Transfer of assets from business or professional assets to personal assets: disaffection
Regulations: Articles 28.3 Law IRPF and 23 Regulation IRPF
Principles and rules of deregistration
The principles and rules for the disaffection of assets or rights are as follows:
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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 .
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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.
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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 Personal Income Tax Law will not 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, will set up his practice on January 1, 2023 in a premises that he owns, which has been rented since its acquisition until December 31, 2017, and between December 31, 2017 and December 31, 2019, it has been used for his own use, with said date recorded in his investment property registry book.
The aforementioned premises were acquired by Mr. FRG on May 1, 1985 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, 2023, 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 2023 financial year.
Solution:
1. Impact on the premises (01-01-2023):
The commercial premises are deemed to be used for professional activities on 1 January 2023, as the requirements for the necessary and exclusive use of the premises for the development of the activity and for accounting 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 31-12-2017) (1)
Year 1985: (47,000 x 1.5%) x 8/12 = 470
Years 1986 to 1998: (47,000 x 1.5%) x 13 = 9,165
Years 1999 to 2002: (47,000 x 2%) x 4 = 3,760
Years 2003 to 2017: (47,000 x 3%) x 15 = 21,150
Total amortizations: 34.545
Value of affectation (65,000 – 34,545) = 30,455
Note:
(1) For the purposes of determining the depreciation base, the value of the land (18,000 euros) has been discounted. Likewise, the percentage of amortization for the years 1985 to 1998 was taken as 1.5%, which was the tax deductible while the premises were rented in the aforementioned years. For the years 1999 to 2002, the percentage that can be used is 2% [Article 13.2, letter a) of the Personal Income Tax Regulations in force in the aforementioned years]. For the years 2003 to 2017, the applicable percentage is 3 percent [for the years 2003 to 2006, article 13.2, letter a), of the IRPF Regulation as amended by Royal Decree 27/2003, of January 10, and for the years 2007 to 2017, article 14.2, letter a) of the IRPF Regulation ]. (Back)
2. Decommissioning of the local (05-31-2023) (2)
Upon the decommissioning of the premises on May 31, 2023, the incorporation thereof into the owner's personal assets will be carried out at the net book value of the premises on that date. This value is determined as follows:
Value of impact = 30,455
Less: Repayments (01-01-2023 to 31-05-2023) (3)
Year 2023: (12,455 x 3%) x 5/12 = 155.69
Total amortizations: 155.69
Net book value (30,455 – 155.69) = 30,299.31
Notes:
(2) The transfer of the clinic to another location on May 31, 2023 implies its deregistration from the economic activity carried out by its owner. However, the subsequent rental of the premises does not prevent it from being considered as fully allocated during the period in which the consultation was installed (from January 1, 2023 to May 30, 2023). (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 12,455, the difference between 30,455 (value of allocation) and 18,000 (value of the land). (Back)