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According to data from the Official Association of Registrars, between 2010 and 2017, 13.7% of home purchase transactions in Spain were carried out through companies. Interesting data I thought, so today is all about buying a property with a company.
Buying a home with a company is a completely legal practice in Spain, even for those who are not residents.
Although in some cases this type of transaction may involve tax advantages compared to the purchase made by individuals, it is necessary to take into account several factors to determine its advantages and disadvantages in each specific case.
Asset-holding companies, regulated by Article 5 of the Corporate Income Tax Law, are those civil or mercantile companies engaged in the management of assets, generally consisting of securities or real estate.
In order to have this consideration, more than half of its assets must be composed of stock and not be subject to economic activity. In this sense, it is important to take into account that renting does not compute as such, as long as this activity does not imply the hiring of employees.
Properties managed through asset-holding companies are taxed through the Corporate Income Tax, with a general rate of 25%.
When the owner is an individual, the taxes related to this property are paid through the IRPF, applying the corresponding tax rate according to the level of income, which can range from 19% to 45%.
However, for the purposes of the Tax Agency, the sale of the house only generates an income in the IRPF when it generates a capital gain. This difference means that buying a house with a company can represent a significant saving when we are talking about large estates.
This tax is applied to the purchase of any new housing, common to both individuals and companies. At present, its amount is 10% of the total value, although it can be reduced to 4% in the case of subsidized housing of special regime or public promotion.
From this point of view, buying a house with a company can be an advantage in some cases, where VAT is considered a deductible expense, which is not applicable when the purchase is made by an individual.
If we are considering investing in real estate to rent, buying a property with a company can also bring us interesting advantages, thanks to the tax rebate for the associated management of such properties.
However, as pointed out by the Ministry of Finance, two basic requirements must be met in order to do so: to have at least eight properties leased with rental contracts for periods of more than three years.
Under these conditions, the company could benefit from a deduction of up to 85% of the income obtained through the rent. In addition, if it can be justified that it has been necessary to carry out adaptation works to put these dwellings for rent or the tenants present some disability, this bonus could be increased up to 90%. For individuals, however, who declare the rent through income tax, these deductions could only reach 60%.
Likewise, in the case of renting, there are some common deductible expenses, whether the purchase is made by an individual or by a company, such as those inherent to the leasing activity that cannot be passed on to the tenant, such as real estate tax or community expenses. Property companies can deduct these expenses in their entirety. In the case of individuals, who are taxed through the IRPF, each item will be computed independently, taking into account the time of occupation of the property.
In addition to its tax advantages, legal security is another reason for buying a property with a company. This practice is common to avoid conflicts in case of inheritance, for example.
A special advantage to be mentioned here is that it helps us to save our patrimony in case of bankruptcy. Since, while in the other societies all the goods would end up being seized, in the patrimonial societies the family patrimony is completely protected.
If the future owner of the property has an average net worth, buying a property with a company is not a very recommendable option. In addition to the costs associated with the incorporation of the company, it is essential to consider that, in the case of individuals, we will only be obliged to pay Personal Income Tax when the sale of the property has resulted in a capital gain and the tax rate is proportional to the income.
As mentioned above, in the case of asset-holding companies, they are taxed through the corporate income tax, with a fixed tax rate of 25%.
According to experts in real estate management, buying a home with a company is not an advantageous option when it comes to the purchase of our primary residence or a second home.
Although there are common taxes in both cases, such as VAT or Transfer Tax, for individuals this operation does not generate income for personal income tax purposes, whereas a company must invoice a market rent to the partner and the income is taxed at 25%.