Sixty-five is the age that separates, for Spanish income tax purposes, two different outcomes for a parent who gifts the home they live in to a child. Below that age, the gift is a transfer and article 33 of Law 35/2006 taxes the donor on the capital gain, the difference between what the property cost and what it is worth on the day it is given away, even though no money changes hands. From that age onwards, article 33.4.b exempts the gain obtained on the transfer of the main residence. Whether that exemption covers a gift, and not only a sale, has to be confirmed case by case with the Spanish Tax Agency before signing. On one side of that figure there is a tax bill for the parent and on the other, depending on how it is applied, there may be none. It is the first of a series of decisions that are taken at the moment the deed is signed and that cannot be corrected afterwards.
In the firm we see the same scene often. Parents decide to hand a flat over to a child early, go to the notary, sign, and months later discover that the parent has to pay in their income tax return, that the child cannot sell without losing what the regional government granted, or that the siblings are entitled to have that flat counted in the estate. I explain it part by part.
Three taxes and who pays each one
A gift of a home triggers three taxes, and they are not paid by the same person.
Gift tax is paid by the child who receives the property. It is a state tax ceded to the autonomous regions, and the region that governs is the one where the property is located, not the region where the parent or the child lives. Each region has its own treatment for gifts between parents and children, in some cases very favourable, and often makes it conditional on formal requirements or on the child keeping the home for a certain period. A flat in A Coruña is governed by Galician rules even if the child lives in Madrid.
Income tax is paid by the parent. It is the tax that surprises people most, because the donor receives no money and may still have to declare a gain. Article 33 of Law 35/2006 treats the gift as a change in the donor’s assets and the gain is calculated by comparing the acquisition value with the value attributed to the property in the gift. If the property is worth less today than it cost, the loss is of no use, because article 33.5.c excludes losses arising from gratuitous transfers from the calculation. The only rule working in the donor’s favour is the main residence exemption for those over sixty-five in article 33.4.b, with the caveat already mentioned about its scope in a gift.
Municipal capital gains tax (the “plusvalía municipal”) taxes the increase in value of urban land and in a gift it is paid by the person who receives the property. Since the reform of this tax, if it is shown that there has been no increase in value between acquisition and gift, nothing is due, but that has to be proved with the acquisition and transfer titles, asserting it is not enough.
On top of the three taxes come notary, Land Registry and, if used, agency fees. I do not give figures because they depend on the value of the property, the region and the donor’s age, and a generic figure in an article only serves to cause an unpleasant surprise later. The actual calculation is done before going to the notary, with the purchase deed in hand, because it may decide whether gifting now or waiting is the better option.
Without a public deed there is no gift of property
Article 633 of the Civil Code requires a gift of real property to be made in a public deed, specifying the property gifted and the burdens the recipient must fulfil, and requires the acceptance to appear in the same deed or in a separate one, always during the donor’s lifetime. A verbal agreement, a private document signed at home, or a line in a will saying “the flat already belongs to Juan” transfers nothing. If the parent dies before the child accepts in a deed, the gift does not exist and the flat forms part of the estate with everything else.
After the deed, the gift is registered at the Land Registry. Without registration the child is the owner as between the parties, but will run into problems with a bank when applying for a mortgage or with a future buyer. Before registering, the taxes have to be settled, with deadlines that run from signing and that do not forgive oversights.
Keeping the usufruct
Article 634 of the Civil Code says the donor must keep, in ownership or in usufruct, what is needed to live in a manner appropriate to their circumstances. It is a warning from the legislator that is almost always met in the same way, by gifting the bare ownership and keeping a life usufruct. The parent goes on living in the flat or collecting its rent until death, and at that point the child consolidates full ownership without any new act of gift.
Keeping the usufruct has tax consequences. What is gifted, and therefore what the child is taxed on now, is only the bare ownership, whose value is calculated by deducting from the value of the property the value of the usufruct, which depends on the donor’s age. The younger the parent, the more the usufruct is worth and the less the child receives today. When the usufruct ends, the child is taxed on the consolidation of ownership. In the parent’s income tax, the gain is calculated on the part transferred.
It also has a practical effect many parents do not appreciate until they need it. With the usufruct reserved, the child cannot sell the property free of encumbrances unless the parent waives it, and no reasonable buyer purchases a flat with a usufructuary living in it. It is the simplest way to ensure the gift does not turn into a flat sold six months later.
The flat belongs to both spouses, the flat has a mortgage
Two very common situations are overlooked in almost everything published on this subject.
If the flat is community property of the marriage, both spouses gift it or nobody does. Disposing of a community asset free of charge requires the consent of both, and there is no way for one of them to gift “their half”, because in the Spanish community property regime there are no halves until it is wound up. If one spouse refuses, the gift cannot be executed, and the alternative is to wind up the community first, allocate the flat to one spouse and have that spouse make the gift afterwards. That operation has its own costs and is not always worthwhile. If the flat is the separate property of one spouse, that spouse can gift it alone, unless it is the family home, in which case the other spouse’s consent is also required.
