A recent report by the General Council of Notaries leaves no room for doubt. Over the last few years, the number of inheritances processed in Spain has increased by more than 20%. The same happens with donations or gifts, that experienced an increase of nearly 31% last year. Also noteworthy are the renunciations to inherit, that reached an all-time high in 2021. The pandemic, the fear of future tax increases and the climate of uncertainty, the main causes. In this situation, many people ask themselves: What is more convenient? Donating during my lifetime to my children? Waiting for them to inherit? In today’s article we analyse the main advantages and disadvantages of choosing between inheritance or gift (donation).
Inheritance or gift (donation). Definition and main differences between the two.
The main difference between inheritance and donation is the moment at which each occurs. While in donations the donor passes on the assets and rights during his lifetime, an inheritance takes place after his or her death. What other differences are there between the two? On the one hand, the tax consequences. Without being able to generalise, inheriting is usually cheaper than receiving a donation. However, there are exceptions. On the other hand, it should not be forgotten that in inheritances, not only assets and rights are passed on, but also the debts of the deceased can be acquired.
Advantages of donating during your lifetime.
The deadlines for processing a donation are much shorter than those required for an inheritance. Since it is not necessary to compile the abundant documentation that is involved in a death. The donor can also impose conditions on the delivery of the assets, or reserve certain rights. For example, the donor may retain the usufruct of a house for as long as he or she lives. Gift also makes it possible to help family members immediately, without having to wait until death.
Advantages of waiting to inherit the assets.
Perhaps the biggest advantage of passing on assets through inheritance is the (generally more beneficial) tax regime. Let the following example illustrate this. A property that the deceased acquired years ago for €150,000 is inherited. At the time of inheritance, its value is €290,000. Since it’s an inheritance, the capital gain generated (acquisition price – transfer price) of €140,000 will not be taxed in the income tax (Art 33.3.b of the Personal Income Tax Law). This is known as ‘capital gain of the dead’. However, if the property was acquired through a donation, the donor would have to pay a total of €31,080 for this capital gain.
Which option is more advisable from a tax point of view?
It is almost impossible to give a generic answer. It is essential to study each individual case. An inheritance in which assets and rights worth €700,000 are passed on is not the same as an inheritance worth €200,000. It is also key to know the number of heirs, as this will affect taxation. The more heirs there are, the less each one will receive, and therefore, the amount owed to tax authorities will be lower.
On the other hand, the applicable tax reductions and bonus vary in each autonomous community. For example, in the Valencian Community, there is a reduction for gifts between kinship which ranges from €100,000 to €156,000 (depending on the age of the beneficiary). This means that any donation of a property which price is lower than this figure would be exempt from paying the tax. The inheritance tax also has numerous reductions or bonuses. For example, the reduction in the tax base of 95% in the case of acquiring the habitual residence (with a limit of €150,000). Or the tax bonus of between 50% and 75% (depending on age and degree of kinship), etc.
If you want to plan your inheritance, to minimise taxes, do not hesitate to contact us. We will study your specific case, number of assets to be transferred, heirs, applicable autonomous community regulations, etc, and we will offer you expert advice on which option is best in your case: inheritance or gift.
The information provided in this article is not intended to be legal advice, but merely conveys information related to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
E-mail: info@white-baos.com
White & Baos 2022 – All Rights Reserved.
hello, I may have a problem that I require your services for
I will be given 550000€. the donator promised this money before her death. she has since died
I am English, with Spanish residentia .i am not related to the lady and I have not received the money yet.. I live near torrevieja, Costa blanca.
I assume I will be liable for a large amount of tax.
I seek your advice
Robert Myers
Thank you for your message per it, we would like to inform you that:
.-If you are resident in Spain and you inherit assets or money outside Spain, due to the death of a person, or if you receive a gift, you will need to declare them in Spain, to the taxman, signing a tax declaration and paying the amount of IHT – Gift due (that depends on the value of the assets inherited, etc.). That needs to be presented in Madrid.
.-Please confirm where you live ( if possible send us copy of the PADRON).
-We could prepare the acceptance-tax declaration or gift declaration to be presented in Madrid on your behalf, and also the tax form, pay the IHT on your behalf, etc.
We could do a simulation of the taxes to be paid, and also see, if possible, it could be any way to minimize the tax, sometimes is not possible.
As you said, if the donor or the deceased, is not your relative, normally the taxes to be paid could be really high.
For further information, please send us an email to info@white-baos.com or call us to the 0034 966 426 185