Should you donate to your heirs now to avoid an increase in inheritance tax ?
Maura Hillen,MBE, Hillen Real Estate
The government of Spain needs to swell the public coffers as quickly as possible in the aftermath of the enormous economic effort made to contain the spread of the coronavirus, which has caused a hole in the nation’s accounts of 138,923 million euros. (Source: La Razon 18/05/2020).
It should therefore come as no surprise that the government is formulating plans to address this shortfall with increased taxes and it has already been made known that one of its planned targets is the Inheritance and Donations Tax (Impuesto de Sucesiones y Donaciones). Currently this tax is 100% in the hands of the regional governments but the central government of Pedro Sanchez wants to take control and set a “harmonized” tax rate for the entire country.
Given that the rate in regions such as Madrid, Andalusia, the Canaries or Cantabria is currently practically zero for direct family members, this plan is likely to represent a fiscal blow for residents of these regions.
What to do to protect yourself from this tax increase?
It is worth considering donating or gifting some or all of your assets to your immediate family before you die thus reducing the effect of any proposed change in inheritance tax rates. This option is particularly worth considering if the donor is over 65 years of age or if the donation is in the form of cash.
It should be noted that donations are also subject to taxes (IRFP and Plusvalia). Each case must be considered individually and expert professional advice must be taken before deciding which option is the best for you.
Should you decide to donate your property to your chosen heirs it is advisable to ensure that the terms of the donation include an agreement that you have a life interest in the property (usufructo vitalicio del inmueble). This clause allows you to live in, rent out or otherwise use the property for the rest of your life, though you will not be able to sell without the consent of the person you are gifting the property to. Again, the latter should be discussed with an expert in this field.
Should you require more information, please contact us at firstname.lastname@example.org so that we can point you in the right direction.