Tax Implications of Property Distribution in Spain following Divorce

  • Rosa
    Rosa
    Rosa is an experienced English-speaking lawyer in Mallorca and provides expert legal advice and assistance in the following legal areas: Property conveyances, Inheritance, Family, Criminal, Business, Employment and Tax law.

I am a British national living in Spain, in a property jointly owned 50/50 with my spouse, which is valued at 300, 000 €. Our marriage has ended and we have decided to divorce here in Spain. My spouse would like to continue ownership of our property in Spain rather than selling to a third party – how can we manage the transfer of my ownership to my spouse in a tax efficient manner? What taxes would be due to be paid and who has to pay them?

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Indeed, when at least one of the spouses is resident in Spain, and when the divorce is mutually agreed, the Spanish courts are competent to hear their divorce proceedings and approve any agreements reached between the spouses on the division of their assets.

The case presented is very common, and obviously, unless the property is a holiday home and the parties to the divorce wish to take turns in their use and enjoyment alternately each year after the divorce, it will be necessary to determine to whom the home – acquired by both –  is awarded to, and the amount that is necessary to compensate the other spouse.

Assuming there is an agreement between the spouses as to future use and enjoyment of the home, it is suggested that, for the tax benefits available and the simplicity of the subsequent registration procedure, such agreements are clearly incorporated into the Divorce Agreement that they will endorse through their lawyer.

As such, and returning to the initial question, if you have a property valued at 300,000 euros of which the spouses are both entitled to 50% each, (not being a specific identifiable chunk of 50% of the property, but rather a half share in the legal title to the entire property), and assuming that both have been paying equal monthly mortgage payments – if any – or contributed by identical amounts to the acquisition of the property , it is suggested , to extinguish ‘undivided shares’ in the property, that a clause should be incorporated into the divorce agreement identifying the spouse to whom 100% title to the property is to be awarded, with a precise description, value, amount of compensation and identification of the property that can be easily corroborated through a land registration certificate .

The spouse acquiring full title to the property ought to compensate the other who has transferred their 50% ownership in the amount of 150,000 €, which is the amount that will be considered to be the starting-point for calculating any taxes due.

Once the divorce agreement is signed by the spouses and approved by the court through a legal judgment and the issuing of a certificate, it is unnecessary to go to a notary to formalise the operation that documents the asset transfer, with consequent savings which that implies, it being possible upon payment of the tax, proceed to the immediate entry in the register of the judgment and the Divorce Agreement ,duly approved by the court, which is the title of acquisition.

Thus, as regards the tax authorities of the relevant Autonomous Community, the transfer shall be exempt from ITP (7% – 10% tax on property transfers) as long as the property is a family home , nor shall it be required to pay stamp duty on the legal documents (usually between 0.5% – 1.5% of the value of the transfer), the agreement to transfer being included in a court document rather than a notarial deed .

Therefore in principle, the only expense that will be taken into account are the fees of the Land Registry to register the court judgment, which typically and unless otherwise agreed , shall be paid by the spouse who is obtaining the property.

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