QUESTION

I am a British national, currently resident in Spain, where I have certain properties. I am envisaging returning to the UK, and have been advised that I will benefit from better taxation if I sell my Spanish assets while being resident in Spain.

I am thinking, however, of transferring the properties to my wife, who will remain a Spanish resident longer.

How beneficial would this be?

ANSWER

There are two options available, should you decide to transfer the ownership of your properties to your spouse: either by direct transfer (purchase-sale operation) or by donation of the properties.

The first option, by means of a purchase-sale operation, would comprise the same costs as if the property was sold to a third party. Thus, the taxes to be paid would be as follows:

1. Capital gains tax, for the difference between the purchase value of the property and its transfer value, which could be deemed to be the property market value at present. You would be considered to be the taxpayer liable for this concept.

2. Surplus tax (“Plusvalía Municipal”), for the rise in the value of the land throughout the years of ownership, to be paid also by you.

3. Transfer tax, at a rate of seven per cent of the transfer price, payable by your wife.

As you see, this option would be quite expensive, and does not seem recommendable.

The second option, donation of the properties, would involve an even more expensive transaction. The donation of the property to your wife would give rise to Inheritance and Gift Tax, without any of the reductions from which inheritances benefit, as none is established for gifts.

The taxes involved would be the following:

1. Capital gains tax, for the difference between the property’s purchase value and the current market value, payable by yourself.

2. Inheritance and Gift tax, at a progressive rate which could reach a maximum of 34 per cent of the property’s net market value, payable by your spouse.

3. Surplus tax (“Plusvalía Municipal”), also payable by your wife.

Once again, this option does not seem suitable for your purposes, as it implies a high fiscal cost.

It would seem that, as far as you would avoid seven per cent Transfer Tax, the most favourable option would be to sell the properties directly yourself, to a third party, whilst being a Spanish resident. In this case, the tax rate would be 15 per cent, providing that you had owned the property during more than one year.