As a childless widow, who can I leave my home to in Spain?

QUESTION

Over ten years ago my husband and I, who are both British, came to live in Spain after he retired from the company where he worked as an engineer in the UK. I am 72 years old and my husband passed away two years ago.

I own a property in the centre of Marbella and receive a widow’s pension from the Social Security in the UK. As we do not have any children I intended to name my nephews in the UK as my heirs. However they do not seem very interested in keeping this property and therefore I would like to know what other alternatives are available to me.

ANSWER

First of all you should be aware that if your nephews who reside in the UK eventually inherit your property in Marbella, they would be obliged to pay Inheritance Tax in Spain. The amount of tax payable would depend on the real value of the property and the number of heirs affected.

Amongst the alternatives available to you, you may like to consider the possibility of selling your property during your lifetime to a third party in exchange for a life income whereby you would retain usufruct of the property. This means that you would continue to live in and enjoy the property for the remainder of your lifetime with the added advantage of obtaining an income.

One of the tax incentives of this option is that since you are over 65 years of age and the property is your habitual residence, the potential capital gain made on the sale (represented by the difference between the acquisition value of the bare ownership and the value assigned to the life income granted to you would not be taxable in your Personal Income Tax declaration.

Finally you should be aware that, should you choose to pursue this option, 20 per cent of the income received on the life interest would be considered to represent taxable capital income and should therefore be included in your Personal Income Tax return at the relevant rate established. The remaining 80 per cent of the income is considered as depreciation or restitution of the transferred capital and is not subject to taxation of any type.