Those who inherit a property in Spain may think they are receiving a dream gift. But the reality may turn out differently. Both Spain and Belgium levy inheritance tax, which in some cases can mean that heirs are forced to sell the property. How exactly does this work? And how can you optimise inheritance tax?
Double Inheritance tax: Spain and Belgium
When a Belgian resident passes away and leaves real estate in Spain, the heirs must consider two tax systems:
1. Inheritance tax in Spain
Spain imposes inheritance tax on real estate located on its territory. The rates vary by autonomous region. Each of the seventeen regions determines not only the amount of inheritance tax but also any exemptions and their extent. As a result, inheritance tax can be significantly lower in some regions than in others. For example, Andalusia, Madrid, Valencia, the Canary Islands, and the Balearic Islands grant significant exemptions, whereas other regions, such as Murcia and Catalonia, may have higher rates.
2. Inheritance tax in Belgium
In Belgium, the worldwide assets of the deceased are taxed, including foreign real estate. This means that Spanish property is again subject to inheritance tax in Belgium. Fortunately, the inheritance tax paid in Spain can be deducted, but only up to the amount that would be due in Belgium on the same property.
How to optimize Inheritance tax?
Fortunately, there are ways to reduce tax burdens in regions with less favorable inheritance tax rates:
1. Gifting
- Donating real estate: In many Spanish regions, gift taxes are low, especially for direct heirs (children, grandchildren, spouse). In Andalusia, Murcia, and Valencia, exemptions of up to 99% exist, reducing the final gift tax to nearly zero.
- Beware of capital gains tax: Spain levies a 19% capital gains tax on the increase in property value upon donation. If the property has significantly appreciated since its purchase, this can be costly. Therefore, early gifting is advisable if you opt for this system.
2. Co-ownership at purchase
By making heirs co-owners at the time of purchase, only part of the property falls into the estate, significantly reducing inheritance tax.
3. Usufruct and bare ownership: be cautious
In Spain, upon the usufructuary’s death, the value of the usufruct is taxed. This differs from Belgium, where the bare owner automatically acquires full ownership without additional tax. This makes usufruct structuring less attractive in Spain compared to Belgium.
What If you reside in Spain?
If the deceased was officially domiciled in Spain, only Spanish inheritance tax applies. This can be beneficial in regions with low inheritance tax. However, Spanish gift and capital gains taxes may still apply.
Conclusion
Inheriting property in Spain can be a complex and costly process. The tax impact varies significantly by region, and Belgian inheritance tax can add to the burden. It is therefore crucial to plan ahead for succession, such as through gifts or co-ownership at purchase. These strategies help avoid unpleasant surprises and protect heirs from excessive taxation.
Do you have questions about inheritance tax on Spanish property? Contact us to develop the best strategy for your situation!