When investing in property in Ibiza, it is best to take into account the different taxes. Spain's 17 autonomous regions have the power to partially determine their own taxation. Ibiza belongs to the autonomous region Islas Baleares.
In a previous article, we already discussed taxes and costs when buying property in Ibiza. Therefore, this article will provide an overview of inheritance and gift tax for non-residents in the Balearic Islands.
Inheritance tax in Ibiza
If you are a non-resident in Spain, the taxable base of the estate from the net assets of the Spanish part of the estate. The net assets are all real estate and movable assets situated in Spain, less any debts you may have, such as a mortgage. Financing a property in Ibiza with an (international) loan can therefore be a form of inheritance planning.
Read more about financing luxury properties in Spain.
The taxable base is then reduced by a series of reductions. Thus, for straight heirs over 21 and the surviving partner, per head, there is a reduction of 25,000 euros. Heirs in direct line younger than 21 can enjoy a maximum exemption of €50,000 per head. There are also a number of other reductions, including for second-degree heirs and restricted heirs.
The progressive rates amounts for direct line heirs and the surviving partner are 1% on the first €700,000, 8% on the next €300,000 bracket (total: €1,000,000), 11% on the next €1,000,000 bracket (total: €2,000,000), 15% on the next €1,000,000 bracket (total: €3,000,000) and finally 20% above €3,000,000. For other heirs, the rates are between 7.65% and 34%, depending on kinship with the testator, among other factors.
Read more about the practicalities of running an estate in Spain.
An example
A non-resident widower dies. He is full owner of a property in Ibiza worth €2,000,000, with an outstanding loan of €400,000. He leaves behind two adult children. The value of the estate is €1,600,000, of which €800,000 per child. For each child, the taxable basis is reduced by 25,000 euros. The final taxable basis is then €775,000 per child. On the first bracket of €700,000, they pay €7,000 (1% of €700,000) and on the second bracket €6,000 (8% on €75,000). The inheritance tax per child is then €13,000.
Inheritance tax in Flanders
In addition to inheritance tax in the Balearic Islands, your heirs will also have to pay the Flemish inheritance tax pay. Here, for the heirs in the direct line and the surviving partner, a distinction is made between the immovable estate and the movable estate. The estate includes all real estate, including foreign real estate, including the house in Spain. On the immovable estate, there are progressive rates from 3 to 27%. This means that your property in Ibiza counts towards the calculation of inheritance tax.
You can deduct the inheritance tax paid in the Balearic Islands from the Flemish inheritance tax.
An example
We continue on the above example. Suppose the testator owned eight properties in Flanders with a total value of €3,500,000 in addition to his home in Ibiza. The loans on these properties were all paid off. The total value of the immovable estate then amounts to 5,100,000 euros ( 3,500,000 euros Belgian real estate + 2,000,000 euros from the property in Ibiza - 400,000 euros credit on the property in Ibiza). So per heir, the net inheritance is 2,550,000 euros. The children will then each pay 642,000 euros in Flanders (progressive brackets 3 - 9 - 27% in Flanders), less the 13,000 euros of inheritance tax paid in the Balearic Islands. The total cost in Flanders then comes to €629,000 per child. There is also the inheritance tax on any movable property, which is taxed at the same rates.
Gift tax in Ibiza
In the case of a gift, the taxable base from the tax value of the property. The tax value is the minimum acceptable value of the property for the Spanish tax authorities. The tax value depends on the municipality and is based on the cadastral value.
In addition, there are 12 different reductions of the tax base possible. For example, consider a reduction for heritage, a reduction for the first home and a reduction for people with disabilities.
The rates are located between 7.65% and 34%.
In addition to gift tax, there may also be capital gains tax to pay.
As a rule, therefore, gifting is considerably more expensive than inheriting in the Balearic Islands, but because of Flemish inheritance tax it may still be more advantageous overall. After all, by donating foreign property, you reduce the value of the estate, resulting in lower inheritance tax in Flanders. Moreover, the accumulation effect in Flemish inheritance tax not with foreign property. The best solution should be considered on a case-by-case basis.
Read more about calculating gift tax in Spain.
Alternative: an inheritance agreement
An alternative to a gift is an inheritance agreement (pacto sucesorio). An inheritance agreement allows you to agree with the heirs on the distribution of a future estate. The Balearic Islands is one of the 5 autonomous regions in Spain where this possibility exists.
The advantage of an inheritance agreement is that you can allocate specific assets in the estate without gift tax or capital gains tax. The more advantageous inheritance tax remains in place. The difference with a will is that the heirs have already agreed. Thus, you avoid later problems in distribution.
However, there is an obstacle. The Spanish inheritance law, and in particular, the inheritance law of the island you are on should apply. And for this, you need to live in the Balearic Islands. For this reason, a Spanish inheritance agreement does not always prove useful or feasible in practice.
Of course, this does not preclude a Belgian inheritance agreement. Read more about inheritance agreements in Belgium.
Real estate in Ibiza: get advice
Confianz can advise you on the structuring your assets in Spain. It is recommended that, before buying property in Ibiza, you get informed about the different purchase options.
Update January 2021
