Are you considering giving your house to your children? Are you aware that, in some cases, gifting your own property may be more expensive than giving them the money to buy one?
Taxes other than gift tax may arise such as capital gains for the donor, so for a full understanding of the costs involved when making a gift, many factors must be taken into account.
It is essential to obtain professional advice, well in advance of any gift. We are experienced in guiding our clients through the proceedings.
Moreover, even when regional gift tax allowances are available, they depend on complying with the proceedings in a very short time frame. This means NIE numbers, transfers of money, making a deed stating the source of the money, presenting tax forms, all within a deadline of thirty working days. Although the gift of an immovable property does not exist until the deed is signed, the transfer of any money starts the clock ticking, so on no account do anything before getting professional advice. We are specialists in this field.
It is also of the utmost importance to consider any rules established for gifts intended to protect and provide for a disabled person. Therefore, before proceeding with any gift, it is advisable to consider whether it is the most suitable option or whether other alternatives may be more appropriate.
If thinking about a gift which is going to have effects in Spain (and it will do if the gifted asset is located, or the beneficiary is a resident in Spain), you must be aware of some complexities that the gift has either in the applicable law, the links with the donor’s succession, and to taxes involved (not only gift tax).
Regarding the applicable law, if the gift has some foreign connection (residency of the donor, or the beneficiary, or location of the assets, or place where the gift is made) the applicable law if any Spanish court or authority is going to deal with the succession (ie Land Registry) is that established by EU Regulation Rome I. This rules that the parties involved can choose the applicable law to rule the gift, whether it has any connection with the gift or not.
This chosen law will rule all the contractual issues of the gift, such as the possibility of revocation. BUT it will not rule:
And moreover, even cash donations must be made in a public deed to take advantage of the benefits ruled in the tax law of the Comunidades Autónomas, which rule Gift tax.
The gift must be counted as part of the assets that belong to the estate of the deceased. If the gifted assets exceed the value of the share which the testator can dispose of freely, so it affects the reserved share, there may be a clawback. The beneficiary of the gift must accept the reduction, either by paying the excess to the forced heirs (those with the right to the reserved share), or giving back the gifted assets to the estate, receiving only the monetary value of that part which the testator was able to dispose of freely.
If the beneficiary of the gift is a child of the donor and has siblings, even when the gift does not affect the reserved share, the value of the gift must be «sujeto a colación», added to the value of the assets that belong to the estate and, for the beneficiary of the gift, its value must be included when calculating his or her share in the estate.
To avoid the clawback, enabling the beneficiary of the gift to receive his or her part in the estate, sharing it out equally with the others, the donor must state as such at the time of gifting, or later in a public deed or in the last will.
If the beneficiary is a descendant, the donor can also declare that the gift is a «mejora», which is an enhancement so it will reduce the reserved share of the others.
If the forced heirs are descendants, the testator can split the reserved share (2/3) in two parts, one (1/3) to be distributed equally among all the first degree descendants (children and children of a previously deceased child) and the other (1/3) to be given just to some, or only one, even if they are second grade descendants (grandchildren whose parents are still alive).
If the donor has any debts, the beneficiary will also be liable for those debts, as a gift made by a debtor is deemed to be fraudulent.
The gift is taxed in the Inheritance and Gift Tax regulations but without the exceptions or reductions that would be ruled for acquisitions by inheritance, which may lead to a higher payment. Each Comunidad Autónoma has its own regulations which set out various benefits (sometimes huge) for the acquisition by children, close relatives and sometimes employees, of a house which is the main residence, a business or share in a company, money to acquire the main home or to start a business; for farming, for existing or new farms, or Comunidades Autónomas cultural assets, etc. Contact us for advice on your specific circumstances but some general information for each Comunidad Autónoma is included below.
The law of the Comunidad Autónoma to check is:
The option to apply the Laws and benefits of Comunidad Autónomas’ Law for non-residents is the result of a long process in Spanish Law following the European Court of Justice resolution of 3 September 2014 (c-127/12).
As a result there is now the right to claim a tax refund whether the beneficiary and/or the donor were resident in a EU Member State or not.
All gifts given by the same donor to the same beneficiary within three years are considered as a single gift for gift tax purposes. That makes the amount of tax higher for the second or successive gifts within the three year period so the amount of tax will be higher due to the progressive scale rate. Therefore, the value of any gift, on which gift tax has already been paid, will be added to the value of successive gifts received in a three year period. That means that the amount to pay for the later gift will be higher than the amount that would have been paid for its individual value.
A capital gain is calculated from the difference in value of the gifted asset at its acquisition and at the time of donation. This capital gain is taxed in the income tax of the donor whether he or she is resident in Spain or not. This tax will not be charged if the acquisition is by way of inheritance.
There are benefits both in gift tax and capital gains tax, for the donor if the gift is to constitute or to transfer to a disabled person’s «patrimonio protegido».
The assets owned by the deceased in the year prior to death are still considered to be in their ownership unless they are either held by someone other than an inheritor or legatee, ascendant, descendant, spouse or relative up to the third grade, or they have been sold and the money is in the estate.
If a beneficiary of a gift becomes an inheritor or legatee by the death of the donor within a period of 4 years from the date of the gift, its value will be added to the value of the inherited acquisition for inheritance tax purposes, with the corresponding increase in the tax rate and without any refund of what has already been paid in gift tax. This regulation, and that relating to the accumulation of successive gifts in a period of three years, is designed to avoid the possibility of reducing tax by splitting the value of the gift or inheritance between donor and beneficiary.
If the gift is an urban asset it will be taxed with the council tax called «plusvalía» the same as if it is acquired by inheritance.
If the intention is to allocate one partner assets within the matrimonial property regime, it will be deemed as a gift unless it is agreed that the spouse who is transferring the assets from his or her individual estate to their common shared marital assets, has reserved the right to be reimbursed at the end of the matrimonial property regime (agreement, death or divorce or court resolution).
It will also be considered as a capital gain incurred by the spouse who is transferring. This gain will be calculated from the difference in value of the asset when it was acquired and the value it has when it is allocated to the matrimonial estate.
It will also be subject to Council Tax «plusvalía» if the allocated asset is an urban immovable asset.
To disclaim or reject an inheritance may have some consequences for gift tax:
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