There are many reasons that can lead a person to sell a property. Financial problems. Separation or divorce. Employment motives. Relocation to another country. And of course, also, having received the property as an inheritance. In this week’s article, we analyse the latter case. Main aspects that must be considered when buying from an heir.
Ownership in the Spanish Land Registry.
In Spain, when buying a property, it is essential to confirm that the seller is the owner in the Land Registry. When someone passes away, the change of ownership is not automatic. It is necessary for the heir to complete a series of steps and formalities in order to appear as the new owner in the Land Registry. Signing the deed of acceptance of inheritance before a Notary Public. Settling the Inheritance Tax and Plusvalía Tax. Etc.
Can a reservation/purchase contract be signed if the property is still in the name of the deceased?.
Yes, it is possible. But it is necessary to act with caution to avoid problems and unpleasant surprises. It is highly advisable to make the contract conditional to the registration of the inheritance deed in the Land Registry. It is also advisable to set a time limit for this to occur. So that, if any unforeseen circumstances arise (discussions between the heirs, they do not reach an agreement on the distribution of the assets, etc.) you can terminate the contract and recover your money.
What is the role of the Inheritance Tax paid by the vendors?.
When the Land Registry makes a change of ownership due to an inheritance, it automatically generates a “tax affectation” or “tax charge” on the property for 5 years. In other words, for 5 years the property will be liable for the Inheritance Tax declared by the heirs. This means that if you buy an inherited property and the vendor did not pay the Inheritance Tax correctly… the Spanish Tax Office could demand that you, as buyer of that property, pay the debt of the heir-seller.
The danger of the deduction for habitual residence.
In relation to the above, the reduction for the acquisition of the habitual residence of the deceased is of particular relevance. In the Valencian Region, heirs can deduct up to €150,000 as long as they do not sell the property within 5 years. What is so risky about this?. Let’s look at an example.
A non-resident British citizen inherits a property in Spain. When settling the Inheritance Tax, the deduction for the main residence of up to €150,000 is applied. After the inheritance (and although the rules do not allow it) the heir sells the property to a third party and returns to his country. As explained, this could turn into a big problem for the buyer. Due to the existence of a “tax affectation” to the property, the Tax Agency could demand that the buyer settles the Inheritance Tax incorrectly declared by the seller. And claim thousands of euros from him.
Conclusions.
At White Baos Lawyers we are experts in Inheritance Tax and Real Estate Law. If you are thinking of buying from an heir, do not hesitate to contact us. We will study your case and offer you expert legal advice on the subject.
The information provided in this article is not intended to be legal advice, but simply conveys information related to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
E-mail: info@white-baos.com
White & Baos 2024 – All Rights Reserved.
