When is the 20% rate applied in the ITP to the large holder and which transactions may be affected?

The answer is not always straightforward.

Many people believe that this regulation only affects large investment funds or companies owning hundreds of homes. However, the reality is much more complex. In certain cases, a family asset company, a real estate investor, or even an individual may be affected by this regulation.

Furthermore, the 20% rate may not only apply to acquisitions made by large holders. There are other specific cases provided for by the regulation, such as the purchase of entire residential buildings, which may also be subject to this tax.

Therefore, before formalising any real estate transaction, it is essential to correctly analyse the situation of the purchaser, the nature of the property, and the specific circumstances of the transaction.

In this article, we analyse the main interpretative criteria currently in force and the transactions that may be affected by the new tax regime for large holders in Catalonia.

The declared purpose of the regulation is to discourage the accumulation of residential housing by certain real estate operators.

The Catalan legislator starts from the idea that housing must fulfil a social function and considers that the concentration of residential properties in the hands of large owners may hinder access to housing.

With this objective, an increased rate of 20% was introduced on certain acquisitions subject to the Property Transfer Tax. To learn about the full set of associated obligations, you can consult the following article:

The introduction of the measure has a clear deterrent effect.

We are not talking about a minor difference compared to ordinary taxation. In many transactions, the difference between taxing according to the general scale or doing so at 20% can amount to tens or even hundreds of thousands of euros.

Precisely for this reason, it is essential to know when this regulation is actually applied and what the interpretative criteria currently maintained by the Catalan tax administration are.

When is someone considered a large holder for tax purposes?

As we explained in our previous article, the tax concept of a large holder is autonomous and does not necessarily coincide with that used by housing regulations.

As a general rule, the following will have this status:

• Natural or legal persons owning more than ten residential properties located in Catalonia.
• Natural or legal persons holding more than 1,500 square metres of built residential use located in Catalonia.
• Natural or legal persons holding five or more urban residential properties located within the same high-demand residential market area.

However, once the status of large holder has been determined, there are still numerous issues to be resolved.

Because the 20% taxation does not depend solely on the number of homes a person owns.

One of the most important and least known aspects of the regulation is the moment at which it must be verified whether a person has the status of a large holder or not.

According to the criteria of the Dirección General de Tributs, the condition of large holder must be analysed at the time the tax accrues.

In other words, what matters is the asset situation existing when the acquisition is formalised.

The situation resulting after the purchase does not matter.

This interpretation has very significant practical consequences.

Let us imagine a person who owns four properties in a high-demand area and acquires another four properties through a single deed.

When they enter the notary's office, they are not yet a large holder.

Therefore, the entire acquisition will be taxed according to the general regime.

The fact that upon leaving the notary's office they become the owner of eight properties does not change the taxation of the transaction carried out.

The situation changes when acquisitions are made successively.

Let us now consider a person who owns four properties and acquires two more through a first deed.

At that moment, they are still not considered a large holder.

However, if they subsequently acquire new properties after having already exceeded the legal threshold, that second acquisition may be subject to the increased rate of 20%.

The economic difference can be very significant.

Therefore, the timing planning of certain real estate transactions becomes fundamentally important.

Asset-holding companies constitute one of the most interesting aspects of all this regulation.

At first glance, it might be thought that the homes belonging to a company should automatically be counted towards its partners.

However, the administrative interpretation is different.

The Directorate General of Taxes considers that the company and its partners constitute independent assets.

Therefore, the properties belonging to a company are not automatically attributed to its partners, even if they hold 100% of the share capital.

The practical consequence is very important.

Let us imagine a holding company owning twenty properties whose sole partner is an individual who does not own any property in a personal capacity.

If it is the company that acquires a new property subject to Transfer Tax (TPO), it must be analysed whether the company itself qualifies as a large holder.

In this case, the answer will be affirmative.

However, if the person acquiring a property is the partner as an individual, the twenty properties of the company will not be counted to determine whether he qualifies as a large holder or not.

The same logic applies to business groups.

