Selling an inherited property in Ibiza

Anyone who inherits a property in Ibiza and plans to sell it directly to a third party must first settle the estate. To do this the inheritance must be accepted in Spain, and it is important to assign a value to the property, which will appear in the public deed.
As soon as the acceptance of the inheritance has been notarised before a Spanish notary, the heirs must submit an inheritance tax declaration, as taxes are due depending on the degree of kinship. For “first-order heirs” (parents and children), no inheritance tax is payable in the Balearic Islands. This is true for both residents (since mid 2023) and non-residents (since the end of November 2023), as long as the value stated in the deed of inheritance does not exceed the reference value of the property by more than 20%. The market reference value is determined annually by the central cadastral authority based on the purchase prices communicated by notaries and land registries.

The final step is to register the public deed at one of Ibiza's four land registry offices, depending on the municipality in which the property is located. Land Registry No. 4 in Ibiza, for example, covers both the municipality of San Antonio and the entire island of Formentera.
Once the estate has been settled, obstacles can arise during the sales process. In practice, it often happens that the heirs do not agree on whether the property should be sold or retained. A co-heir can sell their share of the property to a third party, but they must adhere to certain statutory rules, including that the other owners have the right of first refusal. It is also possible for a co-heir to sell their share to another co-heir (with a progressive property transfer tax of 8-13%). In this case, there is a more favourable tax option, namely the dissolution of the co-ownership ("extinción del condominio"), which only incurs 1.5% stamp duty. However, if no amicable agreement can be reached within the community of heirs, any of the co-heirs can initiate legal proceedings to divide the property and subsequently auction it off. 

On the other hand, if all heirs agree to sell the property then they must determine if there has been an increase in value ("ganancia patrimonial"). This is the difference between the value at acquisition and the sale price. The Spanish Civil Code stipulates that the acceptance of an inheritance has retroactive effect to the date of death of the deceased. It is assumed that the heirs are the owners from that date for civil law and tax purposes. Consequently, the value declared at the time of acceptance of the inheritance will not be the acquisition value that is used when calculating the profit. Because of the retroactive provision, it is the market value of the property at the time of death that is the basis for calculating the amount of gain to be taxed.
Example: The testator died in 1997 leaving a property that, by 2024, is worth €900,000 according to the reference value. However, the market value of the property in 1997 was only €300,000. The non-resident heirs waited until 2024 to “accept the inheritance”, and declare a value of €900,000. They sell the property to a third party for the same price. Due to the statute of limitations, no inheritance tax is payable. However, as the market value of the property at the time of the deceased's death was only €300,000, the heirs have to pay 19% profit tax on the difference of €600,000, even though a value of €900,000 is specified for the property in the inheritance deed.
To summarise, selling an inherited property in Ibiza presents some challenges, but with careful planning and the right support, the sale can be carried out in a tax-efficient manner.