The change of use of a premises to housing can be subject to AJD tax

By Javier Ortega, Ruiz Ballesteros Lawyers and Tax Advisors

In Spain, when changing the use of a business premises to a housing property, once the pertinent procedures have been carried out and a change of use license has been obtained from the town hall on duty, the matter must be formalised in a public deed for subsequent registration in the property registry, and where appropriate, in the Cadastre.

Articles 30 and 31 of Royal Legislative Decree 1/1993, of 24 September 2022, approve the consolidated text of the Law on Property Transfer Tax and Documented Legal Acts which determines the tax base and the tax rate (hereinafter, LITP- AJD).

Clarification is needed, with respect to the variable rate of the tax, to determine if the deed of change of use has as its object quantity or valuable thing as defined in article 30 LITP-AJD. This is needed to determine the taxable base of the AJD tax in notarial instruments, an idea about the economic content that is reiterated in point 2 of article 31 LITP-AJD, where determining the tax rate refers to the first copies of deeds and notarial acts as long as they have as their object quantity or valuable thing.

Requirements for AJD (stamp duty/legal documentation) taxation (according to article 31.2 LITP-AJD):

  • That it is the first copy of the deed or notarial deed;
  • That has as its object quantity or valuable thing; and
  • That it contain acts or contracts that can be registered in the Property, Commercial, Industrial Property or Movable Property Registry not subject to inheritance and donation tax or to the modalities of Onerous Asset Transfers and Corporate Operations of the ITP-AJD.

Points 1) and 3) are fulfilled. The problem is to determine whether or not a quantity or valuable thing is required in the public deed.

In binding consultation V1948-14, the General Directorate of Taxes (hereinafter, DGT) is clear in this regard, and considers that the change of use has valuable content since it implies a change in the cadastral value of the property which therefore influences its real value. The tax base in this case would be the value of the property that goes from being an office to a home.

However, according to binding consultation V0075-17, if the property is already registered in the Cadastre as a home and this does not imply a change in value, the DGT understands that there is no valuable content and, therefore, the operation would not be subject to AJD. The DGT expresses itself in the same terms in binding consultation V1033-21.

If the act is considered valuable because in the Cadastre it appears with a use other than the one that is intended to be changed, the tax base should be the increase in value that corresponds to the new use that will be given to the property or its execution cost (cost of the amendment, if applicable). However, the issue is not clear because, according to some courts, changes of use do not have valuable content and, therefore, are not taxed by AJD. If the use of housing already appears in the Cadastre, it would not imply any modification of the cadastral value.

In conclusion, we can affirm that the granting of a public deed to register the change of use of a real estate property in the land registry is not an operation that we consider to have a valuable content, especially for the purpose of carrying out the taxable event that accrues the application of the variable quota of notarial documents in the modality of Documented Legal Acts of the ITP-AJD.

Javier Ortega

Javier Ortega

GGI member firm
Ruiz Ballesteros Lawyers and Tax Advisors
Law Firm Services, Tax
Marbella, Spain
T: +34 952 77 98 74

Ruiz Ballesteros Lawyers and Tax Advisors is a firm of lawyers, economists and tax advisors established over 15 years ago. Highly qualified professionals cover all areas of legal, tax, accounting and commercial requirements for clients. Continuous training, demonstrating excellence, taking care of every detail, and upholding high ethical standards are the guiding principles of the firm.

Holding a degree in “Dirección y Administración de Empresas” (Business Management and Administration) from University of Malaga, Javier Ortega specialises in accounting and tax advice. He serves as a consultant, performing tasks of accounting, taxation and commercial law of companies from diverse sectors.

Published: Real Estate Newsletter, No. 16, Spring 2023 l Photo: 2mmedia - 

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