Living donation or inheritance after death are the two ways in which it is possible to access a legacy in Spain. The Inheritance and Gift Tax is the tax that is accrued in both cases, although there are others, depending on the type of property received.
The option to choose depends on the autonomous community, the relationship, the place where the real estate is or the value of the inheritance. That is why it is convenient to evaluate both alternatives with an expert to know what may be of interest to achieve the most advantageous taxation.
The Spanish Civil Code defines living donation as an “act of generosity by which one person freely disposes of one thing in favor of another, who accepts it”. The inheritance is "the succession in all the property of the deceased and in all the rights and obligations of him that are not extinguished by death".
In summary, with the inheritance, the patrimony of the person who dies is distributed in favor of the heirs after his death. With the donation, the goods are transmitted from one person to another in life.
The donation can be reversible only if there is a contract involved, the conditions of the contract are breached or the donee commits a crime against the donor. The will can be modified as many times as you want, until the day of death. The version that will be valid when the time comes to read it before the notary will be the last one.
When considering how to carry out the acceptance of an inheritance, it is necessary to take into account that the donation in life is deducted from the part of the inheritance, with some exceptions, and cannot reduce the legal third part that corresponds to the legitimate.
There are specific patrimonial situations in which the advice of an expert is necessary to determine if a donation in life or an inheritance is better. For this, it is key to know, for example, the taxation to be taken into account when accepting an inheritance.
The donation in life favors direct aid, since the goods are delivered immediately. On the contrary, in the case of an inheritance, you have to wait for the death of the person and you have to comply with certain mandatory procedures and manage the necessary documentation to process an inheritance before the delivery of the assets.
As a general rule, donations have benefits on a personal level when the amount of money is very high, when there may be disputes between heirs, or when there are company shares in the assets. But what has to be donated is the surplus assets, not the personal assets, since once the donation is made, control over them is lost.
The Inheritance and Donation Tax is the tax that regulates inheritances and donations in life, which requires paying taxes to the Tax Agency and at the regional level depending on who transmits and who transmits. Each autonomous community regulates this process differently and applies different reductions, exemptions and bonuses.
If a property is donated or inherited, you must also pay the Tax on the Increase in Value of Urban Land, better known as the Municipal Capital Gains Tax. The payment of these taxes corresponds to the heirs and donees.
Regarding personal income tax, inheritances are exempt from this tax –unless the assets generate separate income, such as rent or an investment fund–; On the other hand, in donations, the donor will have to declare the donation as a capital gain.
From a tax and cost perspective in general, inheriting is cheaper for the person who receives the assets with the living donor. It is also necessary to take into account the differences between communities when paying the Inheritance and Donation Tax. There are communities that offer significant reductions and bonuses depending on the tax base or the degree of kinship at the time of inheriting, which makes inheriting more profitable.
