How to lower the tax pressure on real estate

We want to tell you how to reduce the tax pressure on real estate so that you can take advantage of our knowledge in tax matters. Too often, more taxes are paid because the options offered by the Tax Agency to tax real estate are unknown.

As always, our advice is subject to law. We do not like to propose illegalities to our clients and friends. We can help reduce fiscal pressure without having to commit illegalities.

First, you should know that this post is intended for people with more than one property in their name. If you only have one or two, continuing to have them in your name would be advisable.

Why it is better to put real estate in the name of a company

You should know that the theory says it is better to put them in the name of a company when you have several rented properties. In these cases, it pays to set up a corporate structure to reduce the pressure the properties endure.

Whether you have a large number of houses or have inherited offices after the death of a family member, you will have to withstand pressure due to capital gains or the Inheritance Tax (ISD).

Not everyone can use this way of paying taxes, but those who meet the requirements to take advantage of the tax advantages the Tax Agency offers can.

Before enjoying the advantages, a series of steps must be followed to reduce the tax pressure on real estate. Below, we detail the steps.

Economic activity

Don’t forget that you will need to meet all the requirements to create a company to put the properties. The requirements are basically two:

• Hire worker: full-time to manage rentals. You must have enough to make it necessary to hire you.
• More than three years: it must be operated for at least three years to be considered accepted. If you do not reach that time, you will not be able to do it.

If you meet the requirements, you can continue with the following steps. Remember that to reduce the tax pressure, you need to be able to take all the steps.

Financial contribution

After the deadline, you must contribute the real estate assets to the company. In this way, you will constitute what is called an autonomous economic unit. Without this step, you will not be able to benefit from the reduction, and you will have to continue paying taxes as before.

Finally, you need to create a family business so that the Tax Agency approves the operation.

Create a family business

The last step you must take is to make sure that the company meets the requirements to apply the family business incentives.

The requirements to be met to be able to carry out this step are:

• That 50% of the assets are affected to economic activities
• That someone in the family receives management returns that represent more than 50% of their income.

Without complying with these requirements, you cannot take advantage of the advantages provided by the Tax Agency. As you can see, it is not an easy task, but with time and the right information, you can achieve it.

Conclusions

For those who own a large number of properties it is advisable to establish a family business that is responsible for making them profitable. The tax pressure is lower in a company, and it makes more sense to do it this way.

Of course you can continue with the properties in your name, but in the long run you will pay a lot more money and you will not get anything out of it by keeping them for yourself.