After paying taxes throughout your life simply for owning a home, your heirs will also have to pay taxes when receiving it as an inheritance – specifically the Inheritance and Gift Tax (ISD).
Follow idealista/news on the WhatsApp channel (in Spanish)
For this reason, many people ask themselves: what is better, donating a property or leaving it in your will? We shed some light on this question.
What is better, donating a house or leaving it in your will?
Both ways of transferring ownership of a property are subject to Inheritance and Gift Tax (ISD).
“There is no universal answer: it depends on the value of the property, the autonomous community where it is located, the degree of kinship between the parties, and each person’s individual financial and tax situation,” explains Miriam Acerete, a lawyer specialising in real estate and inheritance law at Fuster & Associates.
Both lifetime gifts and inheritance have pros and cons that must be assessed on a case‑by‑case basis. “Generally speaking, in some autonomous communities, inheritance between direct relatives enjoys significant tax reductions, making it more advantageous than donation; in others, both options have a similar tax cost,” the lawyer adds.
For example, in Andalusia, there is a 99% tax relief for heirs or donees in Groups I (descendants and adopted children under 21) and II (descendants and adopted children over 21, spouses, ascendants and adoptive parents). In practice, this means that only 1% of the theoretical tax is paid.
In addition, there is a reduction of up to €1 million in the taxable base for direct descendants, ascendants and spouses. This means that if the value of the inheritance does not exceed this figure, heirs may be exempt from paying the tax. For other relatives, such as nephews or uncles, the reduction can reach €250,000.
What taxes are paid on inheritances and donations?
Inheriting or donating real estate involves paying several taxes:
- Inheritance and Gift Tax (ISD): This is paid by the recipient of the asset, whether through inheritance or donation. Tax breaks depend on the autonomous community and the type of transaction.
- Personal Income Tax (IRPF): Inheritance is not subject to this tax, but donations can result in a capital gain that must be declared on your income tax return. The donor must pay income tax on the capital gain (the difference between the acquisition value and the donation value), unless they are over 65 and donate their primary residence.
- Municipal capital gains tax: This tax is levied on the increase in value of urban land. It is only payable if there has been an increase in value and is the responsibility of the person receiving the property, whether through inheritance or donation.
Advantages and opportunities
“In the case of a donation, the recipient is subject to Inheritance and Gift Tax (ISD) under its donation modality. Some autonomous communities, such as the Valencian Community, apply tax reductions of up to 99% on donations between ascendants and descendants, provided certain requirements are met,” explains Miriam.
In addition, the donor may have to pay personal income tax on any capital gain if the property has increased in value compared to its acquisition price, while the donee will be responsible for paying the municipal capital gains tax.
In the case of an inheritance, the heir is also subject to the Inheritance and Gift Tax (ISD) under its succession modality. Many regions offer highly favourable reductions and allowances for spouses and children.
“The main tax advantage of inheritance over donation is that it does not generate capital gains tax for the deceased, unlike a donation. This can lead to significant savings when the property has a high unrealised capital gain,” explains Acerete.
Which is cheaper, a donation or an inheritance?
“In strictly fiscal terms, inheritance is usually more advantageous in most autonomous communities – particularly in transfers between parents and children or between spouses – due to the tax relief available,” the lawyer points out.
“Donations, in addition to Inheritance and Gift Tax, may also generate an extra cost in the donor’s personal income tax (capital gains), which does not apply in the case of inheritance. However, donations make it possible to plan the transfer of assets during one’s lifetime, which can be beneficial for reasons beyond taxation – such as asset management, anticipating potential inheritance disputes or addressing the donee’s need for liquidity,” concludes Miriam Acerete.
