Author: pmartinez-almeida

Source: Idealista

When purchasing a used property, one typically needs to pay the Transfer Tax (Impuesto de Transmisiones Patrimoniales or ITP), a tax regulated by regional authorities that varies depending on the region. However, Spanish law includes a provision that allows the buyer to avoid this tax, which ranges from 4% (in the Basque Country) to 10% of the property’s value, if they do not require a mortgage. It is possible to sign a private contract that only has effects between the parties involved and their heirs. To have effects against third parties, such as the Tax Agency, the private contract must be formalized in a public deed before a notary. The date of the private contract is recognized by the Tax Agency from the moment it is recorded in a public registry or submitted to an official, which is the key to tax savings.

Effects of a Private Document Against Third Parties

The effects of a private document against third parties are regulated by Article 1227 of the Civil Code: “The date of a private document will not count against third parties until the day it has been incorporated or registered in a public registry, from the death of any of the signatories, or from the day it is delivered to a public official in the course of their duties.”

The Tax Agency has a four-year period from the date of the transfer to determine the amount and collect the ITP. When does this period start?

Article 50.2 of Royal Decree-Law 1/1993, which approves the Consolidated Text of the Transfer Tax and Documented Legal Acts (TRITPAJD), establishes that “the date of private documents will be presumed to be the date of their presentation unless any of the circumstances provided for in Article 1227 of the Civil Code occur beforehand, in which case the date of incorporation, registration, death, or delivery will be counted…”

Example Scenario

Consider a person who bought a property and signed a private contract with the seller that was not formalized in a public deed or registered in the Property Registry. The four-year period for the Tax Agency to demand payment of the ITP had expired because the buyer had the property registered in their name in the Catastro and had been paying the IBI (Property Tax) for over four years. This indicates that the property had been delivered by the seller without a public deed.

In this case, the four-year statute of limitations had been fulfilled, as this period should be counted from the recording of the private contract in a public registry (the Catastro), one of the conditions in Article 1227 of the Civil Code for a private document to have effects against third parties. Moreover, as declared by the Supreme Court, the transfer can also be proven by means other than those specified in Article 1227.

What if the Seller Dies Before Formalizing the Contract?

Salvador Salcedo, a lawyer from Ático Jurídico, describes a specific case: a buyer who visited the firm because one of the sellers died after the sale of the property without formalizing the contract. The heirs of the deceased seller, who died more than five years ago, must now appear for the notarial signing, meaning the four-year statute of limitations had already passed.

The buyer questions whether they should pay the Transfer Tax (ITP) for their property purchased with a private contract more than ten years ago, given that since then the IBI and waste tax bills have been issued by the City Council in the buyer’s name, which they have been paying regularly.

The General Directorate of Taxes, in recent binding consultations (V1211-2021 and V1179-2018), has analyzed this issue. It notes that for the purposes of prescription, the date of the private contract is presumed to be the date of its presentation for liquidation, even if it is dated earlier.

“In this case, the death of one of the sellers serves as evidence of the antiquity of the sale, as the deceased seller could not sign the private contract after their death. Therefore, given that the death occurred more than five years ago, the ITP can be considered prescribed due to the lapse of the four-year statute of limitations stipulated in Article 66 of Law 58/2003, General Tax Law,” concludes Salvador Salcedo.