Dissolution of co-ownership with cash compensation is subject to AJD

The dissolution of a co-ownership (comunidad de bienes), such as bare ownership, involves critical tax decisions when the division of assets is not mathematically exact and one of the parties receives economic compensation to balance the shares.

What the DGT has ruled

The Directorate General of Taxes (DGT) has analyzed whether cash compensation in a dissolution of co-ownership transforms the operation into an onerous transfer. The criteria establish that, if the dissolution does not generate excess adjudication, there is no onerous transfer, but the deed must be taxed under the modality of Documented Legal Acts (AJD) if it meets the requirements of article 31.2 of the TRLITPAJD.

In cases where excess adjudication does exist, the general rule dictates that this must be taxed as an onerous transfer. However, the DGT points out a fundamental exception based on article 1.062 of the Civil Code. If these three requirements are simultaneously met:

• The asset must be indivisible;
• The adjudication must be made to a single co-owner;
• The compensation must be made exclusively in cash;

then the operation is not considered a sale, but rather maintains its nature as a division of the common property. In this specific scenario, the excess adjudication will be taxed under the modality of Documented Legal Acts and not as an onerous transfer.

What it means for you

For individuals who own assets in co-ownership (proindiviso), this criterion defines the tax burden at the moment of extinguishing the community. If the economic compensation is correctly structured under the precepts of the Civil Code for indivisible assets, the fiscal impact could vary compared to a conventional onerous transfer.

What you should do

In the event of a dissolution of co-ownership involving economic compensation, it is necessary to verify the nature of the assets and the method of adjudication. The correct application of the special rule of the Civil Code is decisive in determining whether the operation is taxed as a division of common property or as an onerous transfer. It is recommended to evaluate the structure of the deed to ensure that the cash compensation meets the requirements demanded by current regulations.