You have just inherited a home in Madrid and you are wondering, “What should I do? What steps must be followed? Can I sell it or rent it? Who can I get advice from?” Starting to look for information on the subject is a step in the right direction and in this article we are going to guide you to clear up any doubts you have and help you think clearly. You can also ask us for personalized advice to better understand the details of your case, because not all inherited properties are handled the same way.
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Inheriting a flat, chalet or any other type of property can be seen as a great opportunity, but with the inheritance comes a series of procedures and tax obligations that require special attention. The procedures can be very laborious and difficult to resolve and to all this we must add the mourning for the loss of a loved one. For this reason, it is advisable to go to a trusted real estate advisor or a specialist lawyer, it is essential to know what actions to take and how to carry out the procedures quickly, safely and effectively.
What is the Inheritance Tax in Spain and how much does it cost?
One of the tax obligations that the heir or heiress must face is to pay the Inheritance Tax. This is a tax transferred to the autonomous communities, so in some regions you can find a reduction that can reach up to 99%, paying only 1%. Depending on where you inherit, you will pay different amounts, because the Inheritance Tax is paid in the community of the deceased person. You have six months to pay it and you can extend it for a year.
You must take into account the following factors, since the inheritance tax will vary depending on them:
- Value of the inheritance: the higher the value of the inheritance, the more you will have to pay.
- Degree of kinship: the more distant your relationship with the deceased, the higher the tax you will have to pay.
- The Age of the heirs: there are cases in which young people pay less.
- Patrimonial situation of the person who inherits: the more assets you have, the more you will have to pay.
- Place of residence of the deceased: the payment of the tax will vary considerably depending on the Spain community where the deceased lived.
The Inheritance Tax rate can range between 7.65% and 34%. Each community also applies a series of bonuses that will make you pay less depending on issues such as kinship or age. In Madrid, the tax bill is below 2,000 euros, compared to the 81,018 euros that it would pay in Castilla or 63,139 euros, if inherited in the Valencian Community.
Municipal Capital Gain Tax
In addition to paying the Inheritance Tax, you will have to pay the Urban Land Value Tax , popularly known as municipal capital gains. Currently the Constitutional Court has just declared it illegal, but the news continues to develop. Below we explain how this tax was working.
It is a tax that taxes what has been revalued in the home from the moment of purchase until its sale, donation or inheritance. In case of sale, it is paid by the seller. If it is an inheritance or donation, it is paid by the person who receives the house.
To calculate it, the cadastral value of the home is taken into account, which is the one that is also used in the IBI, and the number of years elapsed since the testator acquired the property until you inherit it. A coefficient determined by each municipality is applied to this period. To obtain the capital gain, the tax rate established in each municipality is applied to the resulting amount, and as with the Inheritance Tax, there are large differences between municipalities.
After declaring the annulment of the capital gains tax on October 26, 2021, specifically, the annulment of several articles that accepted the revaluation of urban land, the City Councils of Spain will stop charging the municipal capital gains, until the moment in which this rule is established. .
What other alternatives do I have to face the payment of these taxes?
We already see that inheriting a house is not always cheap, but there are alternatives that will help you reduce costs and prevent you from having to give up this home:
Request to the Treasury a deferment of payment of up to one year or an installment of the same. You can request to pay the tax back in several installments over a maximum of five years, but you must take into account that you will have to pay interest.
You can also go to a financial advisor or your bank and request a loan that, later, you must also repay with interest.
The inheritance of real estate is a reality that many Spaniards face on a daily basis. Spain is traditionally a country of owners, in which family heritage often revolves around real estate, which is why many of these houses are inherited. As an example, around 175,000 homes were inherited in 2019.
Dealing with owners with inherited homes is very common in our day to day as real estate consultants. For this reason, once the inheritance process has been completed, we advise them on how to take advantage of the property and protect the heritage.
You can tell us about your experience or if you found this article useful in the comments.
If you need more information or advice, you can contact us directly.