Gifting in Spain is traditionally expensive. Unlike inheritance tax, there are usually no generous reductions, tax-free sums or exemptions in gift tax. Therefore, gifting in Spain is often discouraged. However, gift tax in Andalusia was drastically reduced in April 2019.
Inheritance and gift tax in Spain explained
Inheritance and gift tax is regulated in Spain through one tax law at the national level, with rates ranging from 7.65% to 34%. For gifts, there are increases on top of that based on your relationship with the beneficiary. However, there are only some limited reductions on the tax payable.
However, autonomous regions have the power to significantly extend reductions or reductions. For example, since January 2017, inheritances in Andalusia have been exempt up to the first €1,000,000. This exemption does not apply to gifts.
A 99% reduction in gift tax in Andalusia
From 11 April 2019 a reduction of 99% on the taxable basis of inheritances as well as gifts was eventually introduced, this on top of already existing reductions. Consider, for instance, the exemption of owner-occupied houses from inheritance tax.
So if you donate a property in Andalusia worth 500,000 euros, the taxable base is only 5,000 euros. This means that the rate is applied to 5,000 euros, and not 500,000 euros.
Note: in addition to gift tax, there may also be potential Spanish capital gains tax to be paid.
To whom does the reduction apply?
If you gift to your children, adoptive children, parents adoptive parents, grandparents or great-grandparents, they can benefit from this favourable measure. Similarly, if you wish to gift to your spouse or legal cohabitant they can benefit from the measure.
What are the conditions?
Donations must be made by Spanish notarial deed. If it is a cash donation, you should also prove the origin of the funds.
What about Belgium?
The donation of foreign property is not taxed in Belgium. After all, there is no registration requirement. Also, the accumulation effect in inheritance tax does not come into play, so the donation does not count later for the calculation of inheritance tax.
This new fact makes gifting in Andalusia potentially very interesting for several second residence owners. In particular, because by donating a property in Andalusia you can also reduce Flemish inheritance tax.