Do you pay income TAX to cede your housing to a family member for free?

Finance clarifies that give a home a free family may be taxed at the personal income TAX

Recently, the Directorate General of Taxation (DGT) has issued a binding referendum that clarifies how renders to the free transfer of a home to a family in the Tax on the Income of Natural Persons (personal income TAX). This interpretation prosecutor is relevant for owners to relinquish property without rent, including family members or friends, and can generate unexpected tax if it is not known in advance.

Does it mean the free transfer and the imputation of income

According to the DGT, when a person gives a home as a second residence or a holiday home, a family member without charge any rent, this it is not considered a lease, but yes, you can generate an imputation of income in real estate for the purposes of the income TAX. In practice, this means that the Treasury considers that the owner has a well that could generate income, even when not receiving money for it, and we apply the scheme taxation on income earned in real estate.

The immediate consequence is that the owner must declare that imputed income on your personal income and pay taxes on it, even if you have not received an actual income.

How to calculate the imputed income for housing relinquished

Taxation on income earned in real estate in the personal income TAX is based on the cadastral value of the propertynot in the market value. In these cases, the Spanish legislation establishes percentages applicable to the assessed value to calculate the income to declare:

• If the cadastral value it has not been reviewed within the last ten years, is applied to the 2% of that value as imputed income.
• If the cadastral value it has been recently updatedthe low rate to the 1,1%.

This implies that, even where there is income received by car, Finance, you can consider the owner to “get” an income dummy, that you must include in your statement and pay tax based on their type marginal effective income TAX.

Difference between assignment and free rent undercover

It is important to note that this resolution of the DGT do not equate automatically to the free transfer of a home to rent undercoverbut yes generates an imputed income. The Administration understands that the housing could generate revenue if they explode in rent, so levied an income dummy for their availability.

In contrast, some professionals interpret that when a housing is used as the usual residence of the family members and there family life, not generally considered imputed income according to the regulations of the charges, real estate TAX, although this interpretation may vary, depending on each case, circumstances of use, and documentary proof.

What are the taxes and obligations arising from this situation?

The taxation by rent a contested real estate in the income TAX it is independent of other potential taxes associated with the donation or transfer of ownership. For example, if instead of a free transfer choose donate or otherwise transfer the housing completely a family member, would the Inheritance and gift Tax (ISD), levied on transfers without consideration of economic and whose types vary according to the autonomous community.

In addition, if the property was transferred eventually to donation, the donor may be required to declare a net capital gains in the income TAX if the property has increased in value since their acquisition.

What to do to minimize tax risks

The free transfer of a dwelling, although it does not involve rental, you can have tax implications that many owners are unaware of. To minimize risks with the imputation of real estate income, and the possible consequences on the personal income TAX, it is advisable to:

• Analyze the specific situation of the property and check whether it is the habitual residence of the assignor or if there is family life.
• To assess the alternative to formalize contracts of commodatum or agreements evidencing the absence of profit generating income, which can help support the criterion to the Treasury.
• Consult with a tax advisory specialist to plan if the free transfer could generate other tax obligations, as a donation subject to the Tax on Inheritance and Donations.

The recent elucidation of the Directorate General of Taxation remember that even a free transfer from a house to a family may have tax implications in the personal income TAX, through the imputation of income in real estate, calculated on the cadastral value of the property. This highlights the importance of understanding how the tax rules when it comes to real estate and planning any operation to avoid any surprises with the Treasury.

If you're considering give a home to a family member or restructure your real estate, it is essential to discuss your case with an experienced attorney who can determine the tax obligations real and designing the most effective strategy for your personal situation. Contact our team of advisors in IURIT and clear your doubts before making decisions that involve taxes unexpected.