The tax administration does not automatically consolidate the real estate assets of the different companies that make up a group.

Therefore, a company owning four houses does not automatically acquire the status of a large holder simply because it is owned by another company that owns hundreds of properties.

The status of large holder must be analysed individually with respect to the entity making the acquisition.

This criterion has important practical effects.

It allows different companies to maintain separate real estate assets without necessarily being aggregated for calculation purposes.

Therefore, the corporate structure used can be decisive in determining the future taxation of certain real estate investments.

Transactions in which there is a dismemberment of ownership also present important particularities.

For tax purposes, usufruct is not counted to determine the status of a large holder.

Therefore, a person who is only the usufructuary of several homes will not acquire such status because of this.

The situation is different for the bare owner.

The Administration considers that the bare ownership should indeed be taken into account to determine if the thresholds established by the regulations are exceeded.

Therefore, anyone who holds the bare ownership of several properties must take them into account for the purposes of the calculation.

One of the most interesting aspects is the ordinary consolidation of the domain.

Consolidation occurs when the usufruct expires and the same person once again holds both the bare ownership and the usufruct.

It usually happens due to the death of the usufructuary or the expiry of the term for which the usufruct was established.

Although the regulation mainly focuses on dwellings, in certain cases it may also affect garages and storage rooms.

For garages and storage rooms to be taxed at 20%, it is not enough that they are located in the same building or that they belong to the same seller.

The regulations require that there is a genuine unit of act in the acquisition.

Furthermore, there must be a functional link between the dwelling and the garage or storage room.

For garages and storage rooms to be taxed at the same rate as the dwelling, several requirements must be met simultaneously:

• They must be acquired together with the dwelling.
• There must be a functional link between the dwelling and the annexes.
• They must be at the disposal of the transferor.
• They must not be rented out or assigned to third parties.
• They must not exceed two parking spaces and one storage room per dwelling.

The functional link is especially important.

According to administrative criteria, the garage or storage room must serve the acquired dwelling and form a genuine economic and functional unit with it.

Therefore, the mere fact of being in the same building is not sufficient.

If the property is acquired in one deed and the garages or storage rooms are acquired later through another deed, the requirement of unity of act disappears.

Consequently, these annexes will be taxed according to the general regime and not at the increased rate of 20%.

This is an apparently minor issue that, however, can have significant tax consequences.

We are probably facing the most relevant and least known aspect of the reform.

Unlike what happens in other cases, here the status of the purchaser loses prominence.

The regulations establish that the acquisition of an entire residential building may be subject to the 20% rate even if the buyer does not have the status of a large holder.

Therefore, the decisive element becomes the object acquired.

This regulation can even affect people who do not own any housing.

An individual who acquires an entire building composed of several dwellings may be obliged to pay tax at 20%.

This is one of the most striking consequences of the regulation.

The regulation refers both to buildings divided horizontally and to buildings that are not yet divided.

The important thing is that the transmission of the entire property takes place.

The situation becomes even more complex when the acquisition is made gradually.

Let us think of a building belonging to several co-owners.

An investor initially acquires an undivided share.

Subsequently, they acquire a second share.

And finally, they buy the remaining part.

During the initial acquisitions, it may seem that an entire building is not being purchased.

However, when full ownership of the property is finally reached, significant tax consequences arise.

The law provides for certain exceptions, especially related to social purposes or certain cases of primary residence.

However, each case must be analysed individually.

Not all real estate acquisitions are subject to Property Transfer Tax.

And this circumstance can be decisive.

When the operation is subject to and not exempt from VAT, the increased rate of 20% in TPO is not applicable.

Therefore, the final taxation may be completely different.

Special interest is presented by the waiver of exemption in certain second transmissions.

In these cases, the operation may become subject to VAT and Documented Legal Acts instead of being subject to Transfer Tax.

This circumstance can significantly alter the tax burden of the operation.

Before formalising a sale, it is essential to analyse which tax regime is applicable.

In certain transactions, the economic difference can be very considerable.