Tax implications of making a ‘gift’ of your UK property assets
It has become quite common in recent years in the UK, for those of advanced years and uncertain health, to gift their property in the UK to their children and thereby not be forced to sell said assets to pay for care charges that would otherwise be applicable.
While we do not seek here to deal with the legal ramifications of such actions in the UK, the question does arise with regard to any person resident in Spain who is contemplating making such a gift. For anyone resident in Spain there are certain considerations to take into account if you want to make a ‘gift’ to a family member or indeed any other individual, of a property you own, that is located outside Spain.
The initial issue to determine is whether or not there is a treaty between Spain and the country where the property is located. In this particular case, between Spain and the UK, we have the “Convention between the Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital”. However, unfortunately this does not apply to “gift tax” as it is not included in the article 2.3 of the convention, which states that:
“ The existing taxes to which the Convention shall apply are in particular:
- a) In Spain:
(i) income tax on individuals;
(ii) corporation tax;
(iii) income tax on non residents;
(iv) capital gains tax; and
(v) local taxes on income and on capital.
b) In the United Kingdom:
(i) income tax;
(ii) corporation tax; and
(iii) capital gains tax.
Location, location, location
The second question to resolve is where to proceed to make the gift. At this stage we note two very different scenarios. The first one would be for the case that you make the gift in Spain. As you may be aware, in Spain there is a tax on gifts. This tax has, of course, some exemptions and deductions depending on the Spanish region where you are residing. However, in this particular case none would be applied since the property is located in a different jurisdiction, so you would be paying the whole percentage that applies according to the value of the property. This means that when you pay the tax you will do so directly to the Spanish tax authority – Agencia Tributaria (AEAT).
The other possible scenario would be to make the gift in the UK where there is not such a “Gift tax” per se. In the UK, the tax system works differently and in the type of scenario envisaged, the gift/donation would be exempt from payment of any tax if the person who is making the gift survives for a period of 7 years following the making of the gift. Otherwise UK inheritance tax would be applicable.
It is also important to note that, when you are a Spanish national or are resident in Spain, any gift of assets located abroad, would have additional tax implications in Spain as your ‘patrimony’ (total wealth) will increase and therefore you are obliged to make account for that. There do exist a couple of options in this regard, and we would be delighted to assist anyone who requires help with such matters, by getting in contact with us.