Spanish Inheritance Tax: Should You Give Your Children Your Property? Or Sell it To Them?

If you retired to Spain, or have lived in Spain for a while but no longer want the burden of your Spanish property as you enter old age, you may well be wondering what you should do with your happy home. The good news is that you have several options available to you: the bad news is that it can be very tricky to decide which of these options is the right one for you.

Thinking of keeping the property in the family? Passing your Spanish home on to your children is a great way to ensure that you can still visit, and get all the fun of owning a Spanish property without any of the responsibility! But should you give your children the home, or should you sell it to them? Here we explain the tax implications of both of these options:

Giving Your Home to Your Children

If you make the decision to pass your Spanish home on to your children, this isn’t as simple as simply changing the title deeds from one name to another. You will still be responsible for paying the corresponding capital gains on your income tax declaration (IRFP), just as you would if you sold the property, and regardless of who you sold it to. This is because gifting a property is still taxable, and that tax obligation falls to you rather than to the children who are being gifted the home.

If the value of your property has increased during the period that you have owned it (ie if you are deemed to have made a profit from the difference between the acquisition value of the property and the value of the property at the time of passing it on to your children) then you will also be taxed at your personal income tax rate between 19 and 23 percent, on that difference. The exact tax rate that will be used would depend on how much profit you earned. 

However, if no profit was gained and the current value of the property is less than the acquisition value, then this loss will not be included in your personal income tax. Ie, losing money on the value of your house will not leave you with a reduction of your personal income tax bill.

Finally, you will also be responsible for paying the corresponding municipal tax, the amount for this will vary depending on the region you live in.

So, whilst gifting your children your property may seem appealing because your children may not have to pay the capital gains tax on the property, they will still be liable to pay inheritance tax or gift tax based on the value of the property they receive. The exact figure for this will depend on both the value of the property and the region of Spain in which the property is situated.

What About Selling Your Home to Your Children?

Wondering if selling your home to your children might be a wiser financial decision? For parents, the tax obligations of selling your property are the same as if you simply passed your home onto your children – you will still be liable to pay the capital gains tax through your IRFP and the municipal tax.

From the point of view of the children deciding to buy their parents house, they must also pay a Property Transfer Tax (ITP) which varied between 6-11 percent of the property value, depending on where in the country the property is based.

Making the Right Choice for You

Only you can decide which of the options detailed above is the right choice for you. However, there are no loopholes: if you decide to sell your home to your children there must be an exchange of money, otherwise it will still be counted as a gift. Your children can purchase the property from you in the form of savings, a mortgage or a personal loan, just as they could purchase any other property. If you try to ignore this rule and you are found out, you could be fined.

You are also not allowed to sell your home to your children for an abnormally low price. Every home in Spain has a minimum value for tax purposes, which is calculated by the autonomous community in which the property is located. In some regions, the cadastral value is taken for reference, but each region has its own way of calculating it: you cannot sell your home for below this figure.

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