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Inheritance tax in Spain: Should you pass your property on to your children or sell it to them?

For older residents in Spain who don’t want the burden of owning a property anymore, deciding what to do with it can be a difficult decision to make. Here, we look at your options.

old couple with house
Image: Huskyherz/Pixabay

Your decision on whether to pass your home on to your children or sell it should depend on several factors, including the price of your home, the taxes you have to pay on it, and which region of Spain you live in.

Passing your home on to your children

If you decide to pass your home on to your children, you must still settle the corresponding capital gains on your income tax declaration (IRPF), similar to if you sold it.

This is because simply gifting your home to your children is still taxable, however, it will be you that will have the responsibility to pay the capital gains tax and not your children.

If you have made a profit from the difference between the acquisition value of the property and the value of the property at the time of passing it on to your children, you will be taxed at your personal income tax rate between 19 and 23 percent, depending on how much profit you earned.  

However, if no profit was gained and the current value of the property is less than the acquisition value, then this loss will not be included in your personal income tax.

You will also be responsible for paying the corresponding municipal tax. How much you owe for this will depend on the town hall in the area where you live.

Your children may not have to pay the capital gains tax on the property, but they will still be liable to pay inheritance tax or gift tax. How much they pay will depend on the value of the property and the region of Spain where it’s located.

Selling your home to your children

For parents, your tax obligations are the same as if you simply passed your home onto your children – you will still be liable to pay the capital gains tax through your IRPF and the municipal tax.

Those who decide to buy their parents’ house from them must pay a Property Transfer Tax (ITP). The amount of this tax also depends on which region of Spain you live in and can vary between 6 and 11 percent.

EXPLAINED: How choosing the right region in Spain can save you thousands in inheritance tax

Common pitfalls

If you decide to sell your home to your children, remember that there must be an exchange of money, otherwise, it will still be counted as a gift. Your children must still purchase the property from you in the form of savings, a mortgage or a personal loan. If found out and there wasn’t actually an exchange of money, you could be fined.

You are also not allowed to sell your home to your children for an abnormally low price. Every home has a minimum value for tax purposes.

This value is calculated by the autonomous community in which it’s located. In some regions, the cadastral value is taken for reference, but each region has its own way of calculating it.

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REVEALED: The cheapest most in-demand areas in Spain to buy a house

If you're considering making the move and buying property in Spain, but don't fancy purchasing in a rural village in the middle of nowhere, you should know where the cheapest, most in-demand parts of the country are.

REVEALED: The cheapest most in-demand areas in Spain to buy a house

If you’re thinking about relocating, Spain is a fantastic place to do it. Foreigners have been moving to Spain for decades, not only for its fantastic food and weather, along with a laid-back lifestyle, but housing is generally affordable – if you know where to look.

Though the rise in the Euribor has sent interest rates spiking, house prices in Spain are expected to flatten somewhat in 2023 and it could be a good year to find a bargain, depending on your financial situation.

Knowing what type of house you want and where in Spain you want to live is one thing, but knowing the cheapest, yet most in-demand parts of the country could really help you narrow down your search.

Fortunately, Spain’s leading property website Idealista has put together a list of the most ‘in demand’ municipalities of Spain and where you can find the most expensive and, more importantly for the house hunters among us, the cheapest municipalities of Spain to buy property.

It’s based on data from the last quarter of 2022 and is the average price of housing in towns with more than 1,300 sale announcements and costs valued at more than €1,100 per square metre. 

You can find the ten cheapest areas of Spain to buy property by average price below, but it’s worth noting that Idealista did these rankings by average price across the entire municipality, so there are likely individual towns and villages dotted around Spain where prices are significantly lower.

That said, this list gives you a good idea of the areas to look out for.

READ ALSO:  What will happen with property prices in Spain in 2023?

The 10 cheapest municipalities in Spain to buy property 

Santa Pola (Alicante) – Santa Pola, in the Alicante province, is the cheapest most in-demand municipality to buy a house, according to Idealista’s rankings. The average price for a house in Santa Pola costs just €151,796, though this may come as a surprise given its prime location in a foreign hotspot on the sought-after Costa Blanca. The main town of Santa Pola itself is a small beachfront community with a population of around 35,000. It also has a large foreign population and is a short drive or bus away from both Alicante and Elche.

Ourense (Galicia) – Next on the list is Ourense in Galicia where the average price is €154,941. The municipality is home to several towns and villages, surrounding the main medium-sized town of Ourense itself in southern Galicia. The town has a population of around 105,000 and is a little over an hour’s drive from both Santiago de Compostela and the coastal city of Pontevedra.

Oviedo (Asturias) – Third on the list is the municipality of Oviedo where you’ll pay an average of €154,968 for a property. Another area in northern Spain, the main city Oviedo itself, which is the capital of Asturias and has a population of 220,000. It sits between Cantabrian mountains and the Bay of Biscay. It’s known for its picturesque medieval old town and impressive architecture. 

Jerez de la Frontera (Cádiz) – Properties cost an average of €155,563 in the municipality of Jerez de la Frontera, or Jerez as it’s commonly referred to. It’s located in the Cádiz province of Andalusia and is a real piece of ‘traditional’ Spain. Jerez city is a decent-sized place with a little over 200,000 people and is known for horses, flamenco dancing and sherry, as well as the Alcázar de Jerez, an 11th-century fortress that harks back to Andalusia’s Moorish past.

READ ALSO: Is it better to buy or rent in Spain right now?

Torrevieja (Alicante) – Another municipality in Alicante and another incredibly popular with foreign homeowners. Properties here go for an average of €155,787. Torrevieja itself has a population of 82,000 and is another coastal town, but also has nature trails and salt plains nearby.

Murcia (Murcia) – Murcia is often overlooked, wedged between Alicante and Andalusia, but you could grab a bargain here with average prices of €157,119. Murcia capital is a bustling city of almost 450,000 people, and is strategically placed for trips to the Costa Blanca, Costa Calida, Costa del Sol, and Costa de Almeria.

Parla (Madrid) – The municipality of Parla lies just 20km south of Madrid and the town of the same name is home to 130,000 residents. It’s a great commuter area for those who work in Getafe or the capital. A house here costs an average of €160,652. 

Salamanca (Castilla y León) – The municipality of Salamanca surrounds the capital of Salamanca in Castilla y León in northwestern Spain. Buying a property in this area costs an average of €162,909. The main city of Salamanca is known for its university, which is the oldest in Spain and dates back to 1218. Understandably, much of Salamanca’s roughly 150,000 residents are students, which gives the town a lively atmosphere.

Burgos (Castilla y León) – Another northwestern Castilla y León municipality, is Burgos has around, where you can buy a house for just €163,164. The city of Burgos has around 180,000 inhabitants and is known for its medieval architecture and grand cathedral. 

Dos Hermanas (Sevilla) – The second most populous municipality in the province of Seville, properties cost an average of €163.274 here. The Andalusian town is just 15km south of Seville, making it great for commuters or those who want plenty of culture nearby.