I am a British resident and I own Spanish property. Should I gift it to my children during my lifetime?

Filed under : Tax Planning - Inheritance

If you gift Spanish property to your children then there are various things that one needs to think about.

What tax you will pay tends to be at the top of one´s list.

As a Spanish non tax resident, regardless of whether you sell or gift your property, you will need to account for 19% Spanish capital gains tax (“CGT”). A capital gain is calculated by taking the sale price and deducting the purchase price and related fees and costs.

In addition to the 19% CGT, one needs to pay plusvalía. Plusvalía is essentially a municipal CGT.

If you gift your property during your lifetime, you will also need to account for lifetime inheritance tax (“IHT”) in Spain, often referred to as a “donación” in Spanish. This is generally very low in Andalucía as there is a 99% exemption when gifting to children. In the Canary Islands a 99.9% allowance is applied to the children up to a tax of 55,000 Euros and then reduced allowances are applicable to the amount of the tax to be paid as from 55,000 Euros.

This is only part of the picture for British residents in that British residents need to also consider their potential obligations and tax liabilities in the UK.

UK CGT is ordinarily charged at either 18% or 28% on second residential property, depending on whether the person is a basic or a higher rate income tax payer.  An individual will normally be given credit for the capital gains tax paid in Spain to avoid double taxation.

One would not have to pay any lifetime inheritance tax in the UK and this would be what is referred to as a ”PET”, a Potentially Exempt Transfer. Provided that you lived for 7 years after the gift it would not fall into your estate for the purposes of calculating UK IHT.

With property values continuing to rise there is an increasing number of people who need to think about IHT. UK IHT at death, above applicable exemptions, is charged at 40% and 36%.

Each individual’s circumstances are different and for a confidential consultation tailored to your situation please contact me. Sam Baker, De Cotta Law [email protected] +34 952 527014.

For a consultation and advice in the Canary Islands contact Vera Liprandi on [email protected] or call on +34 922 719520.