After years giving advice to foreign residents with property in Spain, we can offer our experience to those with a little forethought who want to save their loved ones a lot of problems and, above all, a lot of money, by planning the inheritance. A good tax planning can significantly reduce expenses and taxes payable by the heirs. This is true in all cases, but especially when dealing with a legacy of non-residents, that is, assets in Spain who are or have to be registered to the name of people without tax residence.
If you have property in Spain (real estate or personal property, such as deposits in banks or cars) you must expect that your descendants or the people you have appointed in a will as heirs, will have to arrange various legalizations after your death to officially become ownerships of the inherited assets (so that the heirs of these estates can actually take profit of them, that is, sell them or obtain a mortgage). Each of these instruments is taxed. If we want to avoid problems to our heirs, we can plan a few things so that our heirs can simplify everything at the moment of the acceptance of inheritance.
A possibility is to try to transfer the property during our life to save taxes: but we must be sure which taxes are also to be paid in the case of a free transfer or a donation of real estate, to avoid that this transfer of ownership in lifetime does result more expensive than the acceptance of inheritance in case of death. In a purchase contract, there is another tax, but it can have also as a result a very significant amount. As a rule, in case of non-residents who have purchased the property many years ago, the sales tax can be cheaper than the gift or inheritance, but each case must be examined separately.
For non-residents it is a typical procedure to pass the net property to the younger during the life of the older ones. We recommend to formalize a transfer of bare ownership, because despite the age of the parents it is a bit cheaper anyway than to sell the whole property (nuda proprietas or bare ownership plus usufruct) and much cheaper than a gift or an inheritance of the object (pay attention: we are talking exclusively about non-resident: for the resident, thanks to the recent tax reforms, the inheritance is seen as the best mode of transmission as a rule). If we formalize a sale of the bare ownership to the eventual heir, the taxable return for the transfer (that means the purchase price declared in the deed), is the value of this bare ownership, actually the result of the full value of the property minus the value of the usufruct, because the older ones just maintain this usufruct on and what the purchaser gets then is only the bare ownership (ownership without usufruct). We save taxes because the value of the usufruct is deducted, although this value is usually very low due to the age. The usufruct, which is not transferred in this moment, can be deleted after the death of the parents without tax costs.
In any case, it is highly recommended to get advice from a lawyer, as only he can provide proper advice and legal assistance when translating the will of the parties in the legal and technical language, formalizing the definitive agreements, preparing the deed of the notary and foreseeing the fiscal implications of the business. We want to reiterate that the role of lawyer and notary in Spain is totally disconnected (unlike in other countries). Here in Spain, the notary must never represent the interests of a party, even consultation is not allowed. He is only one official, who certifies the businesses that are already negotiated, accepted and formalized and who controls that all required taxes are properly paid by the parties. For this very reason, the involvement of a lawyer is so important, because he represents only your interests and gives you independent advice.
Carlos Prieto Cid, Lawyer
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