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The growing trend of permanent house swaps in Spain
If you’re looking for your forever home in Spain, a house swap might just be the option for you
The option of house swapping as an alternative to selling an old property and purchasing a new one really took off during the coronavirus pandemic, bit it’s an interesting, if unconventional, practice that has been growing in Spain ever since.
A house swap quite simply involves exchanging one property for another, usually of similar value, a modern throwback to the traditional barter system of olden days.
The more temporary version of house swapping has been around for years, whereby home owners trade properties for a holiday or short, temporary period. But the new trend of permanent swapping, known in Spain as permuta, is more suitable for individuals wanting to relocate entirely and consists of signing a contract that obliges both parties to hand over the property deeds to one another.
It might sound like a simpler option in theory, but in practice house swaps in Spain require careful planning with appropriate legal support.
If you’re considering going down the property exchange route, it’s also worth bearing in mind that the process is much more straight-forward if both homes are of similar value. This is according to Salvador Salcedo, partner at the Ático Jurídico law firm, who explained that: “If the houses to be exchanged have an even value, the operation will be much easier. Otherwise, the owner of the property of lesser value will have to hand over his property plus the amount of the difference in value between the properties to be exchanged.”
Advantages of house swaps
The most obvious selling point of swapping your home is that it’s possible to acquire a new property, possibly in an entirely different country, for very little financial outlay. It also tends to be a quicker and less complicated process, since the parties involved don’t have to worry about applying for mortgages.
Another advantage is that it allows you to change your home without waiting to sell the house you already own. In addition, the costs associated with the swap are usually lower than those of buying and selling a house.
Disadvantages of house swaps
Problems can arise if one or both home owners already have a mortgage on their property. In this case, additional charges will have to be taken into account when valuing the homes and there’s always the chance that the bank won’t approve the change of mortgage holder.
As Mr Salcedo mentioned, it’s always easier if the properties are of similar value, but it can be difficult to find a comparable home in the right location.
Taxes associated with house swaps
Unfortunately, there are no specific tax breaks when it comes to exchanging properties and the parties will still have to pay the Property Transfer Tax (ITP) set by the region in which the house is located and Stamp Duty (IAJD).
With regard to the ITP, the taxable base is the market value of each property, which corresponds to the Cadastral reference value assigned to the holding.
Furthermore, both owners will need to pay personal income tax and capital gains tax. The municipal capital gains or loss, according to the Spanish Tax Agency, “will be determined by the difference between the acquisition value of the property or right that is transferred and the higher of the following two: the market value of the property or right delivered.”
Moreover, both taxpayers must also pay municipal capital gains tax on the urban land that they transfer to the other party, although a recent change in the regulations means that those who transfer properties at a loss are exempt.
When it comes to personal income tax, Mr Salcedo explained that, because two processes are happening in tandem (a gain through the transfer of the property and the reinvestment of this gain), both parties can apply for an exemption if the future property is going to be the taxpayer’s main residence.
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