It is commonly known in our Autonomous Community of Andalusia that the Law on Transfer Tax ( Law 5/2021, of 20 October, on Assigned Taxes of the Autonomous Community of Andalusia), in its article 44, allows real estate professionals to benefit from a reduced Transfer Tax rate of 2% on the purchase and sale of real estate for resale.
As with all tax benefits, there are a series of requirements, which the professional must fulfil, among them:
– Buying the property with the sole purpose of selling it and, in addition, reselling it within a maximum period of 5 years.
– The resale of the property must be subject to and not exempt from Transfer Tax.
– Formal requirements: it is necessary to include a series of statements in the deed of sale and to provide the census form of registration under the corresponding Economic Activities Tax code (Form 036).
The law itself, in the same article, establishes that in the event of non-compliance with any of the requirements, the real estate professional must make a complementary declaration and pay the difference between the reduced rate of 2% and the general rate in force at the time of the purchase of the property, plus the corresponding interest for late payment.
In practice, it is very common for the owners to be aware of his obligation to resell the property within 5 years, but it is important that they are also aware of other situations that imply non-compliance with the requirements and, therefore, a significant extra tax cost. These situations include, among others:
– Decision to keep the property in the business assets. This normally implies that, even though the five-year period has not yet elapsed, it will not be fulfilled and therefore, at the time the decision is taken, the tax must be adjusted. This way of proceeding can lead to significant savings in late payment interest.
– Characteristics of the renovation/rehabilitation project. Acquisitions of properties that qualify for this tax benefit often involve a refurbishment project prior to resale. It is essential to analyze the refurbishment project as, on certain occasions, the project meets the requirements of the VAT Law to be considered as a rehabilitation, and therefore, the future sale will be an operation subject to and not exempt from VAT.
– Rental of the property. Regardless of whether the five-year resale period is met, the property must be used solely and exclusively for this purpose: its future sale.
All of the above situations imply the need to adjust the Transfer Tax at the general rate and, therefore, an increase in the tax cost for clients. Therefore, it is very important to keep track of the properties that have benefited from the reduced rate of Transfer Tax and above all, that the client is aware of the limitations to which he/she is exposed when using this tax benefit.
If you would like more information, we remain at your disposal.
Pablo Mallo Bárcena.
