What to do about house?
 

Hi. My mum, who is 88, owns a small house in Spain. She has made a Spanish will, leaving the house to me, her only child. The house is worth about 90 000 euros. Would she be better to give it to me now while she is alive or to leave it to me? At present she pays bills, etc but I worry what may happen if she is no longer able to do that - would it be easier and / or finacially advantageous fro us to own it? If so do we just go to a solicitor?
Thanks.

Re: What to do about house?
 

Firstly, I think there are some basic questions;

• are you Spanish resident?
• do you have an NIE?
• do you live in Spain?

If you've answered no to those then it may be prudent to get an NIE now.

If the house is transferred now, then I think you will incur a 7% transfer tax but may well then not have to pay succession tax.

I think the best course of action (in my opinion) would be to seek legal advice in Spain.

You may also find that you may have to pay IHT in UK as well as succession tax here. [I think I'm leaning towards transferring it now.]

Re: What to do about house?
 

It could be worse than that!

It may be treated as a gift and also taxed immediately at the same rate as if it was an inheritance. In this case, a non resident would have to pay up to about €8000. In the UK you can make a gift tax free so long as the donor lives for another 7 years - not so in Spain.


As Snikpoh said - get some good advice from a Spanish lawyer as there are some regional differences in the law.

Re: What to do about house?
 

If you are in the UK, and pay tax in the UK, and if the Spanish inheritance was taxed under UK law, then transferring it is a good idea.

HOWEVER. It is important that you get professional advice. If your mother gives it to you, then she must have absolutely no 'interest' in it, ie can't live in it, and, in addition there might be problems if she used it as a holiday home.

There are other methods, such as becoming a tenant in common, which is what we did with my mother's house when we lived with her prior to her death. Both my wife and I had a third value in the house, so that only one third of it was liable to death duty, and that at a reduced value, because who would buy a third of a property?

You don't have to solve all of the problem, just enough to get it under the limit.

owever, my advice is a decade out of date, so it really is important to get up to date pro advice.

Deal with this asap, as sometimes it needs to be done 7 years before death.

Re: What to do about house?
 

Where you live or pay tax is more or less irrelevant. Gift tax and inheritance tax (it's the same tax) is always paid in Spain on Spanish assets.

If the inheritance or gift is also liable to tax in the UK then any tax paid in Spain may be offset against any UK tax but the Spanish taxman has first call on the tax and he will want the money before the property can be sold.

The options of shared ownership where the old person retains the right to live in the house don't apply if it is not a permanent residence.

For non resident property owners there are very few avoidance options apart from setting up trusts etc which can be expensive and complicated.

Re: What to do about house?
 

Agreed, However,
One word of advice. Don't, Whatever you do, ever give power of attorney to your Spanish lawyer, or allow mum to do so. I have heard very nasty stories about this!

Re: What to do about house?
 

In Spain the old person would retain a usufruct which means they could live there unencumbered. This does not happen in the UK. On first death the new owners would own the property outright and the usufruct would disappear. Can't comment on immediate transfer costs but there are bound to be some and taxes on top.

Re: What to do about house?
 

The problem is that the OP hasn't said whether her Mum lives in the house or just owns it. It makes a huge difference to the options available.

Re: What to do about house?
 

What about inheritance tax if you are over 65 and a Spanish resident?

Re: What to do about house?
 

Thank you all for your replies. We are not Spanish residents and my mum does not live in the house. As you suggest, we need to see a Spanish lawyer. We don't want to get into a situation where we have to give money to the Spanish gov straight away if it is gifted as we aren't planning on selling the house at present. We just want to avoid difficulties if my mum is still the owner but unable to visit any more as everything is her name - bank, water, electric, etc.
Just to add to the complications, I have just found out that she hasn't paid any local taxes since 2001 - what do we do about that????

Re: What to do about house?
 

Prepare yourself for a large bill!

Any debts belonging to a house gets transfered to the new owners when it is transferred/sold.

