Every year, thousands of parents see how their children have difficulties accessing housing, while they have a second residencean empty apartment or some savings that could help them with. How could they help their children without the tax bill skyrocketing?
Aitor Fernandez and Alina Dragostax advisors TaxDownhave been solving these doubts for Spanish families for years. His advice, after reviewing hundreds of real cases in his office, leaves no room for doubt: “Inheriting a home is usually better than receiving it while alive.”
The “surplus value of the dead”. The main argument of tax advisors is that when someone dies and their house passes to their heirs, the capital gain that the property has carried since it was purchased suddenly disappears for the Treasury. This is what is known as the “dead man’s capital gains“. That difference between the original purchase price and the current value of the property is excluded from taxation by law.
Obviously, the deceased does not have to declare this increase in assets as would happen if he or she sold or donated the same property while alive. Since the heirs barely pay Inheritance tax Because they are subsidized between parents and children, this revaluation is almost tax-free.
The donation generates personal income tax for the parents. With the donation of that same property during life, the tax landscape changes completely. The property comes out of the parents’ estate and, for all purposes, the Treasury treats it as if it had been sold. If the home is worth more today than when it was purchased, you must declare that difference in your income tax return. And that quote is unavoidable even when, being a donation, nothing has been charged in exchange.
As Dragos highlighted: “The donation of housing is always more burdensome than the donation of money. Many times it is an apartment bought decades ago and the parents do not bear the (fiscal) bill that arrives later.”
Donate while you are alive: it depends. Despite everything, donating doesn’t always go wrong. Tax experts assure that “if the donation is cash, the father can save on personal income tax.” Communities like Madrid exempt up to 250,000 euros when the purpose of the donation is to buy the child’s habitual residence. Extremadura has a similar advantage for average income.
Both Fernández and Dragos emphasize that the donation route also compensates when the parents themselves are over 65 years of age and donate their home to their children. The law exempts the gain in the transfer of assets of that home from that age onwards.
Of course, everything must be documented before a notary and with notification to the Treasury, even if the settlement is zero euros. Fernández remembers that the most expensive mistake continues to be “not documenting” anything. Treasury monitors especially closely the hidden donations.
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Image | Unsplash (Jakub Zerdzicki)
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