There are inheritance and donation tax changes on the horizon that could mean that some of the benefits that people are currently enjoying might disappear or at least be reduced. What action can you take to preserve your assets for those you love?

As you may know, the different regions of Spain have relative autonomy when it comes to deciding the small print of legislation. Although the government makes the overarching laws, it’s the autonomous communities that can fill in the detail. This can cause difficulties on occasions due to variations in different parts of the country. However, it is also an opportunity for people to make the most of the more generous local legislation that there might be.

A good example of this is when it comes to inheritance and donations. Different communities, such as Murcia, Valencia, Madrid and Andalucia, have different rules that apply in relation to taxation and which groups fall into which tax category. The allowances set by each community, before tax is levied, can also vary. So, for example in Murcia there is a inheritance and donation tax reduction of 99% of the tax amount for spouses, children and parents.

Now the government is proposing a policy of ‘fiscal harmonization’ or ‘armonización fiscal’. The idea is to eliminate the differences in inheritance and donation tax between autonomous communities. This can seem like a logical idea but it could have the consequence that taxation on inheritance and donation could increase rather than decrease in some regions. A possibility that is encouraging people to look at the option of donating their property instead. In this way, they can take advantage of any regional concessions now before the laws change.

For example, people living in ‘generous’ regions where the tax levied is relatively low and the allowances are high, can donate their property in Spain now and take advantage of this low tax before the fiscal harmonization project sets in and their taxes are raised. Madrid, Andalucia, Murcia and Valencia are just four such communities which could see taxation increasing following the new legislation.

Donating your property – the advantages

There are other benefits to donation in Spain too. It enables you to settle any issues and secure the future of your estate whilst you are still here to make the decisions and oversee the transition. Inheritance tax declarations need to be made prior to property changing hands in Spain and this can cause difficulties if your inheritors do not have the funds available and are relying on selling the property first to pay tax.

The donation process or ‘Donación de bienes’ is a gift from the donor to the donee. You must still declare a tax, this time donation tax rather than the inheritance tax that your inheritors will need to pay if you leave property to them when you die. You will no longer be the legal owners but are still able to live in the property, if you keep the usufruct.

When property has been donated it means that on your death your family do not have as many additional transactions to make in Spain. The transfer of property has already been made and it’s one job less for those you care about. It’s a more straightforward process, is less expensive and means that your family can also take care of any issues that there are later in life if you find making financial transactions more difficult.

Don’t delay

So, if you have been considering the possibility of donating your property then now is the time to act. The Government wants to carry out this measure as soon as possible according to statements made by the Minister of Finance, Mª Jesús Montero.

Given this fiscal uncertainty we would urge you, if you know who will inherit your home, to act now. In this way you will avoid any increases in taxes and make sure that your assets are passed on in a smooth and hassle-free way.

If you think this might be a good option for you, or you have some questions about it, please contact us at legaldpt@abacoadvisers.com and we will advise you on what is the best option for you and your family.     

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2 comments

MRS JANICE HENDON

2 July, 2021 3:33 pm

we are considering donation of our property to our only son but are concerned if he should die before us his wife
would claim the house and we would lose our right to the property.

Oscar Paoli

5 July, 2021 10:22 am

Dear Mrs. Hendon,

You can donate the bare ownership to your son and keeping yourselves the usufructo, which means the right to live and enjoy the property during your lifetime. This way, if anything happens to him you have the right to use the property; if anything happens to you, he does not need to go through a full inheritance process.

Should you need any further assistance do not hesitate to contact us at 0034966703750 or by email to our legal department at ledaldpt@abacoadvisers.com

With kind regards,

Ábaco Advisers