SPAIN Law and Practice Contributed by: Álvaro Checa, Miguel Checa, José María Vargas-Machuca Reyes and Andrea Fernández Grymierski, KINSHIP
5. Tax Treatment of Lifetime Transfers and Testamentary Dispositions 5.1 Lifetime Transfers General Remarks on the Tax Treatment of Lifetime Transfers The lifetime transfer of an asset made with animus donandi (ie, with the intention to make a gift and with- out consideration) gives rise to two separate taxable events: • A capital gain in the hands of the donor, calculated as the difference between the acquisition value and the market value of the asset at the time of the transfer, subject to Spanish income tax. When the donor is a Spanish tax resident (see 2.2 Income Tax Residency ), this capital gain is subject on a worldwide basis (irrespective of the location of the asset). When the donor is non-resident, the capi- tal gain is subject on a territorial basis (ie, only in respect of Spanish-situs assets). • An inter vivos acquisition by way of gift in the hands of the donee, subject to GT. When the donee is a Spanish tax resident, the lifetime trans- fer is subject on a worldwide basis (regardless of the location of the asset), whereas if the donee is non-resident, taxation applies on a territorial basis (ie, only in respect of Spanish-situs assets). The donee acquires the asset with a tax basis equal to the market value at the time of the transfer, which effectively results in a step-up in tax basis for the pur- poses of any future disposal. Lifetime transfers made with animus donandi are not subject to transfer or stamp duty, as these taxes are only levied on transfers carried out for consideration. In addition, in the case of a transfer of real estate, municipal tax on the increase in land value ( Impues- to sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana ) may also arise. This tax levies the increase in the value of the land over the period of ownership and is payable upon the transfer, irre- spective of whether the transaction is inter vivos or by inheritance.
agreement is concluded. The choice may have pro- spective or retroactive effect, although retroactivity may not prejudice the rights of third parties. Spanish law also recognises prenuptial and postnup- tial agreements in anticipation of a potential mari- tal breakdown. There is broad contractual freedom between spouses, and the case law of the Spanish Supreme Court has consistently upheld the valid- ity and enforceability of such agreements in judicial proceedings, provided that they do not contravene mandatory rules or public policy. For example, the Spanish Supreme Court has recognised the validity with regard to payment of maintenance obligations between spouses, both in the sense of the determina- tion of the spousal maintenance and in the sense of total waiver of any maintenance obligation between spouses. Nevertheless, other agreements regarding custody of children and maintenance in favour of minors are considered against public order. From a comparative perspective, prenuptial and postnuptial agreements typical of common law juris- dictions would generally be respected in Spain as contractual arrangements between spouses gov- erning the patrimonial consequences of separation or divorce. However, they would not automatically qualify as a valid choice or modification of the matri- monial property regime unless they expressly comply with the formal and substantive requirements appli- cable to matrimonial property agreements, including notarial execution and, where relevant, registration. Therefore, in cross-border scenarios involving both civil law and common law jurisdictions, a co-ordinated dual approach is advisable, combining a formally valid matrimonial property agreement (including an express choice-of-law clause) with a prenuptial or postnuptial agreement tailored to the requirements of the relevant common law system, in order to enhance legal cer- tainty and prevent inconsistent outcomes.
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