Tax Consequences of divorce with property distribution

Tax Consequences of Divorce and Property Distribution in Spain

Know the tax consequences of divorce regarding property distribution in Spain: a Q&A explaining a usual case to learn from and save money.

Article Published: 12 Mar, 2015, Updated: 11 Mar, 2020 under Divorce

Learn about the tax consequences of divorce in Spain regarding property distribution.
A Q&A illustrating a usual example for tax consequences of divorce to learn from:

Question: I am in the process of going through a divorce in the UK and we have a property in Spain. What are tax implications of transferring the property in Spain into one of our names only, as per the divorce agreement?

Answer: The most tax efficient manner to achieve this outcome is to draft a deed in a public notary’s office to bring a formal end to the co-ownership of the property and by which the co-owners can expressly confer the entire ownership to either spouse, with the other partner or spouse paying the equivalent amount in monetary terms.

In those cases involving the enforcement of divorce agreements, the amount of the financial compensation for the interest in the property will be as stated in the divorce agreement.

Documentation Tax

The tax applicable to such operations is known as AJD (Actos Jurídicos Documentados) and is equal to 1.5% of the value of the property in the Valencia region, for example.

In tax terms therefore, this is a great deal preferable to the outright purchase by one partner or spouse of the interest belonging to the other partner or spouse, which would result in the payment of a 10% tax on the value of the part of the property purchased.

Mortgages

It should be remembered that the dissolution of a co-ownership can only be carried-out between co-owners of a property and may not involve third parties.

Also, in those cases where there is still a mortgage on the property, the co-owner that is relinquishing their interest must take great care to obtain the approval of the bank that has conferred the mortgage.

For if the bank does not approve the assumption by one co-owner of responsibility for repayment of the entire mortgage the spouse or partner relinquishing their interest in the property may find themselves with no property but a continuing obligation to repay the bank.