21 Nov 2007

Should one purchase a property in the name of the children?

Published in Buyer tips, Legal & Tax
Every now and then some of our clients have expressed the wish to buy the property under the name of their children, mainly to avoid inheritance tax /death duties upon their death. That is a decision that should be duly weighed and considered. First of all the inheritance tax is not as high as many think, especially if there are more than one children to inherit the property. And the inheritance tax may well be reduced or even supressed in the future in all parts of Spain. Secondly it is never advisable to buy the property in the name of the children if they are under age. Unless those have money of their own (i.e. from inheritance) and proof can be produced that the money used for the purchase indeed belongs to the children themselves, the tax authorities might well consider that the parents are making a gift to their children, and the gift tax is higher still than inheritance tax (same tax rate for both taxes, but no tax free amount for Gift Tax). One should consider as well that if one wishes to sell the property again after some time, the children’s consent is required. Further problems may arise if the circumstances change, for example if one of the married children gets divorced, and the son-in-law or daughter-in-law wants his share. Though it is unusual, it could happen that one child predecease his parents – by accident or illness – and if he dies without issue, it would be the parents who would have to pay inheritance tax on their own property. I have known such a case! Only if the parents have already reached a certain age and intend to have the property for they own use – as a permanent or a holiday home – until their death, one could recommend safely that the children purchase the property (bare title) and the parents the life benefit. By Rolande Chagrin Chevènement (Owner of Cardenas Real Estate)