Spain Explained

Extension of donation tax reductions

When thinking ahead to what will happen to your property in the future you might have considered donating it to your family and those you care about rather than passing it on through inheritance. There are a number of advantages to taking this route and we have supported many people who chose to manage the transfer of their property sooner rather than when they’re not around to oversee the process.

Now there is good news for those people living in Murcia who have been thinking about this option. You may be aware that in 2018, the Murcia regional government almost eliminated donation tax for those who are close relatives of the property owners. This meant that parents and children could be given the property with a reduction of 99% from the donation tax bill. Leaving very little to pay.

The good news is that there are now plans to extend this favourable taxation to those beneficiaries who are in ‘group III’, again in the Murcia region. Group III includes siblings, uncles, aunts, nieces, nephews and ascendents and descendants by affinity such as parents in-law, daughters-in-law, sons-in-law, stepchildren or step-parents.

Why now?

The Spanish government is in the process of considering a change of legislation that would mean that all regions must apply the same tax requirements when it comes to inheritance and donations tax. This is termed fiscal harmonization or armonización fiscal. In the face of this possibility, Murcia has ‘taken the bull by the horns’ by acting quickly to enable those who wish to take advantage of their favourable donation tax terms to benefit.

From 1st January 2022 the following groups will be exempt from a large proportion of donation tax:

  • group I (children under 21)
  • group II (children over 21, spouses, grandparents, parents and adoptive parents)
  • group III (siblings, uncles, aunts, nieces, nephews and ascendents and descendants by affinity such as parents in-law, daughters-in-law, sons-in-law, stepchildren or step-parents)

In most cases there will now be no tax to pay at all, although you must still go through the process of making a tax declaration.

The advantages of donation

If you have been considering the donation option this would be a very good time to act upon it. Transferring your assets during your lifetime means that those who you wish to receive them can take advantage of the current tax benefits. It can also be an easier process to conduct and sets your mind at rest that everything has been taken care of without causing problems for those you care about most in the future.

When property has been donated it means that on your death your family do not have to make additional transactions. Dealing with Spanish legal processes can be confusing at the best of times and leaving it until you are not there to help them can make it even more difficult for those inheriting. The donation process (donación de bienes) is a more straightforward process, less expensive and means you can clarify issues when you are still there to be able to do so. 

Murcia has always been a generous region when it comes to the imposition of rates on donation tax and their current actions provide a window of opportunity for those considering this move. In this way, you will maintain the lower tax advantage before the national fiscal harmonization project comes into play.

We can help

If you would like to transfer your assets to your relatives and take advantage of these current tax benefits, we can help you. Please contact our legal department for more information at legaldpt@abacoadvisers.com

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