Who pays IBI on the sale of a property? The Importance of agreeing on Proration

Real Estate Tax (IBI) is a tax charge levied on the owners of real estate and is due on 1 January of each year. In the context of a real estate sale and purchase, the question arises as to who must pay the IBI for the current year: the seller, as the owner at the beginning of the year, or the buyer, as the owner of the property during the same year?

Legal and Jurisprudential Framework

According to article 63.1 of the Texto Refundido de la Ley Reguladora de las Haciendas Locales (TRLRHL), the taxable person for IBI is the person who owns the property on 1 January of the corresponding year. This implies that, from a tax point of view, the seller is liable for the full payment of the tax for that year, regardless of whether the sale is made subsequently.(Revistas CEF)

However, Article 63.2 of the same legal text states that this provision shall apply ‘without prejudice to the taxpayer’s right to pass on the tax burden borne in accordance with the rules of ordinary law’. This opens up the possibility that the seller, once the tax has been paid, can claim from the buyer the proportional part corresponding to the period in which the latter has been the owner of the property.

This issue was the subject of analysis in Supreme Court Ruling 409/2016, of 15 June, in which it was established as case law doctrine that, in the absence of an agreement to the contrary, the seller who has paid the IBI can pass it on to the buyer in proportion to the time that each party has held ownership of the property during the current year.

Importance of agreeing to apportionment

Given the possibility of IBI being passed on, it is highly recommended that the parties expressly agree in the purchase contract how this tax will be handled. A typical clause could be: (CEF Magazines)

‘The parties agree that the Real Estate Tax for the year [year] will be paid in proportion to the time that each of them has held ownership of the property during that year’.

This type of clause provides clarity and avoids possible later disputes between the parties.

Conclusion

Although legally the seller is the taxable person for the IBI of the year in which the sale is made, there is the possibility of passing on this tax proportionally to the buyer, in accordance with the rules of common law and the jurisprudence of the Supreme Court. To avoid misunderstandings and possible disputes, it is essential that both parties agree and clearly document in the purchase contract how the payment of the IBI for the current year will be handled.(Revistas CEF)