As in Belgium, there is a gift tax in Spain. The Spanish gift tax is partly regulated by the autonomous regions and is usually considerably higher than in Flanders. Therefore, this contribution will explain more about the gift tax in Spain.
When do I pay gift tax in Spain?
Spanish gift tax runs concurrently with Spanish inheritance tax, the 'impuesto sobre sucesiones y donaciones'. Any property you irrevocably relinquish for the benefit of a beneficiary, subject to the beneficiary's acceptance, qualifies as a gift and is taxable.
In two cases, you will pay Spanish gift tax:
- You are a Spanish resident and you receive a donation;
- You will receive a well located in Spain.
So in practice, you will always pay Spanish gift tax if you are gifted a property located in Spain. Even if you only gift away the bare property.
How is the donation valued?
The value of the donated property must be the current market value. When donating property, a minimum taxable value applies. This minimum taxable value is set by the local tax office based on a number of criteria. This system is similar to the control estimate. If you make a donation of property with a value lower than the minimum taxable value, you can expect checks.
Are there any reductions?
Inheritance and gift taxes are regulated partly by national law and partly by Spain's autonomous regions. Spanish national law provides reductions for the donation of family farms and some agricultural land under certain conditions. The autonomous regions also provide for reductions. For example, Murcia has a reduction of 99% on the taxable base for direct line beneficiaries.
How is the tax calculated?
You should proceed in three steps. In the first step, the base tax is determined. A basic rate of between 7,65% to 34% applies. This rate is applied to the net gift (gift less associated expenses). Then, the result is increased by a factor depending on the relationship with the beneficiary. Finally, the tax is reduced if a reduction is applicable.
An example. You gift a house worth €400,000 to your nephew. The first step is to determine the base tax. The base tax will be €81,018.95. After that, the tax will be multiplied by a factor of 1.588 = €126,658.09. In the last step, deductions are applied. In this example, there are no deductions. Your nephew will then pay €126,658.09 gift tax in Spain and also the plusvalia muncipal. You will possibly pay capital gains tax in addition.
Important: multiple donations within the three years are presumed to be one donation. As a result, the basic tax rate will be higher.
Consequences for Belgium?
When you donate foreign real estate, you do not pay gift tax on it in Belgium. You may even do yourself an favour: if you have property in Spain as well as in Belgium; it may be more interesting to donate your Spanish property first. After all, the accumulation effect in Flemish inheritance tax does not apply. Of course, you must first calculate the total cost. And this will largely depend on the Spanish autonomous region in which your property is located.
Gifting in Spain is a tax advantage only in some cases. Unlike gift tax, Spanish inheritance tax enjoys more exemptions or reductions. Sometimes inheriting is then simply more interesting, but often you also face the high inheritance tax in Belgium. This should be considered on a case-by-case basis.
Update June 2019: Thanks to recent legislative changes, gifting in Spain has become more attractive. For example, consider the gift tax reduction in Andalusia.