Question about wills
Dear Sir,
We bought our house near Benissa in 1975 and I can’t remember exactly how much we paid, but looking at the escritura, it was declared at 5,000,000 pesetas, which is about €30,000, but we are sure we paid more for it at the time. My husband and I own it jointly.
It has now been valued at €950,000 and we are thinking of gifting it to our three children.
We would be interested to read if there are any disadvantages to this idea, which is to save the children from having to pay inheritance tax.
ANSWER
There is a tax-free allowance of €100,000 for each of the children who receives the gift, but there is tax to pay on the balance. The gift tax calculations and the inheritance tax calculations are basically the same, including the tax-free allowances and the percentages of the tax. The big difference is that 50% of the amount to pay in inheritance tax is exempt, whilst one has to pay the total amount due in the event of a donation.
If you gift the property valued at €950,000 to your three children, you will each be making a gift of one half share of the property, i.e. €475,000 to the three children. Each child will receive €158,333 from each parent.
Up to €100,000 is except from this tax, so the gift tax will be based on €58,000, and the result will be €56,068.22 for each child to pay. Because they each will be receiving the same gift from each parent, they will have to pay the same amount in tax for each gift. The total for each child will therefore be €12,136.44.
You may also be liable to pay the local plusvalia tax, and to find out how much this tax will be, you will have to contact the town hall and enquire. You should bear in mind that inheritance has a reduction of 95% in this tax.
Oddly enough, there will be Capital Gains tax to pay. I understand that this is a difficult concept to grasp. If you give your property to someone, you have made an actual loss, as you no longer own it and you haven’t received anything in exchange. But the tax office thinks differently. The CGT is calculated in the same way as if you had sold it. The difference between the original purchase price and the value of the gif is deemed as profit and in this case in particular, if you are a non-resident of Spain, the CGT will be in the region of €60,050.
There would be less tax to pay if the children inherit the property when the time comes.
We would recommend you have a valid Spanish Will, so when the time comes, there is as little paperwork to deal with as possible, thus ensuring and easy transfer of ownership with the least cost for your children.