Practical case

Marriage formed by Mr. LCA and Mrs. DZH, aged 76 and 75, respectively, married under a community property regime.

The following events of fiscal significance took place during 2019:

Since Mr. LCA He left his direct operation upon retirement, the couple has leased a café establishment, owned by both. The rental fee for 2019 was 1,300 euros per month, with the tenant having made the corresponding withholding tax when making each payment. The lease of a cafeteria includes both the premises and all the facilities and furniture, with the tenant being responsible for replacing the kitchenware, crockery and table linen, as well as purchases and current expenses incurred by the ordinary operation of the business.
The effective depreciation of the premises, acquired in 1987 and since then used as a café business that the couple now rents, is estimated at 900 euros during 2019.

The furniture was purchased on 31 December 2013 for 15,000 euros, and a 10% depreciation is tax-admissible in 2019.

The expenses incurred by the couple in relation to the cafeteria during the 2019 financial year, show the following amounts:
- 1,100 euros, for repair of the air conditioning system.
- 800 euros, from the Property Tax receipt (Urbana).
- 360 euros, for administration costs.
On May 2, 2005, they subscribed to 100 convertible bonds issued at 14 years by the Company “PS” for a nominal amount equivalent to 6,000 euros, plus the equivalent of 60 euros in commissions and expenses.

The agreed interest rate is 7.5%, payable annually during the month of May, with an additional conversion premium provided for, consisting of a 20% reduction on the stock market price of the shares of Company “PS” on the day of conversion.

On May 2, 2019, the bonds were converted into shares, receiving 500 shares of 6 euros, which were valued for these purposes at 200%. The average change in the stock market session that day was 250 percent.
In 1996 they acquired shares in “TPS” and requested a bank loan to finance the venture. In March 2019, they received dividends from said company for a total amount of 1,502 euros, paying the amount of 90 euros as administration and deposit expenses for these securities.
On December 31, 2019, TZ Bank notifies them that, during that year, it has credited their current account with 37 euros, in the form of interest generated by the current account. A withholding tax of 7.03 euros is recorded on the interest paid in May.
On July 10, 2007, they subscribed for a full amount of 40,000 euros to securities issued by the bank "ZZ" that were in the nature of preferred shares in accordance with Law 13/1985. On October 15, 2019, these securities were converted into bonds of the bank itself for a nominal amount equivalent to 38,100 euros, with the bank assuming responsibility for the commissions and expenses inherent to the operation.

On November 25, 2019, the bonds were exchanged for EUR 5,000 worth of shares of the bank "ZZ". The market value of the shares received at the time of the exchange was 8.10 euros/share.

Mr. LCA and Mrs. DZH choose to file a joint return in the IRPF .

Determine the net return on movable capital to be included in the general tax base and in the savings tax base.

Solution:

Previous note: Since this is a marriage under a community property regime and all income comes from assets whose ownership belongs jointly to both spouses, the income will correspond equally to each of them. Therefore, if they had chosen to file individual returns, each would include in their return half of the taxable income and half of the tax-deductible expenses determined below.

However, having chosen to file jointly, they must accumulate all the income and expenses incurred.

Income from movable capital to be included in the taxable savings base
1. Returns on convertible bonds of company “PS”:
  The profitability obtained in 2019 is made up of two parts: interest (explicit part) and conversion premium (implicit part). Therefore, “PS” bonds constitute a financial asset with mixed returns.
  1. Coupon May 2019:
    - Gross income (7.5% of 6,000): 450,00
    - Withholdings (19% s/450) ⁽¹⁾: 85.50
  2. Conversion:
    - Stock market value of shares received (500 x 6 x 250/100): 7,500.00
    - less: Cost of obligations delivered (6,000 + 60 expenses): 6.060,00
    - Gross income (7,500 – 6,060): 1,440.00
    - Withholdings (Not subject to withholding)
2. “TPS” Share Dividends:
  - Total income: 1,502.00
  - Withholdings (19% s/1,502) ⁽¹⁾: 285.38
3. Current account interest:
  - Total income: 37.00
  - Retention (19% s/37) ⁽¹⁾: 7.03
4. Preferred shares or other securities received in lieu of these:
  1. Conversion of preferred shares into bonds:
    - Conversion value: 38,100.00
    - less acquisition value of preferred shares: 40,000.00
    - Negative returns (38,100 – 40,000): –1,900.00
  2. Exchange of bonds into shares:
    - Stock market value of shares received (5,000 x 8.10): 40,500.00
    - less Cost of obligations delivered: 38,100.00
    - Positive returns (40,500 – 38,100): 2,400.00
    - Withholdings (Not subject to withholding)
    - Total to be computed (2,400 -1,900): 500.00
Determination of the total net income to be included in the taxable savings base
- Total gross income [450 + 1,440 + 1,502 + 37 + 500]: 3,929.00
- Tax-deductible expenses: 90,00
- Net return = reduced net return: 3,839.00
- Total withholdings supported (85.50 + 285.38 + 7.03)⁽¹⁾: 377.91
Income from movable capital to be included in the general tax base
Lease of the cafeteria

This involves leasing a business in operation, in which the premises, facilities, furniture, clientele, etc. are transferred along with the business premises. Consequently, the capital gains obtained must be integrated into the general tax base.

The net income is determined according to the following details:
- Total income:
  - Lease fee (1,300 x 12 months): 15,600.00
- Deductible expenses:
  - IBI receipt: 800,00
  - Air conditioning repair: 1,100.00
  - Administration costs: 360,00
  - Local amortization: 900,00
  - Furniture amortization (10% of 15,000): 1,500.00
  - Total: 4,660.00
- Net performance (15,600 - 4,660): 10,940.00
- Reduction: 0
Reduced net performance: 10,940.00

Withholdings supported 19% s/15,600.00 ⁽¹⁾: 2,964.00

Note to example:

⁽¹⁾ The applicable withholding rate in 2019 is 19%.

The withholdings on capital gains must be included in box [0597] on page 17 of the declaration. ^{(Return yields)} ^{(Return dividends)} ^{(Return interests)} ^{(Return total BI savings)} ^{(Return total BI general)}