It is one of the most frequent questions in wealth planning: is it better to gift assets during your lifetime to your children, or better to leave them as an inheritance? There is no single answer; it depends on the type of asset and on the family situation. We explain the key points for the Valencian Community.
The starting difference
Both the gift and the inheritance are taxed under the same tax -Inheritance and Gift Tax (ISD), but at different times and under different conditions. The inheritance arises on death; the gift, during your lifetime and voluntarily.
How each option is taxed in the Valencian Community
The Valencian Community applies significant ISD reliefs for direct relatives (spouse, children, parents), both for inheritances and, more recently, for gifts. This has brought the cost of the two routes for family wealth much closer together.
Gifting a property (or shares) generates for the donor a capital gain in income tax (IRPF): the tax authorities consider that they have "transferred" the asset and tax it on the difference between what it cost them and its current value. In an inheritance, by contrast, that gain is exempt (the so-called "plusvalía del muerto", the deceased's capital gain). For heavily appreciated assets, this can tip the balance towards the inheritance.
When gifting during your lifetime is usually worthwhile
- For money or lightly appreciated assets (they generate hardly any income-tax gain).
- To help children at a specific moment (buying a home, setting up a business).
- To distribute during your lifetime and avoid future conflicts between heirs.
When it is usually worthwhile to wait for the inheritance
- For heavily appreciated property, because of the capital-gain exemption.
- When you want to keep control of the assets while you are alive.
The best strategy is almost never "all gifts" or "all inheritance", but a well-planned combination according to each asset.
Informative content, it does not constitute binding tax advice. ISD and income-tax rules change frequently; analyse your case with a professional.