Taxation on gifting property in Spain
There are many reasons why you might want to transfer or ‘gift’ a Spanish property to a child, family member or other person. Maybe to avoid inheritance tax, as part of a divorce settlement or merely out of the goodness of your heart.
Unfortunately, transferring or gifting Spanish property is not as straightforward as it may initially seem and you will need to consider the effect of transferring your Spanish property. In particular the fact that it’s likely that the transfer will trigger Spanish taxes.
The amount of Spanish taxes payable when transferring Spanish property should be given proper consideration as this might affect the way in which you decide to structure the transfer of your property in Spain or if you decide to proceed at all.
1. What is the inheritance and gift tax?
The Spanish law jointly regulates inheritance and gift tax. Inheritance tax is the tax payable on any increase of wealth, obtained by reason of death of a third person. Gift tax is levied on the increase of wealth, caused by reason of gift while the transferor is still alive.
2. What is this tax levied on?
Taxes paid by the giftor:
The inheritance and gift tax is levied on the following:
· The acquisition of assets and rights by way of succession. Foreign individuals must pay inheritance tax in Spain if they are Spanish residents. If you are neither Spanish national, nor Spanish resident, you will only pay inheritance tax in Spain for the estate the deceased left in Spain.
· Obtaining assets and rights in Spain by way of gift or any other gratuitous transfer inter vivos (during transferor lifetime).
· Acquisition of revenue from a life insurance policy, where the contractor party is a different person from the beneficiary.
3. About the taxpayer
Who must pay this tax? Bear in mind that payment of this tax is not made by the estate; each beneficiary must pay for it individually:
· The inheritors, who acquire the assets by reason of the decedent’s death. The tax is payable by the beneficiaries and not by the estate. This tax must be paid in order that the beneficiary is entitled to use the deceased’s assets. When it is the inheritors’ decision to sell the assets that the decedent left in Spain, they first must pay the inheritance tax. It is advisable to seek the assistance of a Spanish Lawyer in order to speed up the inheritance proceedings and get advice on potential tax saving schemes.
· The grantees, who acquire the assets by reason of a donation or gratuitous transfer inter vivos (among people still alive).
· The beneficiaries of the insurance policy, where the contractor party is a different person from the beneficiary.
4. What is tax base
· To calculate the tax base of a transfer upon death, it is necessary to value the assets and liabilities at the time of death. The total sum, deducted the charges, will be then liable to tax. Expenses as the funeral and the costs of any litigation connected with the estate can also be deducted.
· The assets and rights acquired by gifts and other gratuitous transfers inter vivos (while the transferor is still alive) are assessed at their real value, deducted charges and liabilities.
· Regarding life insurances, the basis of assessment are the proceeds that the beneficiary obtains. These proceeds shall be liable to tax together with the assets and rights acquired from the will.
5. Calculation of the tax
5.1 General Information
It is complicated to calculate your tax as different percentages shall be charged according to a sliding scale, where different circumstances shall be considered.
Be aware that the tax rates differ from one Spanish region to another.
Inheritance and gift tax is progressive, the tax rates applicable depend on the following circumstances:
· The amount transferred to the beneficiary.
· Whether the taxpayer is a Spanish resident or not.
· If the taxpayer is a non-Spanish resident, whether the taxpayer is an EU citizen or not.
· The beneficiary’s relationship to the deceased.
5.1 Steps to follow
The taxable estate is determined by deducting certain allowable amounts from the value of the gross estate.
The Basis of assessment is legally reduced depending on the degree of consanguinity between the testator and transferee to arrive at the net taxable amount (which is called base liquidable).
The applicable reductions differ from one Spanish region to another. In Spain, inheritance and gift tax is governed by both the State and the 17 Autonomous Communities.
Be aware that you may enjoy of the Spanish regional reductions as far as you are Spanish resident or a non resident from the EU. Since the European Court of Justice ruled in 2014 that the Spanish authorities cannot charge different rates of inheritance tax for residents and non-residents, non residents who are EU nationals and inherit in Spain may benefit from reductions and exemptions provided by the Spanish Autonomous Community where the holiday home to inherit is located.
Different conditions are applicable to non Spanish residents who are non EU nationals, as they cannot benefit from the reductions set out by the Spanish Autonomous Communities but only the national reductions are applicable.
6. Payment schedule
The inheritance tax must be paid within 6 months from the transferor death. this term may be extended for another 6 months previous application duly submitted by the inheritors.
The gift tax must be paid within 30 days since the date of the transfer.
If you are a Spanish resident, the tax must be paid at the Regional Tax Office (Delegación Provincial of the Consejería de Economía y Hacienda) from the corresponding Spanish Autonomous region. You must file the tax form along with other documentation that your Spanish Lawyer may inform you about.
If you are a non-resident, the tax shall be paid either before the national tax office for non-residents located in Madrid, or before the regional tax office, when applicable.
7. Getting legal help
It is suggested that all technical and legal matters pertaining to inheritance and gift tax be referred to professionals for advice, guidance and execution.
