Inheritance only requires settling the inheritance and donations tax.
Author: Laura Moro
Source: 65YMAS.COM

Donating assets during one’s lifetime is an alternative to bequeathing them through inheritance. The Spanish Civil Code defines it as “an act of generosity whereby a person freely transfers ownership of an asset to another, who accepts it.” Many people prefer to donate some of their assets while still alive rather than waiting for them to pass to their heirs after death.

Reasons for this preference include the ability to provide financial help to family members when they need it most. Others simply want to avoid the complications sometimes caused by wills and inheritances among beneficiaries. By donating, one knows the applicable tax rules at the time of the donation, whereas inheritance taxation may change.

Naturally, the donor must retain the ability to make decisions and manage their assets.

When deciding whether to donate or bequeath assets, consider that while inheritance only requires settling inheritance and donations tax (and municipal capital gains tax for real estate), donations involve paying the following taxes:

1. Inheritance and Donations Tax
   This tax is managed by autonomous communities, each with its own regulations, so you should check in your region for possible exemptions, deductions, or bonuses. For example, in the Community of Madrid, if the recipient is a child, grandchild, spouse, or direct ascendant (parents, grandparents), the tax bonus can reach 99%. Generally, this tax must be paid and filed within 30 business days following the donation.

Whether you donate or inherit a property, you must pay the Property Transfer Tax (also known as Municipal Capital Gains Tax). Both heirs and donors are responsible for paying these taxes.

2. Personal Income Tax on Capital Gains
   The Spanish Tax Agency requires that the donor declare any potential capital gains accrued during the period of ownership if the value assigned by the corresponding autonomous community is higher than the acquisition value (which usually occurs). Being 65 years old is advantageous, as no capital gains are considered if the donated property is your primary residence.

Inheritance is exempt from this tax unless it involves income-generating assets such as rental properties or investment funds. In donations, the donor must declare the donation as a capital gain.

3. Municipal Capital Gains Tax for Real Estate
   This municipal tax arises from transferring real estate, based on its cadastral value and the number of years between the acquisition and donation of the property. The recipient of the donation is responsible for paying this tax.

You Can Set Conditions
If you decide to make a donation, you can impose certain conditions, such as establishing a usufruct right allowing you to continue living in your property until your death, even though you are no longer the legal owner. In this case, upon your death, your children will only need to pay tax on the value of the usufruct (based on the total value of the property at the time of donation, with the existing bonus).

In general, inheriting is cheaper from a fiscal and cost perspective compared to receiving assets as a donation. Additionally, it’s important to consider the differences between autonomous communities when paying inheritance and donations tax. Some regions offer reductions and bonuses based on the taxable base or the degree of kinship, making inheritance more advantageous.