What does dissolution of a joint ownership arrangement mean?
Joint property ownership, otherwise known as commonhold, is a situation in which ownership of a thing —usually a property— is shared by two or more people. Joint property ownership is therefore synonymous with shared ownership.
A joint ownership arrangement effectively dissolves where one of the parties transfers ownership of the property to another person. In other words, the dissolution of a joint ownership arrangement is a relatively simple way of dividing jointly owned property and is governed by Articles 400 and 406 of the Spanish Civil Code (Código Civil).
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In what situations does a joint ownership arrangement typically dissolve?
A joint ownership arrangement will often be dissolved following the separation of a couple who own a property on a 50/50 basis. It is also a relatively common occurrence when it comes to inheritance, in which several heirs receive a property.
In these cases, the legal dissolution of the joint property ownership generates a tax saving, as it is often a cheaper than selling the property, which often makes it a very attractive option.
What taxes are payable upon the dissolution of a joint ownership arrangement?
Dissolution of a joint ownership arrangement is subject to stamp duty (Impuesto sobre Actos Jurídicos Documentados) and represents around 1% of the real value of the awarded assets. This percentage can vary slightly, depending on the autonomous community of Spain in which the joint ownership arrangement is dissolved.
If the person who transfers their undivided share receives more money than the value of that share, they must also pay personal income tax on the resulting capital gain.
In the case of a purchase and sale, the transaction is subject to property transfer tax (Impuesto sobre Transmisiones Patrimoniales), which ranges from 6% to 8%, depending on the autonomous community in question, but which is clearly much higher than the tax payable upon the dissolution of a joint ownership arrangement.
How is a joint ownership arrangement dissolved?
- Negotiation: The first step will be to hammer out an agreement on how best to dissolve the joint ownership arrangement.
- Notarial instrument: The parties should then approach a notary and sign the corresponding instrument.
- In the event of a divorce, the parties can choose to include the dissolution of the joint ownership arrangement in the mutually drawn up agreement accompanying the petition for divorce.