Inheritance or Donation of a House: Which is Better?

Source: lainformacion.com

Real estate is one of the most commonly inherited assets. Purchasing a home represents an investment that, if no complications arise, will benefit not only the buyer but also their descendants. In many cases, buying a house means buying a home for the entire family, both present and future.

Therefore, when the time comes to decide on the best way to transfer ownership of such a property, it is natural to consider various options in order to choose the most convenient one, both for ourselves and for those who will receive the property as owners.

Advantages of Donating a House in Life

Donations in life allow the transfer of assets at any time, facilitating this transmission in situations where the recipient of the donation is going through a difficult time. In addition, different requirements or observations can be established in the donation, such as transferring ownership of the property, but the donor continues to enjoy its usufruct for a certain time.

Opting for donation allows for the distribution of assets, avoiding subsequent problems with inheritances and testament readings. Additionally, using a donation reversion pact, it is possible to recover the donated property.

The main disadvantage is that in a donation, both the person who donates and the person who receives the donated asset pays taxes, so it is paid twice. However, this mechanism is more favorable in the taxation of the recipient than of the donor.

Advantages of Leaving a House as Inheritance

The main advantage of inheritance is that, obviously, only the person who inherits pays taxes, not the person who writes the will, so taxation affects fewer people. In addition, depending on the autonomous community, the heirs may enjoy certain reductions in the taxes to be paid and, obviously, the person who leaves the property as inheritance does not worry about anything else but writing the will and, sometimes, not even that.

On the other hand, the main disadvantage is mainly that: until the owner of the property dies, it cannot be enjoyed and that, as in so many cases, there may be problems in the distribution of the inheritance.

What Taxes are Paid on Donations and Inheritances?

In both cases, taxes must be paid, starting with the Inheritance and Donations Tax. Since last year, the taxable base for calculating how much must be paid is the cadastral reference value. The percentage is estimated according to the degree of consanguinity in donations and is progressive in both cases. Likewise, in both cases, the municipal capital gains tax on the property will have to be paid.

Depending on the community of residence or location of the property, it is possible to enjoy a series of exemptions from the payment of the Inheritance and Donations Tax, so it will be necessary to study in each particular case what is most convenient for us at a fiscal level and what type of benefits we can take advantage of, since many depend not only on the degree of family relationship between the person who gives or leaves an inheritance and the recipient, but also on the amount inherited or donated.

On the other hand, in the case of opting for donation, the person who makes it, that is, the donor, will have to declare in the IRPF and reflect in the income tax return the amount of this donation. This step is only mandatory for donations, not for inheritances.

Choosing between Inheritance and Donation

The decision of whether to leave a house as inheritance or donate it in life depends on various factors, including individual preferences, financial circumstances, family dynamics, and tax implications. It is crucial to carefully weigh the advantages and disadvantages of each option and consult with legal and financial professionals to make an informed decision that aligns with long-term goals and objectives.

Additional Notes:

• The text mentions that the taxable base for calculating the Inheritance and Donations Tax is the cadastral reference value. This is a value assigned to each property by the Spanish government for tax purposes.
• The text also mentions that the percentage of the Inheritance and Donations Tax is progressive. This means that the higher the value of the inherited or donated property, the higher the tax rate will be.
• The text mentions that there are exemptions from the Inheritance and Donations Tax. These exemptions vary depending on the autonomous community where the property is located.