A gift is an important tool in inheritance planning. However, gifting in Spain is not a simple matter. After all, both Spanish and Belgian legal rules apply. Therefore, this article will discuss the various legal and tax aspects when making a donation of a property located in Spain.
Rules applicable to donation
First, it is important to know that if the beneficiary accepts the gift, there is an agreement. The donation as an agreement is itself governed by rules of law. In Belgium, the parties can include a choice of law in the notarial deed. Since there is an international link (property in Spain, donor or donee has Belgian nationality), the choice of law easily made.
Why is the choice of law of gifting in Spain relevant? For example, consider a gift with conditions. The conditions to be included in the deed of gift and the choice of law to be preferred are different in each individual situation. Depending on the wishes of the donor and taking into account family and tax aspects, either Belgian law or Spanish law may be preferred to govern the gift.
It should be noted, however, that the choice of law is tempered. First, particularly mandatory rules of law and public policy continue to apply in the country where the donation is assessed. Second, the formal requirements of the gift of immovable property are determined by the country where the property is located, regardless of the choice of law. This is Spain. Finally, gifts between spouses are governed by the law where the spouses have their habitual residence.
When there no choice of law is made, the law of the place where the property is located will apply. In that case, the gift is governed by Spanish law.
Applicable law of succession
Besides the rules applicable to the gift itself, the applicable law of succession should also be taken into account. The applicable law of succession is determined on the basis of the testator's habitual place of residence. However, a choice of the law of the country of nationality of the testator can be made in the will . You can read about the usefulness of a Spanish will.
Belgian inheritance law can therefore perfectly apply to the gift of Spanish property. This has important consequences for gifting in Spain. For example, you need to ensure that the donation is within the limits of the available share remains. The available portion is the part of your assets that you are free to dispose of, and which you may allocate to whomever you wish. Against this is the reserve, which is a part of the assets provided for certain heirs, such as your children, for example.
Paying attention to the claims of reservatory heirs
In Belgium, you have the choice between a donation on advance of inheritance and a donation outside inheritance. With a donation in advance of inheritance, you retain the equality of heirs, but one heir already receives a piece of your assets in advance, for example the Spanish villa. With a donation outside inheritance, you favour one of your heirs. There is then no advance payment, but rather an additional part of the assets, on top of the reservatory claims. In that case, the heir gets the Spanish villa on top of his legal inheritance share.
However, if the gift affects the claims of your reservatory heirs, the donation later shortened to the extent of what exceeds the available portion. This means that the donee must return a portion of the gift. Under the new inheritance law, the reduction will be based on the indexed intrinsic value of the donated property at the time of the donation. So when donating in Spain, you should take the inheritance law into account, because otherwise the donee will risk having to pay back (part) of the Spanish villa to the (other) reservatory heirs.
Rules applicable to ownership of property
You should also observe the rules of Spanish property law. The rules related to property ownership are determined by the country where the property is located. In other words, Spanish law applies to your property in Spain. This is logical, and also very important. Consider, for example, the rules of co-ownership.
A planning technique consists of splitting ownership into the usufruct on the one hand and the bare ownership on the other hand. These concepts are regulated in accordance with Spanish law. Know that in Spain the usufructuary has far-reaching rights over the property, but he also has significant responsibilities towards the bare owner.
Gift tax in Spain
Gifting in Spain leads to the payment of Spanish gift tax in two situations. The first situation: Spanish tax residents are subject to gift tax as donors, regardless of the origin of the goods received. If you are a permanent resident of Spain and you receive a gift from Belgium, you will have to pay Spanish gift tax. The second situation: all donations of property located in Spain are subject to Spanish gift tax. Therefore, if you receive a Spanish property, you will owe Spanish gift tax.
The Spanish gift tax is similar to the Spanish inheritance tax. The taxable base is formed by the current value of goods received. A rate of between 7.65% and 34% is applied to the taxable base. In addition, there are reductions based on the family relationship and regions may grant additional reductions. Thanks to these reductions, Spanish gift tax can be reduced to zero in some cases.
Other taxes in Spain
In addition to the gift tax payable by the donee, the donor may also be subject to national capital gains tax owed to the Spanish tax authorities. These taxes should therefore be included in the total tax cost of the donation operation. Capital gains tax can significantly increase this cost. Also, the donee will still plusvalia muncipal are due.
Note: if the property was purchased - not donated - with usufruct and bare ownership split, the usufruct will also be subject to registration tax in certain cases if the usufruct reverts to the bare owner.
Donating in Spain: gift tax in Belgium?
In Belgium, donations are subject to gift tax if:
- either the notarial deed was registered in Belgium;
- or when a property located in Belgium is donated.
If you register the gift deed in Belgium, you will be subject to Flemish, Brussels or Walloon gift tax. Know that an exemption is provided in the three regions for real estate located abroad. In practice, you will then pay no gift tax in Belgium On the donation of real estate located in Spain.
Also, the push-up effect in inheritance tax does not play in the case of a donation of foreign property. That way, the value of the donation cannot later be added to the taxable basis of inheritance tax.
Tip: Due to the different rules of applicability of national gift taxes, there may be double non-taxation in the case of certain international gifts. This means that some international gifts are not taxed in any country.
Gifting in Spain - and by extension succession planning - consists of putting together the various legal rules to see which paths ideally meet the wishes of the donor. This takes into account the family and tax situation, the most advantageous legal framework for establishing the gift terms and the mandatory provisions of inheritance law. This is customisation. However, gifting is not always the recommended course of action. Therefore, be well informed about the various options for transferring your Spanish assets.