Gifting Property in Spain and tax - Introduction
In a time of increasing financial strain due to the
European Central Bank's (ECB) continuous interest rate hikes, families are feeling the pinch.
So many people will be turning to that even more esteemed bank. The Bank of Mum and Dad!
In some scenarios, this doesn't just mean cash hand outs. It might also mean gifting properties to children (or indeed other family members).
But how can property be gifted in Spain without attracting high taxes?
Gifting Property
Gifting property in Spain is becoming a popular way for parents, spouses, and family members to support their loved ones without incurring excessive taxes.
This practice has gained traction as several regions in Spain, including Andalucia, Madrid, and Galicia, have implemented tax laws that significantly reduce or eliminate inheritance and gift taxes.
Key Reasons for Gifting Property
Gifting property or money occurs in various scenarios:
- Spouses re-arranging joint property ownership.
- Parents gifting property or money to their children.
- Property owners gifting to other family members or friends.
Tax Implications for Donor and Donee
The Donor and the donee should be aware of the potential tax liabilities involved:
- For Donors: Capital Gains Tax and Plusvalia tax.
- For Donees: Gift tax, though in some regions, this is nearly zero.
The donor
Capital gains tax
This tax applies if the property's value has increased since you acquired it.
The capital gain is calculated by subtracting the purchase price and related costs from the property's value at the time of gifting.
You will be taxed on this gain at a rate of 19% (or 24% if you're a non-resident donor from outside the EU).
Plusvalia
This is a local tax levied by the municipality on the increase in the land value of the property since it was last acquired.
The rate and rules for calculating Plusvalía Tax can vary depending on the specific location of the property.
The Donee and Gift tax
Spain has a national gift tax, but rates are set by individual regions (Autonomous Communities).
In some regions, there can be significant exemptions for gifts to close relatives, such as children or spouses.
For instance, some regions offer a nearly zero tax rate for gifts between parents and children.
It's important to research the specific tax rates that apply in the region where the property is located.
Additional Costs
Besides taxes, there are additional expenses to consider, including lawyer's fees, notary fees, and land registry fees.
The Gift Procedure
To ensure a smooth and tax-efficient transfer, it's crucial to retain a lawyer from the beginning. The gift deed must be prepared and witnessed by a Spanish notary.
Proper planning is essential, as failing to follow the correct legal procedures can lead to a significant tax burden.
Dissolution of Joint Property Ownership (DJPO)
For joint property owners seeking to re-arrange their holdings, a DJPO can be an effective alternative, reducing taxes by up to 86%.
It applies in situations like divorce, re-arranging inheritances, and property re-organization among family and friends.
Gifting Property in Spain and tax - Conclusion
Gifting property can be an excellent way to help loved ones while minimizing tax obligations.
To avoid high taxes and ensure a smooth legal process we would certainly recommend tapping into local expertise
Final thoughts
If you have any queries about this article on gifting property in Spain and tax, or other Spanish tax matters, then
please get in touch.