Inheritance tax and CGT

Dear Sir,

We have heard that we are beneficiaries of a house in Spain, which belonged to our uncle.

We visited him over the years and we loved it, so he must have thought that we would like to have it after this death.

Unfortunately, we will not be able to make use of it as family circumstances would not make it practical.

A neighbour told us that we can declare a low figure in the inheritance deeds, so we don’t have to pay any inheritance tax. Once it has been registered, we can then sell it.

Would we have to pay any other tax on the sale?

We live in Denmark.

Answer

The law states that, for inheritance tax purposes, the market value has to be declared when inheriting a property. Sometimes a beneficiary may use a lower figure to reduce any inheritance tax, and not have a problem with the tax office, because the figure used is within the boundaries of what can be considered acceptable.

Depending on where the property is situated, there is a list of coefficients which are multiplied to the valor catastral (rateable value), and the result is a figure acceptable to the tax office, for inheritance tax purposes.

Since your idea is to sell the property once it has been registered in your names, and assuming that you will sell it for the market value, there may be a substantial Capital Gains Tax bill to pay, on the profit made on the sale.

This tax is calculated using the difference between the sale price and the acquisition value, which in this case would be the value given for the inheritance. The CGT tax for non-residents is 19% on this difference.

If you declare the inheritance at a low figure, this difference will be a lot larger than if you declare the market price when you inherit. So if the acquisition value is the same as the sale value there will be no Capital Gains Tax to pay.

Apart from inheritance tax and possible Capital Gains Tax, you will also have to pay the local plusvalía tax. This tax is based on the difference between the rateable value (valor catastral) of the land – not the house – and the rateable value of the land when the property changes ownership.

When calculating CGT, one has to remember that any necessary costs incurred in the acquisition of the property, either by purchase, inheritance, donation etc, are deductible. This also goes for the Plusvalía tax, since it is a necessary cost when acquiring or selling a property.

Further, when you sell the property and use an estate agent, the agency’s fees are also a deductible expense, but you will need an official receipt from the estate agency to be able to use this as a deductible.

Since you are considering selling the property, it will be advisable to check to see if the description of the property coincides with the description that is registered in the land registry. It is possible that during the ownership of your uncle or previous ownerships work was carried out on the property and never registered. Your buyers will insist that the physical description coincides with the registered description.