Transfer of assets from business or professional assets to personal assets: disaffection
Regulations: Articles 28.3 Personal Income Tax Law and 23 Regulations
Principles and rules of deregistration
The principles and rules for the disaffection of assets or rights are as follows:
- The transfer of fixed assets from the business sphere to the personal sphere of taxpayer does not produce any alteration in assets as long as the asset continues to form part of its assets .
-
The incorporation of the asset or right into the personal assets is carried out for the net book value of the same on the date of the transfer .
The components of book value are discussed in Chapter 11.
- The deregistration does not require any lapse of time to be understood as completed from the moment it is carried out.
Notwithstanding the foregoing, if the declassified asset is sold before 3 years have passed since the declassification, even if this has occurred as a result of the cessation of the activity, the reduction percentages referred to in the ninth transitional provision of the Income Tax Law will be applicable in determining the capital gain obtained.
The ninth transitional provision of the Income Tax Law establishes a special reduction regime applicable to capital gains derived from the transfer of unaffected assets and those unaffected more than three years prior to the date of transfer, acquired before December 31 1994. The detailed commentary on this transitional regime of reduction of capital gains is contained in Chapter 11.
Example:
Mr. FRG, a dental surgeon, set up his practice on 1 January 2019 in a premises he owns that had been rented since its acquisition until 31 December 2016, with said date recorded in his investment property register.
The aforementioned premises were acquired by Mr. FRG on May 1, 1984 for the equivalent of 60,000 euros, the owner also paying the equivalent of 5,000 euros in the form of Tax on Property Transfers and Documented Legal Acts, notary and Property Registry.
During the years in which the premises were rented, the acquisition value of the property was higher than its cadastral value.
To determine the depreciation base, the value of the land is estimated to be equivalent to 18,000 euros.
On May 31, 2019, he moved his office to another location, renting the previous premises again for 900 euros per month.
Determine the tax treatment of these operations and whether the premises can be considered as being used for the activity during the 2019 financial year.
Solution:
- Impact on the premises (01-01-2019):
The commercial premises are deemed to have been used for professional activities on 1 January 2019, as the requirements for the necessary and exclusive use of the premises for the development of the activity and for accounting purposes are met from that date.
The incorporation of the premises into the investment property register must be carried out for the following value:
Actual acquisition amount: 60,000
Expenses and taxes inherent to the acquisition: 5,000
Total: 65,000
Less: Tax amortization deductible (01-05-1985 to 31-12-2016)(1)
Year 1984: (47,000 x 1.5%) x 8/12 = 470
Years 1985 to 1998: (47,000 x 1.5%) x 14 = 9,870
Years 1999 to 2002: (47,000 x 2%) x 4 = 3,760
Years 2003 to 2016: (47,000 x 3%) x 14 = 19,740
Total amortizations: 33.840
Value of impact (65,000 – 33,840) = 31,160
- Decommissioning of local (05-31-2019) (2)
Upon the deregistration of the premises on May 31, 2019, the incorporation of the same into the personal assets of the owner will be carried out at the net book value of the premises on that date. This value is determined as follows:
Value of affectation: 31.160
Less: Repayments (01-01-2019 to 31-05-2019)(3)
Year 2019: (13,160 x 3%) x 5/12 = 164.50
Total amortizations: 559.30
Net book value (31,160 – 164.50) = 30,995.50
Notes to the example:
(1) For the purposes of determining the depreciation base, the value of the land (18,000 euros) has been discounted. Likewise, the amortization percentage for the years 1984 to 1998 was taken as 1.5%, which was the tax deductible percentage while the premises were leased during the aforementioned years. For the years 1999 to 2002, the percentage that can be used is 2% [Article 13.2, letter a) of the Tax Regulations in force in the aforementioned years]. For the years 2003 to 2016, the applicable percentage is 3 percent [for the years 2003 to 2006, article 13.2, letter a), of the Personal Income Tax Regulations as amended by Royal Decree , of January 10, and for the years 2007 to 2016, article 14.2, letter a) of the Personal Income Tax Regulations].(Back)
(2) The transfer of the clinic to another location on 31 May 2019 means that it will no longer be involved in the economic activity carried out by its owner. However, the subsequent rental of the premises does not prevent it from being considered as fully used during the period in which the surgery was installed (from January 1, 2019 to May 30, 2019).(Back)
(3) The tax-accountable depreciations coincide with those made by the owner of the activity and correspond to the maximum linear coefficient of depreciation for this type of asset, assuming that it determines the net income by simplified direct estimation. Maximum coefficient for buildings, according to simplified table: 3 per 100. The value of the land (18,000 euros) is not subject to amortization. Consequently, the amortizable value is 13,160, the difference between 31,160 (value of allocation) and 18,000 (value of the land).(Back)