In the real estate context of Mallorca, it is common for several heirs—often non-tax residents in Spain—to jointly acquire ownership of a property as a result of inheritance. This co-ownership situation can lead to conflicts, management difficulties, and, in many cases, an impasse regarding the use or disposal of the property. In this scenario, the termination of co-ownership emerges as a legally effective and fiscally advantageous solution.
What is the Termination of Co-Ownership?
The termination of co-ownership is a legal mechanism provided for in Article 400 of the Spanish Civil Code, whereby co-owners agree to end the joint ownership arrangement. In practice, this means that one of the co-owners acquires full ownership of the property, financially compensating the others according to their respective shares.
Relevant Tax Advantages
Unlike a sale, which would trigger the payment of the Property Transfer Tax (ITP) at a general rate of 8% to 11% in the Balearic Islands (depending on the property value), the termination of co-ownership is only subject to the Stamp Duty (AJD), which is applied to the declared value of the share being transferred.
In the Balearic Islands, the AJD rate in 2025 is 1.5% when the acquirer is not subject to VAT, which is typically the case in transactions between private individuals. This tax differential makes the termination of co-ownership a significantly more cost-effective alternative to a traditional sale.
Furthermore, if the property was acquired through inheritance, the Inheritance Tax would have already been settled at the time of succession. The termination of co-ownership, as it is not considered a transfer for consideration nor a gratuitous transfer (provided that the ownership shares remain unchanged), is not subject to either ITP or Inheritance Tax, but solely to AJD.
Essential Requirements
To ensure that the operation qualifies as a termination of co-ownership for tax purposes, and not a disguised sale, the following conditions must be met:
- The prior existence of a community of property.
- The assignment of the property to only one of the co-owners.
- Proportional financial compensation to the remaining co-owners.
- Maintenance of the original ownership shares, without over-allocation.
Particular Relevance for Non-Residents
Many non-residents—often European citizens—inherit properties in Mallorca jointly with other relatives. Managing the property collectively from abroad is complex, particularly in relation to maintenance, leasing, or selling. Additionally, the lack of consensus among co-owners frequently hampers any meaningful action.
Choosing to terminate co-ownership allows one of the heirs (for example, the one most interested in keeping the property or residing in Spain) to assume sole ownership, compensating the others and thereby dissolving the co-ownership. All of this can be done with a significantly lower tax burden.
Notarial and Registry Procedures
The operation must be formalized in a public deed before a notary and registered with the Land Registry. AJD must be paid to the Tax Agency of the Balearic Islands, typically within 30 working days from the date of execution.
Conclusion
The termination of co-ownership represents a legal, practical, and tax-efficient way to resolve hereditary co-ownership situations, offering particular advantages for non-residents with assets in Mallorca. In light of the growing number of cross-border inheritances and rising property prices, sound legal and tax advice is essential to avoid formal errors and to fully leverage the benefits of this legal mechanism.