Many people mistakenly think that their Belgian or Dutch cohabitation arrangement automatically continues in Spain. Nothing could be further from the truth. In this episode, Glenn Janssens explains the legal and fiscal pitfalls for unmarried couples and how you can protect each other when buying a Spanish home.
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The Case Study: Patrick and Sabine
Based on the true story of Patrick and Sabine (a de facto cohabiting couple with a property in Altea), the risks become clear. After Patrick's unexpected death, half of the property went to his children from a previous marriage. Due to Flemish inheritance tax, the children were forced to claim their share, which meant Sabine suddenly had to share or sell her home.
The two big problems for cohabitants
When you buy property in Spain as a de facto or legally cohabiting couple, you run into two barriers:
- Inheritance law (Legal): In principle, de facto cohabitants are not each other's heirs. Even as legal cohabitants, you are not automatically entitled to Spanish second residence.
- The tax aspect (Taxation): In Spain, as a de facto or legal cohabitant, you are often seen as a ‘third party’ (stranger), which means you do not enjoy the favourable inheritance tax rates. Also in Flanders, the inheritance tax exemption applies to the partner only for the family home, not a Spanish holiday home.
Three possible solutions
1. The split purchase (The most optimal choice)
This is an arrangement you make before the purchase of the property.
- How does it work? Both partners each buy 50% of bare ownership, and together they buy the lifetime usufruct.
- Advantage: On the death of the first partner, the surviving partner automatically gets full usufruct. The surviving partner retains control and may continue to live there or rent it out.
- Fiscal: There is no inheritance tax payable on usufruct in either Belgium or Spain on the death of the partner.
2. Stipulation of accretion / Tontine
A probability contract where the deceased's share automatically goes to the survivor.
- Pitfall in Spain: Agreements regulating a future estate are in principle void in Spain (except in regions such as Catalonia). You need a certificate from a Belgian notary to prove that this is allowed under Belgian law.
- Fiscal: Spain regards a tontine as a bequest (inheritance). So for cohabitants, this remains very unfavourable fiscally (Note: It is interesting for married couples under the system of separation of assets, though).
3. The will
You can make a will after the execution of the purchase deed in which you leave the usufruct or your share in full ownership to your partner.
- Pitfall: You cannot violate the children's legal reserve (inheritance share), otherwise the partner will have to compensate the children later. Besides, again, the inheritance tax for cohabitants remains very high.
Customisation is essential
Every situation is unique. What works for your neighbours may not work for you. The best solution depends entirely on your specific situation:
- Your family situation (children, age, interrelationships).
- Your long-term vision (do you still want to live there in 10 years, or do you want flexibility to sell?).
