Podcast - Donating your house in Spain: a smart move?

Is it a good idea to gift your Spanish holiday home to your children during your lifetime? An-Sofie and Glenn discuss the tax advantages, pros and cons of gifting your house in Spain and offer a practical roadmap for those considering this "smart move".

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Part 1: Why should you gift your Spanish property?

• Avoiding high inheritance tax: By donating, you remove the property from your estate. This can save your heirs a considerable sum in inheritance tax, both in Belgium (progressive rates up to 27% in direct line and 55% in lateral line) and in Spain.

• Keeping family peace and planning: A gift allows you to proactively distribute your assets. You can gift the property to the child with a connection to it and compensate the other children with a similar value (e.g. cash or securities). This avoids discussions and undistribution after your death.

• • Tip: Also listen to the episode on succession planning to avoid family conflicts.

Part 2: The Taxes: Spain vs Belgium

When making a gift of Spanish property, you need to consider three possible Spanish taxes:

1. Plusvalía Municipal (Municipal Capital Gains Tax):
   • Who pays? The recipient (donee).
   • What is it? A tax on the increase in value of urban land since the last transaction. The calculation depends on the cadastral value and duration of possession.
2. National Capital Gains Tax:
   • Who pays? The donor.
   • What is it? This is often the highest cost. The Spanish tax authorities consider the gift to be a fictitious sale. You pay as a non-resident 19% load on capital gains (difference between current fair value and original purchase price).
   • Important: You pay this tax even if you do not receive any money for the gift. The value is determined using a tax reference value.
3. Impuesto de Donaciones (Gift tax):
   • Who pays? The recipient (donee).
   • The good news: Many regions (such as Andalusia and Valencia) have very high exemptions for donations in the direct line (parents/children), often reducing this tax to zero.

And in Belgium?

• The donation of a foreign property does not have to be made in Belgium not to register and there is thus no Belgian gift tax lifted.

Part 3: Alternative constructions and disadvantages

• Gift with reservation of usufruct: A popular technique whereby you donate the "bare ownership" but retain "usufruct" yourself. This means you can continue to live in the property or rent it out and keep the rental income.
• Disadvantages and concerns:
  • In Spain: given is given. Conditions such as a right of return on pre-decease of the recipient are not possible.
  • You lose control of the property.
  • Gifting to minor children is discouraged.

Part 4: Practical Roadmap & Costs

1. Taking advice: First, analyse whether gifting is the right choice for your specific family and financial situation.
2. Valuation: Determine the tax reference value to calculate taxes correctly.
3. Documentation: Arrange a notarised power of attorney and get the necessary NIE numbers.
4. Spanish Notary: Signing of gift deed.
5. Paying taxes: Declaration and payment of Plusvalía, capital gains tax and any gift tax.
6. Registration: Registration of the new owner in the Spanish property register.

Calculation example: Inheritance vs. gifting The podcast concludes with a clear calculation example for a €200,000 home:

• Total cost on inheritance: About €60.500 (mainly due to the high Flemish inheritance tax).
• Total cost when gifted (with usufruct): About €10.650 (mainly Spanish capital gains tax and administrative costs).

The conclusion is clear: gifting is a very cost-effective solution in many cases, but keep in mind the family situation.

Want to know more about donating your house in Spain?

After listening to this episode, do you have any questions about your personal situation? If so, please contact with the experts at Confianz.