If we buy a flat jointly and one of us keeps all of it, what is ending co-ownership (“extinción de condominio”) and what taxes does it involve?

Question

José Manuel Alburquerque · Accepted Answer

It is the transaction that ends co-ownership, which the law calls “comunidad” and which is known in practice as “condominio”. One of the owners keeps the whole flat and pays the others the value of their share, normally in a deed executed before a notary. As a flat cannot be split, whoever keeps it does not pay property transfer tax (the “impuesto de transmisiones patrimoniales”) but stamp duty (the “impuesto de actos jurídicos documentados”), which in Catalonia is 1,5 % of the value of the share acquired. For the same reason, there is no “plusvalía municipal”, the municipal capital gains tax. Whoever is paid does not pay that tax, but may have to declare a gain in their income tax return if their share is now worth more than it cost them. What it is and how it is done The Catalan Civil Code allows any co-owner to ask at any time for what they own jointly to be divided. When the asset cannot be split, as is the case with a flat, it is allocated in full to one of the owners, who pays the others the value of their share. If there is agreement, the steps are as follows: Set the value of the flat, by agreement or by a valuation. It should not be below the “valor de referencia”, the reference value that the Spanish land survey office, the “Catastro”, sets for each property, because the tax authorities generally take it as the minimum value for the tax. Sign the deed before a notary and register it at the “Registro de la Propiedad”, the Land Registry, in the name of whoever keeps the flat. If the flat has a mortgage in both names, the one who leaves still owes the bank until the bank agrees to release them. This should be agreed with the bank before the deed is signed. If there is no agreement, the judge decides, as explained in another answer. If they are married or stable partners (“pareja estable”, Catalan stable partnership) and they separate, Catalan law allows co-ownership to be ended together with the division of the other assets they own jointly, in a single transaction. In that case it is advisable to check beforehand how the whole operation is taxed. What the person who keeps the flat pays Whoever keeps the flat pays stamp duty, which is charged on the deed. In Catalonia it is 1,5 % and is calculated only on the share acquired, not on the value of the whole flat. For example, two friends bought a flat together that is now worth 300.000 euros. If one keeps it all and pays the other 150.000 euros, the tax is 2.250 euros, 1,5 % of that 150.000. Notary's and Land Registry fees come on top of that. Some cases work out more expensive: If what they own jointly can easily be divided, for example two flats, but one of them keeps it all. That person then pays property transfer tax on the excess they receive, normally 10 % in Catalonia. If there are more than two owners and only one leaves, while the others remain co-owners. Property transfer tax is also paid on the share being bought. If whoever keeps the flat pays the other nothing. The tax authorities treat it as a gift, which is subject to the “impuesto de donaciones”, the Spanish gift tax. In the rest of Spain the rule is the same, but the rate of stamp duty is set by each autonomous community. What the owner who is bought out pays If their share is now worth more than it cost them, the owner who is paid must declare the difference as a gain in their income tax return. If the flat was their principal residence, that gain may be exempt if they reinvest what they receive in another principal residence or if they are over 65, as explained in other answers. Whoever keeps the flat has no gain or loss from the transaction. If the flat cannot be divided and the others are compensated in money, there is no municipal capital gains tax. In the more expensive cases explained above, where property transfer tax or gift tax is paid, there may be. If the flat was inherited, there are specific rules, explained in another answer.