Gifting real estate in Spain

Which Law Applies?

In the case of a gift given during the donor’s lifetime, the Rome-I Regulation allows the parties involved to freely choose the applicable law. However, for gifts involving real estate located in Spain, Spanish law or the law of the autonomous regions in Spain necessarily apply.

What Constitutes a Gift Under Spanish Law?

Under Spanish law, a gift occurs when a person transfers an asset or property to another person freely without any return considerations, which the recipient accepts, resulting in an increase in wealth for the recipient.

What Must a Gift Contract Contain?

A gift contract must specify both the donor and the beneficiary. It must also clearly identify the item to be gifted. If these minimum requirements are not met, the general legal provisions on gifts apply. The parties may also agree on the following terms:

• Reservation of a Lifelong Usufruct or Right of Residence
• A Right of Revocation
• Specific Conditions
• Specific Obligations

What is the Rate of Gift Tax in Spain?

Spanish gift tax rates range from 7.65% and increase progressively up to 34%, depending on the value of the gift (the so-called tax base).

What are the Exemptions for Gifts?

The exemptions depend on the relationship of the beneficiary to the donor and are divided into four groups, with Group 4 having no entitlement to any exemptions. Please note that there are special regulations regarding exemptions on the Balearic Islands and the Canary Islands.

• Tax Group 1: Children, adopted children, and grandchildren under 21 years old
• Tax Group 2: Children, adopted children, and grandchildren over 21 years old, spouses, or partners in a civil partnership
• Tax Group 3: Second- and third-degree relations according to the collateral line and descendants by marriage
• Tax Group 4: Persons with no familial relationship to the donor

Agreement on Usufruct or Right of Residence

A reservation of a lifelong usufruct or a right of residence may be advisable, as the worth of the acquirer’s enrichment would thus be reduced, and, as a result, a reduction in gift tax would be possible. However, upon the death of the usufructuary, the taxation base will be revised in accordance with the actual residual value of the usufruct on the date of death. In this case, the residual value of the usufruct may be taxed retrospectively.

What Additional Taxes Must the Recipient of a Gift in the form of Real Estate Pay?

In addition to the gift tax, the recipient must also pay the municipal value increase tax. As the name suggests, Spanish municipalities have the right to impose a tax on urban properties if those have gained in value. An increase in value must have occurred between the time the donor acquired the property and the time it is transferred to the beneficiary. Municipalities are largely free to set the rates. The value increase will be determined to lie between 2.7% to 3.7%. Depending on the size of the respective municipality, it can then levy a tax ranging between 16% and 30% on this increase.

What Taxes Must the Donor Pay When Gifting Real Estate?

When gifting real estate, the donor must declare this transaction in their income tax return in Spain and, if applicable, pay capital gains tax on the increase in value between the time of acquisition and the transfer to the beneficiary.

How Are Properties Appraised?

The recipient must declare the market value of the property in the gift tax declaration, which is the value that could be obtained in a potential sale. However, since no purchase price is paid in the case of a gift, the reference value is determined according to the law on the cadastre.

Can German Gift Tax Also Apply to a Gift in Spain?

If the donor or the donee reside in Germany, German gift tax will generally also be due. It is possible to avoid double taxation in whole or in part by offsetting the Spanish gift tax against the German gift tax. Tax credit in Germany is only granted in the case of unlimited gift tax liability in Germany.

Att. Prof. (GTU / Georgien) Dr. phil. Stephan J. Lang