If the flat has an outstanding mortgage, it can be gifted, but with two warnings. The first is that the bank is not obliged to accept the child replacing the parent as debtor. It may authorise the substitution, normally after assessing the child’s creditworthiness, or refuse. If it refuses, the child will own a flat whose mortgage the parent goes on paying and owing. The second is a tax point. When the child takes on the debt, the part of the property’s value that corresponds to that debt is no longer a gift, because the child gives something in return, and the tax authorities treat it as a transfer for value, subject to transfer tax, while only the excess is taxed as a gift. It is common for the gift of a mortgaged flat to cost more than the parents calculated precisely because of this split.
The gifted flat and the child’s marriage
A question almost nobody answers and that parents ask quietly is what happens to the flat if the child divorces. The answer is reassuring. What a spouse receives by gift is their separate property even if they are married under the community property regime. The gifted flat does not enter the marital community and is not divided in a divorce. What may be community property are renovations paid for with joint money or the part of a mortgage repaid during the marriage with community funds, which give rise to a right of reimbursement in favour of the community, not co-ownership of the flat.
The deed should make clear that the gift is to the child and only to the child. It is a mistake, and not a rare one, to gift “to our son and his wife” out of courtesy. In that case half the flat belongs to the daughter-in-law, with a much higher gift tax because she is not a descendant, and in a divorce she keeps it.
What happens with the siblings when you die
The most important and least understood effect of a gift is that giving during your lifetime does not remove the flat from the estate for calculation purposes.
Article 636 of the Civil Code provides that no one may give or receive by gift more than they could give or receive by will, and that the gift is “inofficious” in whatever exceeds that measure. The measure is the forced share of the other children. When the parent dies, the value of what was gifted during life is added to the estate left behind, each child’s forced share is calculated on that total and, if the gifted flat ate into the share due to the siblings, they can ask for the gift to be reduced as far as necessary. It is not annulled, it is reduced, and in practice it is usually resolved with a cash compensation paid by the child who received the flat.
Article 1035 adds collation. The child who received the flat and takes part in the estate with other forced heirs must bring the value of the gift into the pool so that it is counted in the forced shares and in the partition. In practice, what they received during life is deducted from their share when the estate is divided. The parent can avoid this with an express dispensation from collation in the gift deed or in a will, and can also gift the flat as a mejora in favour of that child. The dispensation means the gift is not deducted from their lot, but it does not allow the parent to bypass the siblings’ forced share, which is untouchable except in the cases of disinheritance I explain in another article.
In Galicia the calculation has its own rules. Article 244.2.ª of Law 2/2006 on Galician civil law orders that, to fix the forced share, the value of the assets transferred free of charge by the deceased, “apartación” included, is added, computed at the time of the transfer and updated to the date the forced share is paid. Galician law also offers a tool the Civil Code lacks, the apartación and the pacto de mejora, which allow the flat to be handed over during life with agreed succession effects and with a tax regime that is in many cases more favourable than that of a gift. In Galicia, before gifting, the two routes must be compared, and I explain it in detail in the article on apartación and pacto de mejora.
This is the part of the matter where the firm intervenes most often, because a gift to a child can be perfectly executed before the notary and still open a lawsuit between siblings twenty years later. In civil law we prepare the gift looking at the whole estate, not only at the flat being handed over today.
Gifting the flat, gifting the money, or leaving it in the estate
With the above, a comparison is possible. Many parents consider gifting the flat when what they actually want is for the child to have a home, and that can also be achieved by gifting money for the child to buy, with a different bill.
| Gift the flat | Gift money for the child to buy | Leave it in the estate | |
|---|---|---|---|
| Inheritance and gift tax | Paid by the child, under the rules of the region where the flat is | Paid by the child, under the rules of the region where the child lives | Paid by the child, under the rules of the region where the parent lived |
| Parent’s income tax | Possible capital gain (article 33 Law 35/2006) | No gain, no appreciated asset is transferred | No gain (article 33.3.b) |
| Municipal capital gains tax | Yes, unless no increase in value is proved | No | Yes, unless no increase in value is proved |
| Form | Mandatory public deed (article 633 Civil Code) | No mandatory deed, with a bank trail and a document | Will |
| Going back | Only on statutory grounds (article 648 Civil Code, among others) | Only on statutory grounds | A will can be changed at any time |
| Counts towards the siblings’ forced share | Yes (articles 636 and 1035 Civil Code) | Yes | It is the estate itself |
A gift of money avoids the parent’s income tax and the municipal capital gains tax, and several regions have specific treatment when the money goes towards the child’s main residence. Inheritance avoids the parent’s income tax, the so-called “plusvalía del muerto”, and leaves the parent in full control while alive, in exchange for not choosing the moment and not avoiding the division with the other children. Gifting the flat is usually the most expensive of the three in tax and the one with the most knock-on effects, but it is the only one that puts that specific property in the child’s hands now.
There is one more point that is almost never considered. When the child sells the flat in a few years, their acquisition value for income tax purposes will be the value declared in the gift, plus the costs and taxes they paid. Declaring a low value today to save gift tax translates into more income tax for the child when they sell, and in any event the administration sets a minimum value below which it will not accept the return. And if the region granted any advantage in exchange for the child keeping the home, selling too early means paying it back.
