estate planning assets checklist spanish

Of course, the funds for the transaction cannot be provided by one family member to another within Spain, otherwise that would be a taxable lifetime gift of the money!Īny such transaction has to be extremely carefully orchestrated, to be legally and fiscally compliant. The property could not be sold at an undervalue and the Authorising Notary would actually need to see evidence of funds passing between the buyer and the seller. However, this type of transaction would inevitably be carefully scrutinized by the Spanish Tax Authority, to ensure that the sale is not a sham, simply to reduce the taxation basis from lifetime donation down to the sale taxation level. As would be the case with a UK asset which is gifted, but then still used by the donor, the continued use of the asset needs to very carefully documented and financially accounted for, to avoid the gift failing for UK IHT purposes and the asset therefore not (fiscally) leaving the donor’s estate.Ī change of property ownership in Spain can be effected by way of a sale between family members rather than a gift- as often, the rate of tax on a sale is less than the rate of tax on a lifetime gift. It can be better in that case, for the next generation to ‘enjoy’ the uplift in value, rather than storing up an ever-increasing Spanish Succession Tax liability in the original owner’s hands.įurther on the Potentially Exempt Transfer point- whilst a UK tax payer making a gift of their Spanish property within the family could constitute a Potentially Exempt Transfer- so over time, it comes out of the worldwide taxable estate for UK IHT purposes- one would need carefully to consider the fiscal consequences of the donor failing to survive the qualifying period to achieve the maximum UK IHT benefit.Īlso for UK nationals considering making a lifetime gift of a Spanish property within the family, UK ‘gift with reservation’ considerations need to be addressed and factored into the arrangements for any continued use of the Spanish property by the donor. There can, of course, be situations in which the Spanish lifetime gift tax does not counteract the fiscal wisdom of a lifetime transfer- for example, if in overall (worldwide) estate planning terms, it is still advantageous to pass the Spanish property down a generation (or two) or if a Spanish property can currently be transferred at a low value- so a relatively low tax amount- when a future increase in value is anticipated. (This is therefore entirely different in concept to a Potentially Exempt Transfer under the UK IHT regime). In other words, the Spanish lifetime gift tax has a similar- or higher- impact on the recipient than if they were to inherit the asset. There is a Spanish taxation liability for recipients of gifts of Spanish assets, the calculation of which is broadly similar to Spanish Succession Tax, (but without all the regional allowances and deductions). Spanish taxation on recipients of Spanish gifts This is logical in theory but other than the obvious practical considerations (the assumed continued solvency/ marital situation of the recipients and assumed continued harmony within the family), there are important additional considerations which need to be borne in mind. So, it seems logical that the ownership should be ‘passed down’ within the family, to reduce estate size/ future tax liability- but without any loss of income (and still with the possibility of the continued occasional use of the property by the transferor). The Spanish property is usually non-income producing (particularly in the light of recently introduced increased bureaucratic requirements for short term lettings in Spain). In terms of estate planning then, the Spanish property starts to become more of a liability than an asset- particularly in terms of potential future inheritance tax liability. But meanwhile, their children/ grandchildren are very happily ‘taking over the reins’! At the outset of many estate planning cases which involve Spanish assets, advice is required as to the options for ownership changes within the family.Ī typical scenario is: a married couple, who have owned their Spanish holiday home for many years, but health/ mobility issues as they have got older, mean that their use of the holiday home is on the decline.

Estate planning assets checklist spanish