Horizontal division and change of use for commercial premises may be subject to AJD tax

The configuration of real estate property and the modification of its urban planning purpose entail tax consequences that owners must be aware of to avoid contingencies with the Tax Administration.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that horizontal division constitutes a convention that results in the creation of independent properties. Therefore, this process is subject to the Documented Legal Acts (AJD) tax modality, provided that the requirements established in article 31.2 of the Revised Text of the Law on Property Transfer Tax and Documented Legal Acts (TRLITPAJD) are met.

Regarding the change of use of a property, the ruling establishes that if current urban planning regulations consider the commercial premise and the dwelling to be differentiated elements and there is a valuable component in said transformation, the operation must also be taxed under the AJD modality. However, the DGT clarifies that if the change of use does not produce a variation in the cadastral value nor is there a relevant planning difference, the operation would be exempt from this tax.

What it means for you

If you are the owner of a building and decide to carry out a horizontal division to separate real estate units, you must foresee the tax cost derived from the Documented Legal Acts (AJD) modality. This tax will be applied to the convention that leads to the creation of the new properties.

Likewise, if you intend to transform a commercial premise into a dwelling, the tax burden will depend on the urban planning regulations of your municipality and the valuation of the property. If the local administration recognizes the distinction between the uses and this entails added value, the tax will be payable.

What should be done

Before starting any process of property division or change of use, it is necessary to verify the applicable urban planning regulations and the impact it will have on the cadastral value of the property. The existence of a clear planning difference between the current use and the intended use is the determining factor for the occurrence of the AJD tax obligation. It is recommended to analyze the technical and urban planning documentation to determine the exact amount of the tax burden that the operation will entail.