If you havent paid the taxes for nearly 10 years then I'd be worried whether the property is actually recognised as legal. A trip to your town hall will sort it out.

Re: What to do about house?
 

Any idea how much the taxes are each year??

Re: What to do about house?
 

I think you are confusing this with capital gains tax which you do not have to pay if you are over 65, a resident and have lived in the house for 3 years.

There are no age exemptions for over 65 for Inheritance Tax but residents do get some extra allowances etc in certain regions in Spain but not all.

Re: What to do about house?
 

There is another option which may be the least complicated. If Your mum isn't terribly attached to the house. She should consider selling the house now. Paying all the debts including the sales tax and back rates. Mum can then decide what she wants to do with what's left. You may then have a choice in the future whether to have a house in Spain or not.
Of course if she is very attached to the house. You may well have to 'deal with the consequences' of the gift or inheritance.

Re: What to do about house?
 

If you wish and no obligation give my firm a ring and we will go through your options with you at no cost and work out figures for you to decide what is best for your Mother.

Re: What to do about house?
 

I would have her sell you the property LEGALLY for 20Euro, documents and all that jazz. That way it is NOT classed as a GIFT.
DSB.

Re: What to do about house?
 

That is called tax fraud! A person is not allowed to sell their assets cheaply to their relatives in order to avoid tax

Re: What to do about house?
 

At what % level is "cheaply" classed as then ?
DSB.

Re: What to do about house?
 

They'll take it as a certain % of within the official value. But that'll never be 20 euros

Re: What to do about house?
 

There is actually a rule that is used by the tax people based on a percentage of the cadestral value.


As an example, I bought a property and the previous owners wanted a certain amount in 'black'. I had no issues with that but when we came to do the deal, it was pointed out that this left the 'purchase price' below the magically value arrived at by this rule and would then be investigated by the tax office as possible fraud.

Re: What to do about house?
 

This is an interesting question as two of my kids have been helping us out financially recently, and also putting 'sweat equity' into our build. One of the ways I was considering repaying them was by giving them, or selling them, in effect, a certain percentage of the house value as it is at the moment. Does anyone have any experience of this. Is it possible?

Re: What to do about house?
 

This is best done from the outset we bought the plot in all our names so the the 3 children have a 1/5 share in the house doing this later will involve extra notary fees together with the add on taxes and land registry costs. Also you may find that there is tax to pay on the "gift" or sweat equity transfer.

Re: What to do about house?
 

This is an interesting point of view by the tax man, up to date they do not seem to accept that values have fallen and you could be looking at negative equity and if you manage to sell you could be charged capital gains on a loss. This is Spain a fourth world country!

Re: What to do about house?
 

Absolutely!

You can do all sorts of contortions about ownership if you do it at the time of purchase - if you do it later it raises all sorts of tax problems.

The only change of ownership that I am aware of that is "free" is where the property is in joint names and you wish to transfer it into a single name. This can be very relevant if one partner has a terminal disease.

With regard to "official" property values, they are based on the Catastral value multiplied by a factor that varies from one town to another - typically it is two to four times the Catastral value.

These factors are available online - here is an example for Andalucia _

http://www.juntadeandalucia.es/econo...en20-12-07.pdf

Re: What to do about house?
 

Quite right - I too wonder when they will catch up with the fact that prices have fallen dramatically! They are still charging based on the 'old' values and not the current, realistic ones.

On the point about 'free' transfer. A friend of mine had a half share in their main residence with her husband. When he died his half had to be transferred to her. They were both Spanish residents domiciled here for over 12 years - they STILL had to pay Spanish succession tax plus all the necessary costs. All-in-all I think they paid 12k euros.

Re: What to do about house?
 

Rather depends upon the value of house etc.

