UNEXPECTED TAX CONSEQUENCES FOR THE SELLER-OPTIONOR THAT GRANTS AND OPTION TO PURCHASE
At first sight, granting an option to purchase might seem to only increase expenses for the buyer-optionee, as he will bear the costs of the Notary and Property Registry. However, the truth is that the tax consequences of this can end up with the seller-optoinor seeing his tax expenses skyrocket.
Before going into detail, it’s important to say that in an option to purchase, a person –optionor– gives another –optionee– the right to decide, unilaterally, if he wants to buy a certain property under the agreed conditions. So, the optionee is not yet buying, but rather acquiring the right to decide in a certain term without the optionor being able to change his mind.
Being this the case, giving the right of option in exchange of a price –which is paid in order to obtain that right to decide and is known as the option fee– entails that taxes have to be paid, not only by the buyer–optionee –a matter that will not be dealt with in this article–, but also by the seller-optionor. Many believe that the tax paid will be the same as if the property had been sold directly, especially if the fee is taken away from the total price of sale. The logic behind this is that, in the end, the same is paid, part as an option fee and the rest as price when buying, the same way in a traditional purchase and sale contract, part is paid as earnest payment and the rest before the Notary.
However, this is not the case. Without diving too deep into the topic to avoid confusions in the reader, what matters here is that the Income Tax is applied. The way this tax works entails that the option fee and the profit from the sale will be taxed differently.
This means, for example, that some circumstances that allow to diminish the tax to pay when selling a property, are not applicable to the option fee. In addition, the tax percentages applied are very different. For the option fee, the maximum percentages are 24.50% for the state’s part and 29.50% for the autonomous community’s part –in Valencia–. On the contrary, in a sale, the highest percentages are 13% for both parts.
In conclusion, obtaining tax advice before carrying out any operation is extremely recommended to avoid facing the unpleasant surprise of having to pay more taxes than expected for something that, apparently, had no consequences.