The death rate from bullfighting in Spain, which currently exceeds 50,000 people, has led to the fact that the number of houses inherited has reached a record level. This is especially noticeable in Madrid and Catalonia, the two communities most affected by the pandemic. INE (National Institute of Statistics of Spain) in its latest data on the transfer of houses reports on the scale of what happened.
Content:
- Inherited properties are being sold in a hurry
- How to manage the inheritance of a foreigner with assets in Spain
- The procedure of real estate inheritance in Spain
- What documents are required for inheritance registration
- Inheritance taxes in Spain for a foreigner
In Madrid Community, in one month have so many transactions on the transfer of houses by inheritance (inherited by will) been registered. Only in October the figure of 2,078 was reached, which was the highest figure in the last 13 years, INE has data since January 2007.
In Catalonia, 3,034 operations were registered in October, which is also the highest figure since 2007. If we consider Spain as a whole, the institute registered 16,285 hereditary transfers, compared with 15,513 in the same month of 2019.
«We noticed that many wills were signed due to COVID. In addition, it was joined by those who could not be issued within two and a half months of the first «state of alarm», when notaries were opened, but only urgent cases were signed», says Maria Teresa Barea, press secretary of the General Council of Notaries and dean of the Andalusian Notary Association.
The Council records that the total amount of legacies from March to October in Spain (229,562) is lower than in the same period last year (286,819). The same thing is happening in Madrid, where 30,044 legacies were issued from March to October 2020, which is 7.57% less than in the same period last year. In Catalonia, 44,581 legacies were registered, which is 18.47% less.
«All procedures have been reduced due to the spring and autumn holidays, but legacies and wills are the operations that have fallen the least in relative terms», the notary concludes.
Turning to the real estate market, agencies are already reporting an increase in the number of inherited properties coming to their offices for sale. In fact, it had all been expecting this for months and were preparing.
«We have developed marketing strategies and actions to serve this type of customer, as the process from death to preparation of documentation and decision-making by heirs takes several months», says Tony Exposito, Managing Director of Comprarcasa. This agency reports that orders for the sale of inherited homes increased by 20% compared to the previous year. «Since October, we have been marketing this type of inherited property, which is being sold very quickly because the heirs are ready for sale at discounted prices», he adds. The reduction is about 15% of the published price.
«We knew that these facilities would appear on the market because of the deaths of elderly people. This year we have noticed an increase from 25% to 30%», says Manuel Jimenez, broker of Re/Max Ability in Madrid.
Inherited properties are being sold in a hurry
Behind these legacies are stories of great pain, as well as misunderstandings and even family conflicts. For this reason, very often the heirs have to urgently sell the house. In other cases, the rush is due to fears that the property may be illegally occupied. Another reason is the need for funds to pay inheritance tax and municipal surplus value tax. The tax on the increase in the value of urban land is levied on the profit received by children as a result of the acquisition of real estate by inheritance due to a change in its price from the moment of purchase by parents. Heirs have six months to pay inheritance tax and capital gains tax, although an extension of another six months can be requested within five months of death.
It should be noted that COVID was so sudden that «lots of heirs faced a huge problem when deciding to accept the inheritance», says Fatima Galisteo, a lawyer specializing in inheritance at Galisteo Abogados. In the Madrid Community, descendants (children, grandchildren) or parents have a 99% discount on inheritance tax, but this is not the case for brothers and sisters, nephews and nieces, as in other autonomous communities.
The urgent need for sale leads to the fact that these properties enter the market with significant discounts. «Up to 20% of the market price, and it depends on the socio-economic level of the area», says Jimenez. However, according to his confession, when there are several heirs, it is not easy to agree on the price.
Something common to these houses, which also reduces the price, is that «it tends to be of a certain age and need major repairs», says Jesus Manuel Martinez Caja, Secretary of Madrid Association of Real Estate Companies (Amadei).
The problem is that it is not always possible to sell property to pay taxes. «A deal is almost impossible when the buyers are not forced heirs (ascending, descending and spouses), but brothers and sisters, uncles and aunts, nephews and nieces or strangers», explains Galisteo. «Even if the inheritance is accepted, the registration of ownership of real estate or property rights in the Land Registry will enter into force against third parties only two years after the date of death. Therefore, if the buyer intends to receive financing, no bank will risk a transaction that, although unlikely, will fail due to the appearance of a forced heir during this two-year period», the lawyer adds.
When buying one of these houses, it is important to make sure that it is free from encumbrances in the Land Registry. Usually, due to the age of the deceased, this is the case. However, sometimes, despite the fact that there is no financial debt, the property may not be registered. «We are witnessing the existence of new encumbrances on houses purchased a long time ago, which arose as a result of mortgage loans taken out by parents for their children during the previous economic crisis», says Galisteo.
This is just the beginning. In the coming months, the volume of inherited properties entering the market will grow. «There are many heirs who are still organizing and deciding what to do with real estate», says Jose Maria Alfaro, General Coordinator of the National Federation of Real Estate Associations (FAI). In her experience, if they are forced heirs or less than three people, they usually keep the apartment for themselves or rent it out. If not, they usually sell it.
However, due to the suddenness of the pandemic, «there are people who died in nursing homes without leaving a will», says Marco Lamberti, Head of Coutot-Roehrig, which searches for heirs around the world. According to his estimates, the company's turnover grew by about 3%, but not too much, since the absence of a will does not mean that the heirs are unknown.
