Lend or donate money to buy a house in Ibiza: what is better?

In tax terms, it is not the same to lend the money (e.g. to a son) than to make a donation. If you are thinking of buying a property in Ibiza, this article will be interesting for you.

From the Ibiza Country Villas real estate agency we advise to know the taxes and procedures of each alternative before opting for one of them.

Is it better to "give the money away" or is it preferable to take out an interest-free loan? Let's put some light on these questions.

TAX ISSUES OF A MONEY DONATION

In the case of making a monetary donation to buy a house in Ibiza, it must be taken into account that the person who receives it must pay the Donations Tax.

That is to say, if a father makes a donation to his son for the purchase of his home, the latter will be obliged to pay the tax.

However, each Autonomous Community regulates it differently. In the Balearic Islands there are several reductions that allow for a 57% reduction in this tax.

To benefit from this reduction there are some requirements. You can check them at this post from idealista.

Tax implications of a loan

The first thing that must be clear is that if you choose to take out a loan to buy a house in Ibiza, it's imperative that you get it in written form..

When drawing up this contract, it is very important to specify the repayment terms and whether it is a loan with or without interest.

This aspect is also crucial, since, if they are included, the donor must include them as a return in his income tax return.

Both options (interest bearing loan or interest bearing loan) do have one thing in common: they are "taxed in the Transfer Tax (ITP), although it' s exempt. To do so, the self-assessment of the tax (form 600) must be presented where the exemption must be stated", as explained in this other post.

So, IN IBIZA... is it better to donate or is it better to lend?

Everything will depend on the specific situation of each client, since if the requirements established in the Balearic legislation are not met, you may be more interested in taking out a loan.

Our team of real estate agents are constantly training and are experts in the field of taxation, so they can help you choose the best option for you.

Don't hesitate to get in touch with us if you have more doubts about it or if you need advice when buying a house in Ibiza as an investment.

Photo by Christian Dubovan on Unsplash