Land swaps for future construction are taxed at the time of transfer

The tax management of swap operations between real estate and rights over future constructions presents complexities in determining the timing and amount of the tax obligation. The Dirección General de Tributos (DGT) has specified the applicable treatment when land is exchanged for a work that has not yet been completed.

What the DGT has resolved

According to the interpretation of Law 35/2006 on IRPF, the swap of land for a future construction is considered a change in assets that generates a capital gain or loss at the moment the transfer of the land occurs. The criteria establish that the transfer value for this calculation shall be the higher of the following two concepts:

• The market value of the construction, calculated at the time of the transfer of the land.
• The market value of the land.

This resulting value from the operation becomes the acquisition value of the construction for IRPF purposes, regardless of when the finished work is delivered. The regulations allow the gain to be imputed in the year of the land transfer, although there is the possibility of opting for the proportional imputation method for installment operations.

What it means for you

If you are a natural person performing this type of operation, you should know that the tax obligation arises with the exchange of the land, not with the delivery of the keys to the finished home. The value of the construction must be determined technically at the time of the swap to establish the taxable base of the capital gain or loss. A critical aspect is that the acquisition value of the future construction is fixed by the market value determined in the swap deed, which will condition future taxation when the work is completed.

What is advisable to do

It is necessary to ensure that the market valuation of the future construction is accurate at the time of signing the swap, as this value will determine the current capital gain and the acquisition cost for the future. One should assess the convenience of applying the proportional imputation method for installment operations if the structure of the operation allows it, in order to manage the tax impact in the corresponding fiscal year.