How to manage the inheritance of a foreigner with assets in Spain
Spain is a country that traditionally invests most of its wealth in real estate. This tradition has been preserved since the past, when it was possible to achieve high economic incomes in this area, which led to the fact that the bubble in the market burst. That is why many legacies in the country provide for the bequest of real estate, despite the fact that currently its value is less than the mortgages that are imposed on it.
The process of inheritance, speaking of real estate, is complicated by many factors. In some cases, the inheritance is a series of debts that make it unattractive to the recipient. These and other economic obligations, which are tied to property, often lead to the rejection of inheritance. Only in 2016 in Spain, according to General Council of Notaries, 1 inheritance out of every 10 was abandoned, and this figure continues to grow from year to year.
The increase in the number of refusals, if we consider it by community, is more noticeable in those where inheritance and donation taxes are higher, for instance, in Andalusia, Murcia or Asturias. Inheritance tax is a tax that is levied every time a donation or inheritance occurs. It is taxed on the increase in wealth received as a result of donation or inheritance between individuals. Despite the fact that it is state-owned, its management is transferred to autonomous communities, which regulate its size, as well as deductions and benefits applied to the amount to be paid. This means that it is a variable tax with large differences between autonomous communities. For example, in some of them the tax is reduced if the inheritance of property comes from parents to children.
Another important factor in inheritance processes is the lack of mutual understanding when deciding what to do with the property. When there are several heirs in the family, some prefer to keep the property for themselves, while others offer to sell it in order to make a financial profit. This conflict may lead to costly litigation, a judicial auction for the sale of property, or, in order to speed up the entire sale process and avoid paying expenses and taxes related to the property, its value is reduced below the market price.
«There is data comparing the value of the sale of inherited real estate with another property also for sale with similar characteristics and location. The first one is 10% - 20% cheaper».
The law on real estate inheritance in Spain
In the case of inheritance of real estate by a foreigner in Spain, you should familiarize yourself with the European Regulation 650/2012, which entered into force on August 17, 2015. It has been adopted by all countries of the European Union, except Great Britain, Ireland and Denmark.
As a result of this decree, the law of the State in which the deceased lived at the time of death will apply to the inheritance of real estate.
In the event of a person's death in a State outside the European Union, the law of the country where most of his assets are located may also apply.
For example, a person dies in Chile because he worked there. There he had only bank accounts and life insurance, but his real estate, investment funds and insurance are located in Madrid. In this case, Spanish law may be applied.
In order for the State to be considered the usual place of residence of the deceased, there must be a close connection between him and this country. For instnace, if a person has recently moved to the place where he died, it cannot be assumed that his usual place of residence is in this country.
The application of the law of the State of habitual residence has an exception in the case when the deceased has established in his will the application of his national law.
For instance, if a Spaniard moves to live in Portugal, several years pass, and he dies without having established his national legislation (Spanish) as the applicable law, Portuguese law will apply.
The procedure of real estate inheritance in Spain
In the case of inheritance of property, it is necessary to take some steps.
- Find out if the deceased left a will. At the Registry Office, family members can request a certificate of the last will and testament. With its help, we will find out who the heirs are, and the list of the property itself.
- Regardless of whether there is a will or not, it is important to find out whether the property is free from encumbrances. This information can be easily obtained in the property register and on the Internet. It is possible that the debts exceed the real value of the property, when the heir may abandon it.
- After the heirs are known, a notarial act should be drawn up, in which the assets are listed and the ownership of the new owners is indicated. This act is drawn up in the Land Registry.
- If a mortgage or other debts are imposed on real estate, the new owner receives a subrogation for these debts until they are paid on the date of death.
- After accepting the inheritance, it is time to pay inheritance tax and gift tax, depending on the autonomous community in which the procedure is carried out.
What documents are required for inheritance registration
To register a foreigner's inheritance in Spain, it is necessary to collect some documents, such as a translated and apostilled death certificate, documents on existing property in Spain, etc.
Due to this information, the notarial process of the will begins, which ends with the execution of the act of acceptance and award of the inheritance, and the change of the owner of the property is registered in the Land Register.
Inheritance taxes in Spain for a foreigner
One of the most important aspects to consider is the taxes to be paid in Spain.
- Inheritance tax. To calculate the amount to be paid, state or regional rules may be applied, depending on which of them is more beneficial for the taxpayer. It is important to take into account deductions for international double taxation and expenses related to death, which are deducted from the tax amount (for instance, expenses for the last illness, funeral expenses, etc.)
- Municipal capital gains tax or capital gains tax (Impuesto sobre el Valor de los Terrenos de Naturaleza Urbana). This is a fee payable to the council at the location of the property. It is charged upon transfer of ownership in connection with inheritance.
To make it clearer, here are some examples of foreigners who died in Spain.
- If a German dies in Spain, leaving property here to his relatives living in Germany, in the absence of a will, the declaration of heirs must be requested or initiated by one of them with the application of Spanish law.
- If he had died in Germany, the announcement of heirs would have been initiated there. In this case, German law will probably apply, unless most of his property is located in Spain. In this case, in the absence of objections from the heirs, Spanish law will apply.
- If a German has provided a will in Spain, indicating that German law should apply, then this will be exactly the case. Usually, such a situation occurs when a will is executed at the consulate of the country of origin at the destination, i.e. at the German consulate in Spain.
- If an Argentine leaves property in Spain to his heirs living in Argentina, the same casuistry applies as in the case of a German.
