Dear Solicitor. I would like to plan the future Inheritance Tax on my estate here in Spain, to be inherited by my family and see how I can save gift and inheritance tax in Spain. Is it possible to make multiple donations to my children before my death, transferring them in life, part of my assets to save on Inheritance Tax?, and if possible, what are the requisites for that?. M. S. (Javea)
Thank you for your inquiry.
First of all, you should know that in Spain the Inheritance Tax and Donations / Gift Tax are governed by the same laws and regulations.
Normally there is no substantial difference between your family inheriting or receiving a gift from you. But it is not always the case, and each case must be studied carefully, because sometimes some criteria such as the tax residence of the donor or donee, deceased and heirs, can determine the application of one tax law or another, making it advantageous to make a donation rather than an inheritance.
Secondly, it is true that the Inheritance and Gift tax is a gradual and progressive tax. In principle results in much less taxes, if the transfer of assets is made in several events and / or to multiple beneficiaries.
For example, roughly speaking, if you had two children and they were non tax residents in Spain, and at death you left them a Spanish estate with a value of 350,000 €, i.e. € 175,000 to each of them, each of them, as per the national inheritance tax scale, would need to pay approximately € 23,000 Spanish Inheritance Tax ( IHT).
But in principle, if you gift to them this same 175,000€, spread over 5 donations of 35,000€ each, they will pay approximately 1,570€ Gift Tax each time, a total of 7,850 € each child. A considerable saving, from 23,000€.
Mimise the tax.
But to minimise this tax effective tool, the Law 29/1987 of the Inheritance and Gift Tax, in its article 30 provides that:
Donations and gifts with the same donor and donee made within three years, will be considered as a single transmission for the purposes of determining the tax and it would be accumulated. And the same applies to successions and inheritance…for donations and gifts made less than four years before the death.
Therefore, if you want to donate or make some gifts to your relatives, they should not be done in periods less than 3 years between each gift, or less than 4 years before the time of death. Otherwise, not only will they be ineffective, but they may even be harmful from a tax point of view.
The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.
Carlos Baos (Lawyer)
Spanish Law firm solicitor attorney barrister.
Alicante, Denia, Costa Blanca Marina Alta
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