duty in Spain could save money
In other European countries, stamp duty is often the major tax expense of a property transfer or purchase. In Spain, this isn’t the case; in fact, stamp duty in Spain is quite reasonable and the overall tax expenses associated with the extinction of co-ownership are relatively low. Taking expenses and taxes into account, it is certainly recommended to proceed with the extinction of co-ownership where possible.
If you would like any more information about the execution of the extinction of co-ownership, don’t hesitate to contact our legal team. We’d be more than happy to advise on your specific circumstances. Click here to register your details so we can give you a free consultation, without obligation.