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Transmission of housing: by donation or inheritance?

Real Estate
Transmission of housing: by donation or inheritance?
What happens when we inherit a home?

When we inherit a property, the first thing we have to do is to value it, and normally who values it is the Treasury Department, in the Autonomous Community where the property is located. This organization gives us the fiscal value, and that is the value from which we have to settle the tax.
What tax must be paid if a property is inherited?

The Inheritance Tax must be paid. It is a progressive tax, so that the more value the property has, the greater the amount we have to pay, however, when what we inherit is the habitual residence of the deceased there are very important reductions that make the taxation lower.

We must not forget that the tax liquidation is carried out according to all the assets that the deceased had at the time of death, so if there are more assets than the house, they must be added together to make the liquidation.

What happens if we receive a house as a donation?

From the law firm we advise you to go to the notary, make a deed of donation, and then pay the tax. To pay the tax we will have 30 working days, and then we will register it in the Land Registry. It should be taken into account that from a civil point of view, a public deed is required for the donation of property to be valid. 

Depending on the Autonomous Community in question, when a property is sold, there are allowances or reductions for the recipient, i.e. the donor, i.e. the person who transfers the property, must declare the increase experienced with this operation in his income tax return.
Is the donation of property taxed with the same taxes as inheritance? 

In most of the Autonomous Communities the scales for succession and for donation are the same, but in general it is more favourable for tax purposes that the transfer is made by inheritance, that is to say by Succession, since the reductions, bonuses and deductions are usually higher and above all because sometimes in the case of donations they do not even exist.

The cost of a donation depends on the value of the property donated, the general scale of the tax ranges from 7.65% to 34%, but the reductions of the Autonomous Region in which the property is located, the possible bonuses, and above all the degree of kinship between donor and recipient must be taken into account.

To the fiscal cost it will be necessary to add necessarily that of the Notary since as we have indicated the donation of real estate in order to be valid it will have to appear in Public Deed. 

What is inheritance tax?

The Inheritance Tax is a state tax, but it is transferred to the Autonomous Communities, which means that each one of them establishes its own regulations in this respect. There is no doubt that at present Madrid, or the Canary Islands, are among the Autonomous Communities that offer the most tax benefits.

Is it possible to buy and sell between parents and children in order to transfer the property? 

Between parents and children it is possible to carry out a transaction to transmit a property, it is only necessary to go to a notary, to carry out a deed of sale and to pay the corresponding tax that will be the one of Patrimonial Transmissions (if it is a second transmission), but we must not forget that the transaction demands monetary consideration in exchange, this means that the delivery of the money to the father must exist, because if we would not be before a donation, that is the difference between donating and selling, if there is sale there is money in exchange, and the value that has to be assigned to the property is at least the fiscal value.

Also, from the civil point of view, we want to emphasize the importance that the sale of a house from parents to children is made at market price, not only to avoid problems with the AEAT, but also to avoid them in the future among the heirs, because if the operation is made for a very low price, it could be understood a hidden donation and the rest of the children ask that it is brought up in the inheritance so that they are not harmed. 

Which is better, to donate or receive an inheritance?

One should not generalize, and from the office https://www.forcamabogados.com/ we consider that each case must be studied in a concrete way and see which is the best fiscal option, but if we generalize we would choose to transmit the property by inheritance, since within the Inheritance Tax there are usually more bonuses for inheritance than for donations. And if we wait for the death, the transferor does not have to pay any amount for income tax.

Contact us, and our lawyers specializing in home buying and selling will study your specific case. We are a law firm that works with national and international clients, and we offer the best legal advice both in person at our offices and from a distance via online (videoconference, etc.).

At Forcam Lawyers we have:

Law firm in Barcelona
Law firm in Madrid
Law firm in Reus