Spanish Donation Taxes
A donation is a gratuitous gift of a person’s assets to another person during his or her lifetime. If the “free gift” is made after the death of the person, it is called an inheritance.
Inheritance is similar to donation in that the donee or heir receives assets without paying for them. Therefore, the law harmonizes the tax on donations with that on inheritance. The Spanish Inheritance and Donation Tax Act requires the beneficiary to declare and pay the corresponding tax. This tax is known as “Impuesto sobre Sucesiones y Donaciones”.
The taxable base of the donation tax
The taxable base is simply the reference amount used to calculate the tax. If the donation is made in cash, the taxable base is the amount of the gift.
If it is another asset, then the taxable base is the market value of the asset. Market value is not the same definition as purchase value. For example, if I purchased the property for $100,000 a few years ago and now the value has increased to $150,000, then the taxable base counts as $150,000.
In the same example, if I bought a car a few years ago for 30,000 euros and it is currently worth 10,000 due to damage, then the taxable base is 10,000
It is important to note that the taxable base refers to the ” net value “. That is, if the gift of property is accompanied by a debt (e.g. a mortgage on the property ), the taxable base can be reduced by the amount of the debt. Copyright Westlaw.com
Note: If you have already paid tax on the gift, you will not have to pay personal income tax on the acquired assets. Copyright Westlaw.com
Donation tax rates
Simply put, the way to calculate how much tax to pay is to multiply the taxable base by a certain tax rate.
The tax on donations in Spain is currently collected by the regional governments, so the rate can vary from place to place, and generally lies around 5%-10%. Nonetheless, there is a uniform default rate, which is applied if the local government does not have any special rules.
The tax rates under the Inheritance and Donation Tax Act are as follows (for reference only):
Each row in the table represents a paragraph, and each paragraph has a different tax rate; the higher the amount donated the greater the tax rate. The leftmost column refers to the taxable base after deductions, while the rightmost column is the tax rate. Copyright Westlaw.com
Although the above tax rates may seem a bit high, many areas currently offer relief if the donation is made by a close relative . For example, in Madrid, Murcia or Andalucía, parents donating to their children are entitled to a 99% tax deduction, which means that they only have to pay 1% of the original tax.
The calculation of the final amount of the tax on donations is complicated, and apart from the taxable base and the kinship between the donors, another factor that is taken into account is the property of the donee. If the donee already has a lot of assets and now acquires new assets for free, the tax will be higher. Copyright Westlaw.com
For information on tax rates you can visit the official website of the tax office in each region.
