Buy a premises halfway and rent it out?
The price of premises in your area is falling, so you and your brother are thinking of buying a half-owned property and then renting it out.
What should you do for tax purposes in this case?
Purchase of premises: VAT taxation
To buy a property half-owned : Create a community of property
If you and your brother buy a property half-owned by you, you will “de facto” constitute what is known as a “community of property”.
And if the premises are to be rented out, this community of property will be the taxable person for VAT purposes vis-à-vis the tax authorities. Therefore:
- When the premises are rented, it will be the community that will have to issue the invoices for the rent and charge the corresponding VAT.
- Likewise, it will be the community that will be entitled to deduct the VAT borne on the purchase of the premises or on the expenses arising from the rental (works, supplies, etc.).
Waiver of VAT
On the other hand, if the premises are not new (not purchased from the developer) and the seller is also a businessman (he will be a businessman if he also leased the premises), it will be possible to waive the VAT exemption for second transfers of real estate by purchasing the premises half and half.
If this happens:
- Instead of being taxed by ITP (which is a non-deductible expense), the operation will be taxed by VAT.
- The seller will sell without VAT and it will be the community of goods that will have to charge VAT and deduct it at the same time. The VAT will be neutral and, in addition, it will avoid the cost for ITP.
Registration with the Inland Revenue
In order for this to be possible, the community of property must register with the tax authorities and apply for a tax identification number (NIF) by submitting a form 036.
This identification document will allow them to file declarations in the name of the community, issue invoices for the rent and also receive invoices in their name.
If, when signing the deed of sale, you do not yet have the NIF of the community, make it clear that the premises are to be rented and that you will ask the Tax Office for a NIF for the community.
Also, add that the seller undertakes to issue the invoice in the name of the community with the NIF that you will be notified of.
Form 347
The community of goods must also file the annual declaration of operations with third parties(form 347) when this is necessary.
For example, if during the year they have hired a bricklayer to carry out refurbishment work on the premises for an amount of more than 3,005.06 euros.
Remember that rental income subject to withholding should not be included in form 347, as the lessee-withholder will already include these amounts in the annual summary of withholdings (form 180).
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Attribution of income
Your community of property, however, will not be subject to personal income tax. Communities of property are “entities under the regime of attribution of income”, so all their income must be attributed to the co-owners (in this case, you and your brother) in proportion to their coefficient of ownership in the premises.
To this end, in January of each year, the community must file form 184 with the tax authorities, informing them which part of the previous year’s income and withholdings is attributed to each owner.
The owners must declare this income and may deduct the corresponding withholdings from their personal income tax.
Certificate
Finally, so that you and your brother can prove to the tax authorities the income and withholdings declared in your respective personal income tax returns, the community of property must issue a certificate to each of you in February informing you of the income and withholdings attributed to you.
In a nutshell
By buying the premises half and half, you will have “de facto” formed a community of property, and it will be the community of property that will have to charge VAT and file VAT returns.
On the other hand, the IRPF will be individual for each of you.
