A donation of Spanish real estate - five things to consider

Do you own property in Spain? In that case, a gift may be the most appropriate method to transfer it to the next generation in a tax-efficient manner. Rutger Van Boven, expert in  (international) estate planning, lists five important things to consider to help you get on your way.
 

1. The gift tax due depends on the location of the property in Spain. The seventeen autonomous Spanish regions are independently competent to define the applicable rates, exemptions and reductions. In many cases, taxation will be limited. For example, significant favourable tax regimes may apply, with - in some cases - exemptions that can reach as much as 99.99% (e.g. for a donation of real estate located in Andalusia and in the Canary Islands).
    
2. In the event of voluntary registration of a Spanish notarial deed in Belgium, only the general fixed duty of EUR 50 applies. What if the donor, a Spanish national, moves to Belgium after the gift? In that case, the previous gift of the Spanish real estate will not affect the calculation of the Belgian inheritance tax. However, what if a Belgian national leaves Spanish property upon his/her death? In that case, the heirs will be taxed in Belgium, as well as separately in Spain. Although in this case the taxes paid abroad can be set off against the Belgian tax due, it is more interesting from a tax and practical point of view to gift the Spanish property during life.
    
3. Unlike the Belgian tax rules, when a gift of Spanish property is subject to a retention of usufruct, Spanish gift tax must be paid only on the bare property gifted. However, the extinction of the usufruct upon the death of the donor will require the donee - who will become the full owner at that time - to pay Spanish inheritance tax on the acquisition of the usufruct.
    
4. When gifting Spanish property as a natural person, the Spanish capital gains tax also comes into play in addition to any gift tax due, and a local tax is also due on the value increase of the land! Therefore, take into account a capital gains tax of 19% on the fictitious capital gain realised on the Spanish property. This capital gain can be calculated by deducting the purchase costs (purchase price with associated taxes, notary fees and investment costs, such as a full renovation) from the sales value of the Spanish property gifted.
    
5. A capital gains tax at the stated rate of 19% also applies when the shares of a company holding the Spanish property are gifted. Good to know: a special exemption for this capital gains tax applies when the shares of a Belgian real estate company are gifted. This favourable scheme only applies if more than half of the total assets of the Belgian company in question is composed of Spanish real estate. In addition, you can obtain an exemption from gift tax if the donee is qualified as a non-resident of Spain for tax purposes.
    

Are you planning to donate your Spanish property? Contact Rutger Van Boven for more information. He will be happy to answer your questions about this topic.