More and more people are considering alternatives to mortgages. This is why a substitute formula that was very popular during the previous economic crisis and allowed successful property transactions, the deferred purchase of a home, has made a comeback.
While it's true that rent-to-own is also a common alternative, deferred home purchase allows for the postponement of the property's cost in agreed-upon installments by both parties involved in the transaction. This solution is suitable for transactions between individuals and real estate companies alike, representing an excellent option regardless of the property's tax value.
What is the deferred purchase of a home?
When we talk about the deferred purchase of a home, we are referring to a property sale option in which one party commits to transferring ownership while the other commits to paying an agreed-upon price. However, unlike a conventional purchase, the buyer may not have all the money at the time of the transaction or have access to bank financing.
Deferred payments between individuals allow the buyer to disburse the money in multiple installments and complete the purchase despite a lack of liquidity at that moment. By choosing this method of sale, possession of the property can be granted to the buyer so they can enjoy it, even if they haven't made the full payment yet.
Another alternative offered by the deferred purchase of a property with deferred payment is to establish an agreement between both parties allowing the seller to retain ownership until the full payment has been received. If you are familiar with how energy certificates work in the sale or rental of properties, you'll understand that having the corresponding certificate is equally essential in the case of deferred purchases.
Deferred Payment Between Individuals
When opting for deferred payment between individuals, it is common to formalize it in a private document. In this document, the public deed of sale is granted to the buyer when the full price is settled. While it is true that this formula may not provide many guarantees to the buyer, as, for example, the property could be subject to seizure if the seller has outstanding debts, to avoid any problems, it is ideal to carry out this operation before a notary and register the property in the Property Registry under the buyer's name.
The deeds of sale with deferred payment signed should take into account the possible non-compliance with payment by the buyer. This way, the seller is provided with greater security regarding contract compliance and allows them to demand the remaining payment or, alternatively, the resolution of the sales contract to recover the property.
In the case of deferred home purchase, it is most common to include an explicit resolutive condition in the contract. This condition allows the seller to demand payment or contract resolution in accordance with the provisions of Articles 1124 and 1405 of the Civil Code, which establish the obligation to return the property to the seller in case of contract resolution.
Taxation of Deferred Payment for a Home
Like other transactions, deferred payment between individuals is subject to taxation by the Public Administration. In this case, there are three taxes to which this operation is subject: the Personal Income Tax (IRPF) and the Tax on the Increase in Value of Urban Land (IVTNU) by the seller, and the Property Transfer Tax (ITP) by the buyer.
Since it is a transfer, the seller must pay income tax on capital gains or losses in the IRPF. This is calculated by comparing the acquisition and transfer values of the land. As for the IVTNU, it is important to note that it must be paid once the property has been delivered and the transfer has been formalized. It is essential to consider that the municipal capital gains tax will vary depending on the location of the property; it will not be the same for a property in the outskirts of Madrid as for one in one of the most exclusive areas of the Salamanca district.
Regarding the Property Transfer Tax, it is also crucial that the seller has completed the property transfer to the buyer. According to the provisions of Article 7 of Royal Legislative Decree 1/1993, this tax must be paid on the same day as the act or contract, as it applies to onerous transfers of all kinds of property and rights between individuals or legal entities during their lifetime.
Case of a Reservation of Ownership Agreement
When a deferred home purchase is made, it is possible to opt for a reservation of ownership agreement to provide greater guarantees to the seller. This option allows the seller to deliver possession of the property to the buyer but not ownership, which automatically transfers when the payment specified in the contract is completed.
If a reservation of ownership agreement is chosen, both the buyer and the seller should be aware that they cannot transfer the property to a third party while the agreement is in effect. Additionally, the buyer is obligated to maintain the property in good condition, including any necessary repairs or renovations, for which they will be responsible.
On the other hand, as the seller remains the owner of the property, they will continue to be responsible for paying taxes such as the Property Tax (IBI) or community fees. However, it is important to note that this responsibility can be transferred to the buyer if specified in the contract.
In the event that the buyer does not meet any of the agreed-upon deadlines in the contract, the seller has the right to request contract resolution based on the reservation of ownership agreement. Additionally, according to the terms of the contract, they have the right to the previously agreed-upon compensation from the other party.
