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

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

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 (IRFP), 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 IRFP 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 area of Spain you live in and can vary between 6-11 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.

Properties in Spain

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