Housing contributed to community property is not taxable for Spanish IRPF

The Regional Economic-Administrative Court (TEAR) of Madrid, dependent on the Ministry of Finance, has concluded in the resolution of 25/05/2022 (REA 28/10901/2021), that the spouse who contributes a private asset to the community of property, such as real estate, is exempt from paying personal income tax. 

This decision is derived by considering that the spouse who transfers the private property is still the full owner of the property contributed and it never becomes part of the couple's assets, so that there is no change in assets due to the contribution of the property to the community of property. Furthermore, the TEAR adds that "the essence of the community of property is that there are no quotas on the assets that make up the joint assets, i.e. the spouses do not own half of the joint assets, but rather both are joint owners of the joint assets". This is good news for citizens, as it allows them to make tax savings in addition to requesting a refund of undue income.

This issue often generates doubts as, until 2021, the free contribution of a private asset to the community of property was taxed under Corporation and Gift Tax because it was considered a donation. 

The nature of the contract, whether it is free of charge or onerous, may also raise doubts, but for the tax authorities it is irrelevant, since for the calculation of the capital gain or loss for personal income tax purposes it is independent of whether the transfer is free or against payment.

 Actually, after this procedure, it is not the other spouse who receives the property, but the community of property, which is a separate estate co-owned by both spouses. 

Neither Transfer Tax nor Inheritance Tax should be paid

The TEAR joins the doctrine of the Supreme Court, which has already established that neither the Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) nor Inheritance Tax (Impuesto de Sucesiones) is payable.  

The reasoning of the latter is similar to that already mentioned, as the Supreme Court considers it impossible to tax this donation in the ISyD because the taxable person is not a natural person, but the community of property, a legal entity.

As for the Transfer Tax, they also dismissed it, as this tax is levied on onerous transfers and they see it as a free transfer. 

Source: idealista.com