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When to Gift Spanish Properties to Children

Spanish Wills &Estate PlanningPosted by Andrew Thu, February 02, 2017 15:13:23

It occurs to many existing owners of Spanish properties that transferring their properties into their children’s names could provide future inheritance tax savings.

Unfortunately, once the Spanish property has been purchased and registered in the parents’ names, it is often too late in economic terms, to achieve this.

For non- Spanish nationals, the tax consequences of passing a Spanish property down to the children need to be extremely carefully considered- both in Spain and also in their own country.

In Spain, a lifetime gift is subject to taxation at a level which is, in many cases, even higher than the tax payable in the event of a parent’s death. As an alternative to a gift, a sale/purchase between parents and children can result in a lower tax liability; but the transaction has to be meticulously executed to avoid it being treated by the Spanish Tax Authority as a gift in any event; and therefore taxed at the higher rate.

There does exist in certain circumstances, however, a further alternative option- the property ownership structure can be collapsed, to reduce the number of co-owners in a comparatively tax efficient manner. But this only enables transfers to other co-owners. For example, a transfer can be made from one co-owning spouse to another; or (if children are already registered co-owners of the property), in favour of children.

So, for families to avoid being ‘locked in’ to a Spanish property ownership structure which stores up unnecessarily onerous tax liabilities in the long term, careful thought needs to be given at the outset- when the property is first purchased- as to the most efficient holding structure.

But (as an example of the complexities which can arise) even for English buyers of Spanish properties, it is not simply a case of ‘buying in the children’s name’. There are also UK taxation ‘gift with reservation’ issues which need to be addressed. If the parents pay for the Spanish property, then register it in the children’s name but continue to use the property themselves, they then need to pay (and carefully document) an appropriate rent or contribution towards outgoings. Failing that, the gift of the money to buy the Spanish property could end up not leaving the parents’ UK IHT estate.

In summary therefore, when acting for clients on the acquisition of Spanish properties, it is essential that the legal adviser provides full advice both under Spanish tax law and also having regard to the buyer’s own national tax law, as to the most efficient way to hold the Spanish property. This enables the buyer to secure the best overall tax position; and to ‘keep their options open’ as regards future tax and estate planning within the family.