VAT, Property Transfer, Usufruct, and Bare Ownership
Defining VAT
There is a relationship of mutual exclusion between onerous capital transfers and VAT.
Deliveries of goods by entrepreneurs in the course of their business are taxed at the VAT as an exception in the field of real estate transactions: The transfer, lease, and use and enjoyment relating to real property under the tax exemption are transmissions subject to onerous.
Unlike VAT, there is no expensive transmissions tax impact nor deduction of tax paid at the last purchase.
Example: If you buy a car from a dealership, the vehicle is delivered to us by an entrepreneur and is therefore subject to VAT, but if you then sell it to a friend, it will then be subject to the ITP (Impuesto sobre Transmisiones Patrimoniales) and the purchaser (friend) must pay.
Transfer of Property
The distinction between broadcast and VAT is that expensive transmission of rural land and the second and further transfers are taxed in costly transmission.
Regarding buildings, the first transmission is subject to VAT and the second and subsequent transmissions are expensive.
The taxable event is the transfer of the property.
The taxpayer is the purchaser of the property.
The taxable income is the real value of the property.
The tax rate in the CV (Comunidad Valenciana) is 7%.
The administration can check the real value of the property.
Nuda Property and Usufruct
The taxable event is the creation of usufruct.
Regarding the tax base, we have to distinguish between temporary usufruct and a life interest.
Temporary Usufruct
The base is determined by applying a percentage of the real value of the property. The percentage is 2% for each year of the usufruct, up to a ceiling of 70%.
Example: A usufruct is constituted for 30 years on a property whose actual value is 1000.
What will be the taxable amount or value of the usufruct?
- 2 x 30 years = 60%
- 60% of 1000 = 600 will be the value of the usufruct for the tax.
What will the tax be paid?
- The tax rate for real estate in the CV is 7%, therefore the amount of tax payable is 7% of 600 = 42 € to pay tax.
Life Interest
The tax base is determined by applying a percentage of the real value of the property. To determine that percentage, start from 70% and apply 1% less per year over 19 that the beneficial owner has, with a minimum of 10%.
To understand the latter, assume that the beneficial owner is 80 years old (80 – 19 = 61). Then, subtract from 70% 1% for every year that exceeds 19. In this case, the result is 61 years.
(70% – 61% = 9%). But as the rule states a “limit of 10%”, we apply the established minimum, 10%.
Example: There is a life estate on a property. The real value is 1000, and the age of the beneficial owner is 49 years.
What will the tax base or value of the usufruct?
- 49 years – 19 years = 30
- 70% – 30% = 40%
- 40% of 1000 = 400 € (tax base)
What will the tax be paid?
- ITP in the CV is 7%, therefore 7% of 400 = 28 € (the amount of tax due).
Bare Ownership
Bare ownership is equal to the total value of the property – the value of the usufruct*. The law says that bare ownership can be transferred, so we apply this tax.
Therefore, we transfer the data from the previous example:
- Total value of the property: 1000
- Value of usufruct: 400 (this being a life estate)
- Bare ownership: Total value of the property (1000) – value of the usufruct (400) = 600. Therefore, a tax rate in the CV of 7% will be paid on 600.
*To calculate the value of usufruct, we need to know whether it is temporary or a lifetime usufruct to apply one percentage or another.