Property implications tend to feature highly on the agenda during a divorce.
You may jointly own property in both the UK and Spain and need to transfer your share of the family home in the UK and your second property in Spain under the terms of a UK Court Order.
The transfer needs to be formalised through a Spanish termination of co-ownership deed (Escritura de extincion de condominio) signed by you and your ex-spouse in person, or by someone representing you under a Power of Attorney. In preparation for signature of the Escritura, a copy of the Court Order should be officially translated and legalised.
Compared to the work involved with other types of Spanish property transfer, the basic process is relatively quick and simple if both parties cooperate. As in many areas of Anglo-Spanish procedure, though, things can and do go wrong.
Weak descriptions of the Spanish Property on your UK Court Order
Weak descriptions of the Spanish property on the Court Order issued by your local UK Court can be a real problem. Too often, an English Court Order fails to identify the Spanish property clearly enough for the Spanish Land Registrar to allow the Escritura to be re-registered. An application then needs to be made to the UK Court for the Order to be amended.
This problem can be avoided by seeking specialist professional support when preparing the draft documentation for approval by the English judge. Although there is a modest cost involved, that figure could multiply if you are forced to go back to the English Court following rejection by the Spanish Land Registry. Prevention is better than cure.
Failure to budget for transfer costs
Depending on the timing, transfers of shares in the UK former matrimonial home to a former spouse or civil partner tend to be tax free. In contrast, the taxes triggered by a divorce transfer of a share in Spanish property can be substantial:
The Spanish tax authorities may claim a transfer tax called Actos Juridicos Documentados (AJD) which varies regionally between 0.75% to 1.75% of the official property value. Under correct interpretation of Spanish tax regulations, no AJD should be payable on termination of co-ownership. Nevertheless, you may be forced to pay it first for the property transfer to go ahead. Then, depending on the level of tax paid, it may be worth applying to the Spanish authorities for a refund.
Non-resident’s withholding tax
A similar anomaly applies to a 3% withholding tax. An individual purchasing Spanish property from a non-resident seller is liable to withhold 3% of the value being transferred and pay it to the Spanish tax authorities to cover the Seller’s Capital Gains tax liabilities. With a divorce transfer, although no cash typically changes hands for the share of the Spanish property, the 3% tax is still likely to be payable, depending on which Spanish Notary and/or Land Registry processes the Escritura.
The good news is that, if the withholding tax exceeds the actual Capital Gains Tax liability, an established process exists to claim a refund of the withholding tax.
Plusvalia is a local tax charged by the Town Hall on a property transfer. It is calculated on the rateable value of the land on which the property is built and the number of years that have passed since you purchased the property. Some local councils will claim Plusvalia although there are grounds to claim exemption.
The relatively high Spanish transfer expenses can be overlooked by UK family lawyers when addressing financial settlement arrangements, and failure to provide adequate cash provision from former matrimonial assets could jeopardise a timely transfer of the Spanish property.
A pre-existing mortgage taken out in joint names when a couple were married can create another barrier to a timely transfer. The English judge may have ordered that whoever receives the half share of the Spanish property assumes full responsibility for any mortgage repayments. The Spanish lender will only allow this if the party taking full title to the property has the financial capacity to service the mortgage in their sole name. The process involved with a review of the mortgage product can add further complication and expense.
There is an alternative. One of you might typically pay the Spanish mortgage in full every month with both of you remaining liable as far as the Spanish bank is concerned. But you agree between you that the party relinquishing their share of the Spanish property is compensated if the bank ever took enforcement action.
Protecting your interests through a difficult time
Our specialist team can work alongside your UK advisers to ensure Spanish property is properly described on your draft legal documentation and that Spanish transfer expenses are estimated early and accurately when agreeing financial settlements.
You can appoint us to deal with the Spanish property transfer itself. Or, if your ex-spouse has already appointed their own Spanish professionals to deal with the transfer, we can advise you on any concerns you might have about documentation you are being asked to sign by them.
Whatever your circumstances, we will communicate firmly but sensitively with an ex-spouse to help things run as smoothly as possible.
Getting in touch if you need help
If you need help with the transfer of Spanish assets following a divorce, speak to Dennis Phillips on 0115 985 3473 or another member of our Spanish team at Buckles Solicitors on 01733 888888.