1) Act quickly to meet deadlines - with or without powers of attorney
Do you have deadlines that you need to meet, for example for tax matters or option contracts? Too few flights in winter, business appointments, or prevented from keeping local appointments? Not all family members are able to travel? We can help you with this - for example by organising notary appointments for you with the help of a notarial power of attorney. There must be some time to prepare for this. If there is particular urgency, we can act for you as an authorised, so-called ‘proxy without power of attorney’ with subsequent notarial approval in your home country and sign the purchase agreement at the notary and register your property.
In this case, there is no notarised power of attorney at the appointment. We will take care of the notarised drafts to be notarised in your home country or country of residence. You will receive these from us by e-mail. Your home country notary can then obtain the necessary apostille - an international supreme notarisation - from the relevant institution. Everything is then submitted to the land registry in Spain and you are registered. This mechanism works for purchases, anticipated inheritance or gifts.
2) Deadline extensions for inheritance taxes and inheritance settlements
In the case of inheritance in Spain, foreigners must also pay inheritance tax within six months of the date of death, or at least declare it. Even if there is no obligation to pay inheritance tax, a zero declaration must be submitted. This deadline can be extended upon request (you have to take action) or due to an official state of alarm (e.g. this was the case in times of coronavirus). Nevertheless, six months is often very short to obtain all the necessary papers, especially since home law and home bureaucracy as well as Spanish local law and Spanish bureaucracy often have to be considered in parallel. There is the option of having your lawyer apply for an extension of the deadline. If deadlines and procedures are tight, this must be done within five months of the date of death. This application cannot be repeated. Spain is stricter and less flexible in this respect than northern countries.
The payment deadlines then run for up to one year. However, if this deadline is missed, there is a risk of considerable late payment penalties. If necessary, we can apply for an extension and take care of the inheritance case here locally and for the whole of Spain in order to avoid these surcharges. If necessary, this can be done without your presence (see point 1).
With a skilful inheritance settlement, you can save a lot, for example if you as the heir intend to sell the inherited property at a later date or if several co-heirs have agreed among themselves who will receive the Spanish property without incurring property transfer tax for the transferee. A new feature is the now valid five-year speculation period for anticipated inheritances. It is important to have the right knowledge here, as well as to ensure that the inheritance is properly processed, accepted and inheritance tax paid (including valuation of the property if necessary). In the event that such a valuation is necessary, we can draw on valuable contacts in order to obtain a reliable valuation that is in line with your interests. The new reference values are sometimes not as helpful as initially thought, and a widow who inherits alone may also intend to transfer the property inheritance to the children as a compulsory portion payment. In this case, you only pay tax once, shortening the transfer process considerably and avoiding gift or property transfer tax.
3) Plan now for the generational change when buying or with ‘anticipated inheritances’
Prices rise and fall - everyone is familiar with this wave-like movement. This goes hand in hand with good times for liquid investors and ‘legally secure property purchases’. The market is currently rather balanced, partly because southwest Europe is in demand again due to Russia’s invasion of Ukraine. As inheritance taxes always fluctuate depending on the political colour of the government, a northern European company or the participation of children can be a solution for legally secure property acquisitions, so that they can be transferred to the next generation if the worst comes to the worst.
For owners of existing properties, the transfer of the family residence to the next generation will never again be as favourable as it is at present. For wealth tax payers with existing properties, the tax-free amount has now been raised from 700,000 euros to three million euros, which means that partial gifts and intra-family splits (through gifts of compulsory portions from parents to children) are now even more attractive and, if done skilfully, can be a way out of the obligation to pay wealth tax. Even a property worth 12 million could be owned 25% by one child and 25% by one parent and would then be exempt from wealth tax in the Balearic Islands. New purchasers should include the generational transfer in all these considerations before the notarised purchase date. For higher-value properties, a domestic company model or a family division model is still the best option. If you are looking to transfer your existing property to your children within the family and do not wish to sell, you can take advantage of the favourable times now.
It’s the ideal time, because inheritance taxes have theoretically even been abolished (and everything could change again with a future change of government), to transfer your holiday property in the Balearic Islands, Galicia and Catalonia to the next generation. However, you must bear in mind that in Germany, for instance, you can only transfer 400,000 euros free of gift tax every ten years (in other countries there are no such restrictions).
Lower values, and indeed the new reference values, mean that you have favourable transfer options in some cases. You have tax advantages through the so-called imputation method, which is based on intra-European principles. Double taxation, i.e. in both countries, would also contradict the purpose of the double taxation agreements. The taxes you pay in Spain are therefore credited in your home country - provided that there is any taxation there at all. If you take into account the five-year period for anticipated inheritances, it may also make sense to increase the ‘escritura value’ in order to avoid falling into the 19 per cent speculation tax trap in the event of a later sale.
Considering the newly introduced reference values, it is important to carefully examine what advantages can be realised within the family. New purchasers should consider before buying and seek competent advice on how to create favourable structures at the time of purchase, taking into account the issue of generational change, in order to save problems and money/gift tax later on and at the same time avoid wealth tax.
So if you and your family have an existing property in the Balearic Islands and would like to transfer it to the next generation, I recommend the combined so-called compulsory portion waiver gift in the event of a transfer. In the event of an acquisition, structures or co-ownership shares should be created in order to reduce or even avoid taxes, but this can be different in every family constellation and in every acquisition. Important: This option works in the case of acquisition throughout Spain and in the case of inheritance in the Balearic Islands, Galicia and Catalonia, but not in every Spanish province. There are other options there.
Recently, intra-family transfers through anticipated inheritance have been recognised by the highest Balearic court. The parents can (but do not have to) reserve a usufruct or right of residence. In return for the gift of the property, the children (or the child) then waive the compulsory portion (no waiver of inheritance!). For larger families in particular, in some cases a notarised inheritance contract (or a parent’s will) between the parents and children can provide lasting security, consistency and stability.
In this case - even though there was no death - inheritance tax is only applied due to European legal requirements; currently still at a rate of one per cent (0%) up to a value of 700,000 euros instead of the seven per cent gift tax. The supposed abolition of inheritance tax only applies if this ‘inheritance is made at the reference values’, which, however, has considerable speculation tax disadvantages (= tax trap) in the event of a resale. In this case, you can secure a legal discount of six or even seven per cent on tax and no speculation tax is payable, which would absurdly be the case with a pure gift. The following also applies: the lower the legally recognised values, the higher the savings can be. And - the lower the property value or price, the more you can take advantage of any gift tax allowances in your home country. On the other hand, higher values can offer enormous speculation tax advantages in the event of a later sale. In any case, it will never be cheaper than it is now.
All of this should be taken into account immediately when acquiring a property with legal certainty, because it will very likely be more expensive one day when inheritance occurs.
As always, the individual case and the specific circumstances and family wishes are decisive. This is because it is very likely that it will be more expensive one day when the inheritance occurs.
Address: Carrer de Catalunya 5, Palma
Email: info@stiff.es
Telephone: +34 971 228 140