Is inheritance the only way to gain access to a property?

More than half of Spaniards, specifically 56%, believe that inheritance has become the only alternative for being able to own a home. This is linked to the difficulties young people and families face when trying to buy a property due to the continuous rise in prices.

The main problems young people face when buying their first home

There are several reasons why young people see inheritance as the only way to own a home, including the following:

• There is a limited supply of properties for sale, due to various factors such as the shortage of new construction. In addition, construction costs are also rising due to increases in the prices of the materials used.
• The shortage of supply means that prices are rising very quickly. According to data from various property portals, house prices have recorded a year-on-year increase of 15.6%, with the Balearic Islands and cities such as Madrid and Barcelona experiencing some of the highest price growth.
• Price increases, not only in housing but also in many other products (basic groceries or petrol, for example) and services (transport, for example), reduce young people's purchasing power.
• Difficulty accessing finance. Banks generally finance 80% of the value of a property and impose conditions that can be difficult for young people to meet.
• Limited and unstable incomes. Many young people have insecure jobs and low salaries or temporary contracts, meaning that they cannot provide sufficient guarantees of financial solvency.
• The inability to save. All of the above factors combined make it extremely difficult to build up even a minimum level of savings.

What you should consider if you inherit a property

Inheriting a property may not necessarily be the solution to becoming a homeowner, as inheritance involves several factors that need to be considered, including the following:

You will have to pay Inheritance Tax

This is a tax paid by individuals who receive an inheritance or legacy. Several factors are taken into account when calculating the amount payable:

• The net value of the assets inherited.
• The degree of kinship between the deceased person and the heir.
• The heir's pre-existing assets.
• Any reductions and tax allowances that may apply. There are significant differences between Spain's autonomous communities, as some offer allowances that considerably reduce the tax burden. Furthermore, in some cases, the heir is required to retain the property as part of their assets for a specified number of years, which may range from 3 to 10 years. In this regard, the following allowances and reductions are particularly noteworthy in Madrid:
  o A 99% tax allowance for inheritances received by children.
  o A 95% reduction for the main residence. This is calculated on the value of the property and is subject to a limit of €123,000 per heir. In addition, several requirements must be met, such as having lived with the deceased or retaining the property as part of the heir's assets for 5 years.

You will have to complete all the inheritance formalities

You will need to complete these formalities if you wish to receive the inheritance. To do so, you will have to:

• Gather documentation such as the death certificate, certificate of last wills and the will itself. In addition, all documentation relating to the inherited assets must be obtained, such as property deeds or bank account balance certificates.
• Execute the deed of acceptance of the inheritance before a notary and the allocation of the property.
• Pay the relevant taxes, such as Inheritance Tax and municipal capital gains tax.
• Register the deed with the Land Registry.

All these formalities can affect the time it takes for you to become the owner of the property and may involve additional costs that should be anticipated, such as the fees of notaries, registrars, administrative advisers and lawyers involved in the inheritance process.

Current ways to become a homeowner

Given the difficulties young people face when buying a property, several alternatives are available:

• Inheriting a property. A child inherits a property from their parents and can use it as their own home or sell or rent it to generate a return. It may happen that, if the father dies, for example, and the mother is still alive, the child inherits the bare ownership of the property while the mother retains a life interest, allowing her to live in the property until her death. If the child decides to sell the inherited property, they will have to pay Personal Income Tax (IRPF), as the income obtained from the sale is considered a capital gain. In addition, as a result of the sale, they will once again have to pay municipal capital gains tax.
• Inheriting money. Another fairly common option is for a child to inherit enough money from their parents to buy a property and cover the associated purchase costs.
• Lifetime gift. A property or money to purchase one can be gifted during the donor's lifetime. This can be formalised in a public or private document and consists of a parent transferring a property or other asset to their child free of charge during their lifetime. In this case, it is also necessary to consult the regulations of each autonomous community, as certain tax deductions or allowances may apply depending on the circumstances. In the Community of Madrid, for example, gifts from parents to children are eligible for a 99% allowance on Gift Tax, meaning that children effectively pay 1%.

If you have inherited a property and do not know which formalities you need to complete to become its owner and use it yourself, sell it or rent it out, contact us and our team of expert inheritance lawyers will study your case and handle all the necessary formalities on your behalf so that you can receive the inherited property and pay the relevant taxes within the applicable deadlines.