From Welex, your law firm in Marbella specialized in purchase and sale of properties in Spain, we set out below a practical assumption in which we collect the details that derive from the taxation of the transfer to a third party of a private purchase contract for properties under construction.

At first, before starting the process of assigning a private purchase contract for properties under construction, it is necessary to confirm with the promoter, and to make it real in contract, that the mentioned contract contains the option to transfer.

Thanks to our extensive experience related to the issue of private purchase contract for properties under construction in Spain, let’s take an example:

An ‘X’ buyer currently signs a private purchase contract for properties under construction in Andalusia with the promoter ‘Y’. Once the house is finished, its price will be set at 300,000 euros (VAT included). The date of delivery of said alleged house to which we want to apply a private purchase contract for properties under construction in Spain is about 20 months from the signing of the contract.

The buyer ‘X’ has made a payment of 40,000 euros (VAT included).

In addition, we have a contract of sale that allows the transfer of the rights signed by ‘X’ to a third party, authorized by the promoter.

After 10 months from the signing of the private purchase contract for properties under construction, the buyer ‘X’ receives an offer of ‘Z’, another interested buyer, in order for ‘X’ to cease the rights of the contract of sale that he had previously acquired, resulting in ‘Z’ surrogate in the position of ‘X’.

The price agreed between ‘X’ and ‘Z’ for such assignment is 50,000 euros.

This means that ‘Z’ must pay the 40,000 euros previously paid by ‘X’ under the private purchase contract for properties under construction, plus the amount of 50,000 euros which represent the agreed price for that transfer of the private contract of sale.

As has been found in several previous binding rulings of the Spanish Directorate-General of Taxes, the aforementioned transfer of rights to a private contract of sale in Spain, which was originally concluded between the promoter and the buyer, being a third party in that contract, and taking place before the completion of the works and , therefore, the delivery of the house, we would be faced with a case of transfer of rights, not of property.

Private purchase contract for properties under construction

Therefore, it would not consist in the transfer of the property itself, but in the rights held by ‘X’ with the selling entity, as a result of that private purchase contract for properties under construction.

According to Article 17.1 of the Law Regulating the Tax: ‘In the event of real estate under construction, the tax base will be constituted by the real value of the property at the time of transfer of the credit or right, without it being less than the amount of the consideration paid for the assignment’

In this case, the corresponding tax rate would be the transfer of real estate, which is 8%. We can find it in the first tranche of article 11. 1.a.

In the practical case mentioned above, we find values that may cause doubts when determining the tax base:

  • On the one hand, we have the price initially paid by ‘X’ at the time of signing the private contract amounting to 40,000 euros,
  • Moreover, both parts have agreed on an amount of EUR 50000 for the transfer of these private sales contract rights.
  • Finally, it is necessary to take into account the real value of the house at the moment, which it means, 10 months after the signing of the private purchase contract for properties under construction in Spain. This value is difficult to quantify both by ‘X’ and, Z’. To solve this question, it is possible to go to the architect in order to certify us the value of the property in relation to the volume of construction that executed. The amount certified by the architect amounts to 150,000 euros.

Likewise, the tax base is formed by the real value of the property at the time of the transfer of the private purchase contract for properties under construction according to the volume of construction executed (150,000 euros), except in the case that the amount of consideration for the transfer is higher (EUR 50000), in which case it would be considered the taxable amount.

Therefore, we can say that the tax base will be provided by the highest of the following amounts: the value of the construction at the time of the assignment of the private purchase contract for properties under construction or the price that has been paid for it.

We can conclude that the value of the construction at the time of the assignment of that contract is a fundamental element in determining the tax base of the transaction we are going to execute.

In summary: in our practical case, the result is that ‘Z’ is subject to the tax of properties transfers on the value of the construction at the time of the assignment of the rights of the private purchase contract for properties under construction, 150,000 euros, to a tax rate of 8%.

Welex, its law firm in Marbella, would like to reinforce the idea that this practical case which has been set out above, does not in any way involve legal or tax advice, since each situation must be carefully analysed by an expert in the field.

Therefore, Welex Lawyers and Accountants always advises you to consult the relevant tax offices in each transaction of assignment of a private purchase contract for properties under construction in Spain.

Welex is always at your service in this and any other legal or accounting matter with which you need professional advice.