When a gift can be undone
A gift is in principle irrevocable. A parent who gifts a flat cannot change their mind the way they would change a will. It can only be recovered in the cases the law establishes.
Article 648 of the Civil Code allows revocation for ingratitude when the child commits an offence against the person, honour or property of the donor, when the child accuses the donor of an offence prosecutable ex officio, or when the child unduly refuses the donor maintenance. A child who does not visit their parents or a relationship that has broken down is not ingratitude in the legal sense. Refusing maintenance is, but it requires the parent to need it and to have asked for it. The law also sets a short period to bring the action from the moment the donor learns of the fact, and a claim has to be filed, with the burden of proving the ground.
Beyond ingratitude, a gift can be revoked for breach of the burdens or conditions imposed in the deed, for example the obligation to care for the parent or to let them go on living in the flat, and in specific cases because the donor has children after making the gift. That is why conditions have to be drafted precisely in the deed. A vague burden such as “to look after his parents” is very hard to enforce in court. A specific obligation can be proved and its breach opens the door to recovering the property.
Ideas that go wrong
The sale for a token price is the most common. Parents “sell” the flat to the child for a derisory sum hoping to save gift tax. It is a sham. The tax authorities reassess on the real value, the parent still pays income tax on the difference and, if a sibling one day discovers the price, they have an argument to have the transaction treated as what it is, a disguised gift that counts towards their forced share.
A gift to a minor child is possible. A minor can accept a pure gift, one without burdens, by themselves. If the gift carries conditions or obligations, their legal representatives accept on their behalf, and when the donor is the parent a court-appointed guardian ad litem may be needed to avoid the conflict of interest. It is decided case by case with the notary.
Conditions are allowed and useful. A temporary ban on selling, a right of reversion if the child dies before the parent, an obligation to use the flat as the main residence, or care obligations can all be agreed. All of them must appear in the deed required by article 633 and all of them have tax and succession consequences that must be calculated beforehand.
What you can do today before going to the notary
Gather the deed by which you bought or inherited the flat, with the price and the costs you paid, the invoices for any major renovations, the latest property tax receipt, the mortgage deed if there is one and, if you are married, the details of your matrimonial property regime. With that, the income tax gain, the value to declare and whether the flat is community or separate property can all be worked out.
Do not sign any private document with your child, do not transfer money to them “on account” of the flat, do not execute a sale for a price you will never collect, and do not include your child’s partner in the gift. None of those things speeds anything up and all of them complicate what comes next.
Making the gift on your own, with the deed the notary drafts and nothing more, carries a specific risk. The notary gives form to what you ask for, but does not calculate your income tax, does not compare the gift with an apartación if you are in Galicia, does not check how the other children’s forced share is left, and does not draft the burdens with the day you will need to enforce them in mind. In the firm we study the whole gift before signing, the three taxes, the marital situation, the mortgage and the effect on the estate, and we draft the clauses that will protect you afterwards. You can call +34 677 841 007 or write through the contact page. To make the first consultation useful, have to hand the purchase deed for the flat, your age and your spouse’s, the number of children, whether there is an outstanding mortgage and whether the flat is where you currently live.
Frequently asked questions
The flat belongs to my wife and me, can I gift it to my son on my own?
No. If the flat is community property of the marriage, the gift requires the consent of both spouses and a half cannot be gifted, because under the community property regime there are no halves until it is wound up. If the flat is your separate property you can gift it alone, unless it is the family home, in which case your wife must also consent. If one of you refuses, the alternative is to wind up the community first, and that has its own costs.
If I gift the flat to one child and have two others, can they claim anything from him when I die?
Yes. The value of the flat is added to the rest of your assets to calculate each child’s forced share, and if the gift exceeds what you could have given by will, the siblings can ask for it to be reduced (article 636 of the Civil Code). In addition, unless you dispense with it, the child must bring the flat into collation, and it is deducted from his share in the division (article 1035). In Galicia the value is computed at the time of the gift and updated to the date the forced share is paid.
Can I get the flat back if my son does not look after me or does not keep to what was agreed?
Only in the cases the law establishes. Article 648 of the Civil Code allows revocation for ingratitude when the child commits an offence against your person, honour or property, accuses you of an offence prosecutable ex officio, or unduly refuses you maintenance. Not visiting you or a cooled relationship is not enough. If burdens were agreed in the deed, such as caring for you or letting you live in the flat, their breach also allows revocation. In every case a claim has to be filed, the time limit is short and the evidence is yours to provide.
Do I need a lawyer to gift a flat to my child or is the notary enough?
It depends on what surrounds the gift. If you have one child, the flat is yours with no mortgage, it is not your only home and you do not want to attach conditions, the notary and a prior tax check are usually enough. If you have several children, the flat is community property, it has a mortgage, you want to keep the usufruct or attach burdens, you live in Galicia and have not compared the gift with an apartación, or you are over sixty-five and are gifting the home you live in, what is decided in the deed affects everyone’s inheritance and taxes, and there it pays to have a lawyer prepare it before you sign.