The taxes will likely be a mixture of:

IBI (Council Tax)
Imputed lettings income tax (an income tax on the letting income, even if she did not let the property)
Wealth Tax -a tax on the value of the property and any other assets held in Spain (money in bank account etc).(FYI, this tax is now zero rated, but for many of your years of non-payment it wasn't)
Fines - there will likely be fines for not paying.

The IBI will be down to your local council, the other two "income" taxes will be down to the Cadastral and Escritura values of the house. You must Obtain these values to be able to calculate the tax liability.

For now, assuming a sub 100Keuro property, I would budget at an IBI of 200 euro per year and lettings/wealth of 400euro pa. Of course if the Cadastral/Escritura is only 50Keuro the lettings/wealth will only be around 200pa.

You need to find out when her last tax payment was, what it was she paid (IBI, wealth etc) and the property values.

I am sure others will be able to tighten-up on my rough numbers above, but you could easily find yourself needing to pay 500 euro pa plus fines.

Re: What to do about house?
 

Yes that's correct - but if you do the transfer before the death is does not involve a tax.

Re: What to do about house?
 

Crikey!! 500 euros a year!! Its only a tiny house - cost about £20 000 in about 1988, worth maybe 90 000 euros max now - if we could sell it!!! We have all the old receipts for local tax up to 2001 in the house in Spain - can't remember the exact annual amount but nowhere near 500 euros a year! The tax stopped being paid when my stepfather, who dealt with it became terminally ill and then died. My mum didn't tell me about the tax until a few months ago - until recently I have had little to do with her financial affairs.
Looks like we need to go to the town hall and confess on our next trip out there!!

Re: What to do about house?
 

At 20K then the letting and wealth taxes come down significantly - the Catastral and Escritura values do not represent current market value and could easily be 20k-30K.

If we assume 30K then we have around 130 euro pa for these two, plus whatever the IBI (Council tax) is - my IBI for a similarly-valued property is 120 euro pa - gives you a total of 250euro pa. Plus the fines!

Town hall for IBI, tax office for the other taxes. I would consider getting a gestor to do this for you - they may be better at pleading the case on the fines and playing catch-up for 10 years-worth may prove to be a paperwork headache, especially if your Spanish isn't pretty good.

Re: What to do about house?
 

It may sound a lot, but if you compare it to property taxes from other countries it comes out cheaper

e.g. in the US, you often have to pay 1-3% of your property value in taxes each year, or in the UK, where you have to pay half the council tax even if you dont live there.

Re: What to do about house?
 

Thanks again for help! Sorry to sound thick - again, but what is a gestor? Secondly, exactly which taxes, as non resident, should she have been paying? I know about the local tax, I think, but what are the others? What is a wealth tax based on? She has about 2000 euros in a Spanish bank account which are used to pay standing orders and apart from the house no other Spanish assets.

Re: What to do about house?
 

A gestor is a local paperwork Mr fixit - does a whole range of low-level accounting and legal jobs. Ask someone in the area for a bilingual gestor, best if you can get a recommendation, if you post the name of the town someone here may be able to give you a recommendation.

Taxes

IBI - Council Tax
Renta - imputed income tax on letting the property (even when not let) - based upon catastral value. Either 2% or 1.1% (depends if catastral value has been revised) of Catastral value, X 24% income tax
Patrimonio - wealth tax on Escritura value of proerty and money in bank accounts (again, now zero-rated, but only for lastp couple of years) - 0.2% of the value of assets.

Going back 10 years on all of these (with changing catastral values each year etc) will be a major headache - unless your vacation is for 2+ months I doubt very much you will get it sorted when you are over, paying a gestor300-400 euros will be money well spent.

Re: What to do about house?
 

Hmmm! More complicated than I thought. The gestor sounds like a good idea. Can anyone recommend a bilingual one around the Los Alcazares / San Javier area (Costa Calida / Mar Menor)? Can I presume that he / she will deal with the whole tax thing without us needing to visit town hall ,etc? Any idea on paperwork they'll need so we can ensure we take it with us? Thanks again - I'm certainly picking up loads of info here!!