We recently had a case where a gentleman came to us for assistance with completing an inheritance from his wife to him after she had passed away in Spain whereby there was just a bank account.
When I asked him if his wife had any other assets in Spain to take into consideration, such as a property in her name or in joint names he said no because I was advised, well pressed, into her gifting her half of the property to me before she died. Now I realise that this was not the best thing to do. Unfortunately it was not.
We are writing this article partially as warning to be careful when someone is very ill not to feel panicked into taking action without being very sure it is the right course of action and so that you are aware what not to do.
In the Valencian community where we are based, and which is a very large community of Spain, there is a fairly generous tax-free allowance for spouses of 100,000€ for inheritance plus additional allowances when you are resident at the moment.
This means that if you are married and leaving your assets in Spain to your husband or wife it is very unlikely that there will be a shock regarding inheritance tax.
However, and this is very important, there is NO allowance at all in making a lifetime gift (or transferring assets) when you are alive to a spouse in this region. This man,when they arranged for the transfer of his wife´s half of the property in Spain to him when she was ill, had to pay a substantial amount of donation tax, which would not have been incurred if matters had taken their natural course and the transfer had been done as an inheritance or probate after she died.
Please note that there are many things to put in order when you are aware that one of you is very ill (making Spanish Wills is a good idea, making sure that all important documents such as deeds,
NIEs, SUMA/IBI bills, passports, Wills, can be easily located), but transferring property ownership by a gift to a spouse is not one of them. It is a grave error and waste of money and our gentleman received very poor legal advice.
This leads me onto two other important points:-
1) Please be aware that in Spain ownership of a property is not automatically passed to a spouse on death when it is jointly owned.
We have written another article on this
https://www.spanishsolutions.net/blog/legal-issues-in-spain/explanation-of-types-of-ownership-in-spain/ .
Therefore when joint assets are owned a probate process has to be done and assets transferred
via a deed at the Notary and if a property, the Land Registry. For the joint account in the bank, our gentleman has to do a Spanish probate to prove to the bank that he is the heir.
It is just different (and more burdensome) than the UK and Ireland, but unfortunately that is the way it is. If there are assets, after death a probate has to be done to transfer them tothe next of kin.
2) When should a lifetime gift or donation of property be made?
In the past two years we have been very busy with donations in this region. As each child (children of the property owners but adults) gets a 100,000€ tax free allowance at the present time, this generally means that a property can be passed onto the next generation with little or usually no inheritance tax. You cannot get better ever than no inheritance tax!
Thus it has led to a lot of people thinking we will pass on the property into our childrens’ names now, with minimal expense (there are still going to be notary fees, land registry fees, solicitor fees and some other ad-hoc expenses but there will always be these with a donation or lifetime gift, or in the future with an inheritance/probate).
3) Isn’t there a way of transferring ownership of half of our jointly owned property to one of us, not because one of us is ill, but becuase of another reason, such as divorce in a less expensive manner than one of us buying the other out?
In Spain, transfer tax on buying a property or share of a property is fairly high, and fortunately in changes of ownership such as when a couple are divorcing or two business partners are going separate ways there is a method of division of property ownership whereby only stamp duty and expenses are paid.
Stamp duty in the Valencian region is currently 1.5% on the tax value of the property; transfer tax
on a property is 10%, so you can see there is a considerable saving. If two or more people do not want to be owners (as long as a sole owner is left),this is a very good way to alter the ownership of a property.
In Summary
When someone is ill is not a time to take immediate action without double-checking any advice but bear in mind that after a spouse passes away if they have assets in Spain a probate will need to be done
and any inheritance tax paid within six months. It is therefore best to contact a solicitor fairly quickly after a death.
Secondly, now is a very good time in the Valencian region to consider donating a property to your adult children. We are happy to calculate the costs and explain the benefits and any drawbacks to
someone free of charge.
Thirdly, the division of a joint ownership arrangement exists as no one should have to be joint owners of a property if they do not want to be and there are other alternatives to a sale. Again, we are willing to calculate costs and help anyone in this respect or any other issues with regard to property ownership.
16 Comments
mark uttley
Hi
My parents have owned a property in Spain for 5 years and sadly my father has just died.
My mother wants to keep the property. Is there anything she needs to do