The smartest inheritance plan is often the one you execute years before death. A lifetime gift (“donación inter vivos”) of Spanish property — to a spouse, a child, a grandchild, or a trust structure — can substantially reduce both Spanish donation tax and future Spanish inheritance tax. But it must be structured correctly: the wrong gift can trigger more tax than the inheritance it was meant to avoid.
Tomas Ballestero Lawyers has structured cross-border donation planning for over 30 years, for British, Irish, French, Dutch, Belgian, German, Swiss and Scandinavian families with Spanish assets.
The legal framework: Impuesto sobre Donaciones
Spanish donation tax (Impuesto sobre Donaciones) is part of the same statute as inheritance tax (ISD), regulated by the Ley 29/1987 and the regional rules of each Autonomous Community. The taxable event is the donor’s gift; the taxpayer is the donee.
The Valencian Community offers significant reductions for donations between close relatives (parents-children-grandchildren), with tax bonuses that can effectively reduce donation tax to a small fraction of the technical rate. These reductions changed substantially in 2023 — most autonomous communities increased family bonuses to between 50% and 99%.
Three structures we use most often
1. Bare-ownership donation with reserved usufruct (“nuda propiedad”)
The donor transfers bare ownership of the property to the children while keeping a lifetime usufruct (the right to use and to receive any rental income). On death, the usufruct extinguishes automatically and the children acquire full ownership with no further inheritance tax on the usufruct portion. The donation tax base is calculated only on the bare-ownership value (60-90% of full value depending on the donor’s age).
Best for: parents who want certainty about who will inherit while keeping security and income from the property during life.
2. Donation of full ownership to one beneficiary
The donor transfers the property in full to one named beneficiary. Used when there is a single intended heir, when the donor wants to be free of the property, or when relocating abroad.
Best for: simple one-child families, charitable donations, or estate liquidation.
3. Donation with right of return (“derecho de reversión”)
A donation with a clause returning the property to the donor if the donee dies before the donor (or other named circumstances). Combines tax efficiency with protection.
Best for: donors worried about the donee predeceasing them or about the property leaving the family.
The hidden tax trap: capital gains tax
Spanish donation tax is paid by the donee, but the donor is also taxed: a Spanish lifetime gift of a property is treated as a deemed disposal for personal income tax (IRPF) purposes. The donor pays capital gains tax on the difference between the acquisition cost and the gift value. For non-residents, this is taxed at 19% (under EU/EEA tax treaty) or higher.
This trap catches families who only modelled the donation tax saving. We always run the combined ISD + IRPF calculation before recommending a donation.
Coordination with home-country tax
Each donor jurisdiction has its own treatment of the Spanish gift:
- UK: Potentially Exempt Transfer (PET) for IHT, 7-year rule applies. UK CGT also potentially due (Spain-UK CGT treaty allows credit).
- France: French gift tax applies to French-resident donors regardless of property location. Article 750 ter CGI plus the France-Spain double tax treaty.
- Netherlands: Dutch gift tax (schenkbelasting) applies if either donor or donee is Dutch resident. No NL-Spain bilateral treaty on gifts.
- Belgium: Regional rules of Flanders/Wallonia/Brussels apply if donor is Belgian resident. Voluntary registration can reduce future succession exposure.
- Germany: 10-year cumulative rule for Schenkungsteuer. No DE-Spain bilateral treaty on gifts.
- Switzerland: Cantonal gift tax depending on canton — Geneva and Vaud are notable in their treatment of foreign property gifts.
Procedure
- Initial planning consultation (video, in English, French, or Dutch).
- Coordination with your home-country tax adviser to model combined tax impact.
- Drafting of the donation deed (“escritura de donación”) and any complementary documents (usufruct reservation, return clause).
- Signing before a Spanish notary (we can sign by Power of Attorney).
- Filing of donation tax (Modelo 651) within 30 working days.
- Land Registry inscription on the donee’s name.
- Donor’s IRPF declaration in the following year if applicable.
Frequently asked questions
Is a donation always better than a will?
No. Donation triggers an immediate combined tax bill (donation tax + capital gains). For larger estates with significant unrealised gains, a well-drafted Spanish will plus Article 22 election can be more efficient than donation. The decision is case-specific.
Can I donate to a non-resident child?
Yes. Since the EU Court of Justice ruling and Supreme Court application, non-resident donees benefit from the same regional reductions as Spanish residents.
What about donating Spanish company shares?
Family business shares (provided certain conditions are met) benefit from a 95% reduction on the donation tax base. This is a powerful planning vehicle for business owners with Spanish operating companies or property-holding SLs.
Can I revoke a donation?
Donations are generally irrevocable, with narrow exceptions (donee ingratitude, supervening birth of children, donor needs for sustenance). Always include a tailored revocation clause if you want flexibility.
Contact us
Tomas Ballestero Lawyers
Head office: Avenida del Pla 126, 2ª planta, 28A–28B, 03730 Javea / Xàbia (Alicante)
Valencia office: Calle Burriana 34, Valencia
Phone: +34 965 792 946
Mobile: +34 607 320 768
Email: [email protected]
