27th June 2020

I always see surprised faces when I tell my clients that they have to pay gift tax in Spain if they are resident in Spain and, for example, if they receive something as a gift from their parents in Germany.

So, I thought it would be good to address this issue in an article. 

Many clients then tell me, however, that this must be uniformly regulated because we are in Europe.

No. Every state has its own tax sovereignty.

Bilateral double tax agreements do exist to avoid DOUBLE taxation, but they are all about avoiding double taxation, not avoiding taxation…

For example, if someone who has received 1000 euro as a salary in Germany but is tax resident in Spain, this 1000 euro must be taxed in Spain.

However, if he or she has already paid tax on it in Germany, e.g. 100 euro, Spain will credit it so that he or she does not have to pay tax on 1000 euro in Spain, but only 900 euro. This is simplified, but it is important to understand the principle.

However, if this 1000 euro was paid out in full in Germany, 1000 euro will be fully taxed in Spain.

If 1000 euro is tax-free in Germany, it depends on whether or not it is also tax-free in Spain. If not, then 1000 euro is fully taxed in Spain, although it comes from Germany and is tax-free there.

In Germany you can give up to 400,000 euro tax-free to your children every 10 years as an anticipated inheritance, so to speak.

This means that if I live in Spain, i.e., and my world income is taxable in Spain, I must also pay tax in Spain on gifts I have received according to Spanish regulations.

No. In principle, you have to pay tax on every gift from the first euro.

That depends on:

• what the gift is (property, usufruct, ... real property, cash, ...),
• the purpose for which the gift is made (e.g. for purchasing a main apartment, etc.),
• where the donee lives (each autonomous region has its own regulations),
• how much his or her previous assets are (i.e. the assets he or she already has before the gift; the "richer" someone is, the higher the gift tax he or she has to pay),
• the relationship between the donor and the donee (degree of kinship) and
• how old the donor and the donee are.

Gift tax must be filed and paid within 30 working days from the day following the date of the gift (date of notarial deed).

Displaced workers have to file their income tax return regarding 2019 until the 30th of June of 2020. 

If you want the Tax Office to directly debit the amount to pay from your bank account, it is mandatory to file the tax return until the 25th of June of 2020.

• First, the man in Spain must pay the gift tax on the full amount of 100,000 euro.
• He must also register the property at Modelo 720 (over 50,000 euro).
• In addition, from then on he must also tax the property in his Spanish income tax return (either the actual rental income, or there is an attribution based on the value of the property if it is vacant or rented to relatives).

How much is the gift tax in this case?

Assuming that the man had previous assets of less than 403,000 euro, the gift was made in a notarial deed and the man lived most of the time in the Comunidad de Madrid during the 5 years prior to the gift, then the gift tax to be paid is: 124.07 euro.

This is 1% of the amount of tax normally payable (it would normally be: 12,407.03 euro), because in Madrid there is a 99% tax exemption if the gift from parents to children is made in a notarial deed.

• First, the man in Spain must pay the gift tax on the value of the property reduced by the value of the usufruct. This means that not 100,000 euro is taxed, but less, because the donee cannot use the property, so it is worth less to him.

The value of the usufruct depends on the age of the usufructuary. In our case, the value of the usufruct is 29,000 euro. The tax base is therefore: 100,000 euro - 29,000 euro = 71,000 euro.

• He must also register the property in Modelo 720 (over 50,000 euro).
• In his Spanish income tax return, he does not have to mention the property, because the right of use is held by the father, so he has no income from the property.

How much is the gift tax in this case?

Assuming that the man had previous assets of less than 403,000 euro, the gift was made in a notarial deed and the man lived most of the time in the Comunidad de Madrid during the 5 years prior to the gift, then the gift tax to be paid is: 88.04 euro.

This is 1% of the amount of tax normally payable (it would normally be: 8,804.00 euro), as there is a 99% tax exemption in Madrid if the gift from parents to children is made in a notarial deed.

Not in principle, the amount of tax would be the same. 

One difference, however, would be that the donee does not have to submit a Modelo 720, for example, if the money is deposited into a Spanish account (if it is deposited into a foreign account, then of course the Modelo 720 would have to be submitted).

Furthermore, at the moment in the Comunidad de Madrid there is the possibility to give cash up to 250,000 euro completely tax-free between relatives (parents and children, grandparents to grandchildren, and even between siblings), if this is used by the donee within 1 year

• to buy a main apartment or
• to buy shares in companies or
• to buy material needed to start a business or to become self-employed.

There are also tax reductions between spouses and even up to the degree of kinship between uncle, niece and nephew.

However, it would be going too far to list everything.

If you are tax resident in Spain, you must also pay tax on gifts received in Spain.

The regulations in force in each autonomous region must be taken into account, which can lead to enormous differences in the taxes payable. 

It is important to note that the deadline for filing and paying the gift tax is only 30 working days, i.e. the gift was probably made before a notary abroad (e.g. because it concerns a property located abroad), a sworn translation and an application for a Hague Apostille take time.

Contact a lawyer or tax consultant in Spain as early as possible so that any necessary adjustments can be made to the foreign notarial deed and so that you do not miss the deadline.

Do you still have questions regarding this matter?

You received a gift a while ago and now you do not know how to proceed with it in the best way?

Then contact me!

I will look at your case and calculate the gift tax to be paid by you, file the tax return with the Spanish authorities, handle the payment for you and also help you if the tax payment is made too late and results in a fine. It is that easy.