Donation Vs. Inheritance – Which Is Best in Spain?

We have all been there: We see the amount of taxes we need to pay, and we think, “What do rich people do to avoid paying taxes?” When it comes to succession taxes, the first option is to make a donation. Is this a good option to pay less taxes? Let’s take a look.

The Difference between Donation and Inheritance

Of course, everyone knows that the main difference is that an inheritance happens when the grantor dies, and a donation happens while a person is alive. However, these have important nuances.

Something essential is that you do not receive the inheritance until you have paid the taxes. On the other hand, with donations, it is the opposite. First, you receive the properties, and then you pay the taxes.

Before Going into the Taxes, the Purpose of the Donation Is Not to Cheat the Other Heirs.

As we have explained several times on our site, in Spain, it is mandatory that the forced heirs (children of the grantor) receive two-thirds of the legacy’s total value. Out of this two-thirds, one third 3 is equally distributed among the children, and the other third is distributed by the grantor’s will. You can read more about who inherits in Spain here.

Someone who wants one heir to receive more than the others may think they could avoid the one-third that is to be distributed equally by calling it a donation. No, that is not an option. Any donation that the grantor has made to the force heirs will be included in the calculation of the proportions that will divide the legacy.

What about the Taxes?

We already covered the succession tax in the previous section. We cannot tell you what rate you will need to pay because it depends on the region where the deceased was living. You can read more about Spanish succession tax here.

The donations Tax states that the person receiving the property has to pay the taxes in the region where the property is located, instead of in the region of the grantor’s residence, which is the case of succession tax.

The main issue is that while succession tax usually has exemptions for the forced heirs, the donation tax does not, so eventually the most likely outcome is that the person receiving the property will pay much more in taxes.

And there is more. With an inheritance, only the heirs have to pay. With the donations tax, the donor also has to pay a local tax that depends on the property appreciation since they have had it.

What Can You Do?

You can ask a tax expert, and this will be your best option. But for now, you can accept that there is not a legal way to avoid paying taxes.

16th July 2019
//Spanish Probate Matters