Spanish Inheritance Tax for Non-Residents (Part II)

This is the second of a two-part series in which regular legal-contributor Raymundo Larraín Nesbitt explains the process for inheriting assets in Spain as a non-resident, and provides an outline on Spain’s Inheritance Tax (IHT).

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of March 2016

 

The following article has been greatly simplified to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. Seek professional legal advice on your matter – see disclaimer below.

 

 

Introduction

The following article is my second part to my abridged article dealing with Spanish Inheritance Tax for Non-Residents (Part I) (IHT going forward). Because of the sheer length of the original article, I was forced to split my article into two parts. Not everyone is interested in this level of detail so it makes sense to remove content from my original article and create a second part with all the minutiae.

This second part deepens in the study of IHT focusing specifically on tax allowances and deductions; both at a national and regional level. Tax allowances are hands down the key to paying little to no Spanish Inheritance Tax for the majority of beneficiaries (including European non-residents).

Feel free to add inheritance tax-related queries below and I will do my best to address them. Please do NOT ask how much Spanish Inheritance Tax you stand to pay as the answer is not straightforward and often requires an elaborate study which escapes the purpose of this forum.

Value of Real Estate for Inheritance Tax Purposes

The Tax Office values inherited real estate according to the highest amount of the following three:

• Cadastral value of the property.
• Acquisition value of the property.
• Tax Office’s assessed fiscal property value.

The cadastral value is the assessed value local Tax Authorities give to a property. It is usually well below the market value (on average by 30% to 50% depending on when it was last revised). This rateable value is used as the taxable base to calculate a series of property-related taxes. You will find the cadastral value of a property in one of your local tax bills (i.e. IBI).

The acquisition value is the sales price of the property which is reflected in the Title deed (when it was bought). Under normal market conditions, real estate assets appreciate over time so this value should be below the current market price.

The Tax Office’s assessed fiscal value is attained by multiplying the cadastral value by a legal coefficient, which is updated every now and then, to bring it more in line with inflation.

Bottom line, all three values above are normally below the current market price; the price at which property actually sales in estate agencies. This translates in practice into paying less tax in real terms.

Testator’s Personal Debts

They are tax-deductible. They must be witnessed in a Notary Public deed or else in a private document (the latter is unadvisable for blatant reasons as it is very difficult to prove). Example: Mr. JC Denton acknowledges a debt of €10,000 by means of a Spanish Notary Public deed to a friend. This 10k can be deducted by Denton’s heirs offsetting it against their inheritance tax liability (they pay less tax).

Encumbered Property: Deductible Liens, Charges, Taxes

In my professional experience, as a conveyance lawyer, almost every property acquired by non-residents is mortgaged. The only exception is cash buyers, which are a frank minority.

The Tax Inheritance Act allows that charges, debts, taxes and mortgage liens against a Spanish property are deductible for tax purposes; it is only the free equity that is taxed. Examples:

Community of Owners outstanding fees.
Lender mortgages.
Lifetime loans.
Town hall taxes (i.e. IBI, rubbish collection).
• Regional taxes.
• State taxes.
• Social Security debts.

All the above are tax-deductible for the purpose of IHT.

Only this first measure vastly reduces a heir’s IHT liability.

So for example, on a property worth £300,000 with a £200,000 mortgage lien against it, only the free equity, the £100,000, would be taxable for inheritance purposes.

Deductible Expenses

Some expenses are tax-deductible such as: death-related medical fees, funeral and burial expenses (within reason).

Tax Categories

Giftees and inheritors are grouped into four categories for tax purposes. Depending on the relationship with the deceased, allowances are conceded. As a general rule, the closer the kinship, the more generous the allowance.

Group I: Natural and adopted children under 21.
Group II: Natural and adopted children over 21, spouse, registered civil partnerships, parents, adoptive parents, grandparents and great-grandparents.
Group III: Relatives in second and third degree: in-laws, brothers/sisters (siblings), nephews/nieces, aunts and uncles.
Group IV: Relatives in fourth degree, or without any relationship: a friend, common law partners.

State Allowances

Allowances are useful to reduce the taxable base (you pay less tax).

State allowances apply to both resident and non-residents.

Group I: there is an allowance available (between husband and wife, or direct line descendants and ascendants) which is a little under €16,000. A very far cry from the UK’s spouse exemption of over £300,000.
Group II: if an inheritor is a direct line descendant under the age of 21, there is an additional deduction of €3,990 for each year they are under 21. The total deduction is restricted to €47,858 per child or grandchild.
Group III: for more distant relatives the exemption is €7,933. There is no exemption for beneficiaries who are not related, including unmarried couples unless they can be registered.
Group IV: naught, nada.

A main home in Spain may be virtually exempt from Spanish succession tax provided the beneficiaries are either your spouse, parents or children and they continue to own the property for ten years from the date of death. ‘Main home’ is a legal term which implies you have lived in the dwelling for the previous three years. The exemption can also apply where the beneficiary is a more distant relative over the age of 65 and they have lived with you for at least two years before death.

Assuming that all the conditions are met, the value of the house can be reduced by 95% on calculating the tax base liable to succession tax, subject to a maximum reduction in value per inheritor of €122,606. This only applies to a principal private residence owned by a Spanish resident. To clarify: if you are non-resident, you cannot benefit from this allowance as, by definition, it must be your main home and therefore you must be resident in Spain.

Regarding life insurance covers, beneficiaries may deduct up to €9,195.

And last, not strictly a tax allowance, but always worth noting, is the often unfairly neglected art. 20.3 of the Inheritance Tax Act which states that if the same property is inherited twice, or more, within a time frame of ten years, the Spanish Inheritance Tax paid on the first transmission is fully deductible on the second, and subsequent, transmissions. Meaning almost no tax would be paid providing the second death is in the following ten years.

This is perhaps better understood with an example: husband and wife own a Spanish property jointly; they have two children. Husband passes away and bequeaths his 50% over to his surviving spouse. IHT has to be paid by his wife on the 50% she inherits from her late husband. If the wife should pass away within the next ten years, her inheritors (the children, presumably) do NOT have to pay Spanish inheritance tax on the 50% that belonged to their late father as the IHT that was paid by their mother is fully deductible.

Regional Tax Allowances

In addition to the above stingy state allowances, each of Spain’s’ 17 autonomous regions have ruled on their own tax allowances. It used to be the case until last year that only residents in Spain could benefit from these – which was an injustice I criticized in all my articles over the last decade. A landmark ruling of the European Court of Justice (ECJ, going forward) of 3rd of September 2014 overturned this. Regional allowances now apply to both residents and non-residents alike (but must be resident in the E.U. or E.E.A.). As a recap:

EU/EEA-residents: (non-resident in Spain) may benefit from both state and regional allowances post ECJ’s ruling in equal footing to those who are resident in Spain.
Non-EU/EEA residents (rest of the world): there are no changes. State law still applies to them unabated. They do not benefit from regional allowances.

In a nutshell, the ECJ’s ruling put an end to (fiscal) discrimination between residents and non-residents in a wide array of matters; most notably on inheritance and gift taxation. As a consequence of this key European ruling, the Kingdom of Spain was forced to grant non-residents the same lenient regional tax allowances that residents already enjoyed on taxation matters. For more details on this matter, please read my in-depth article: Changes to Spain’s Inheritance and Gift Tax Law.

This change translates in practice into paying fewer taxes. So in addition to the niggardly state allowances (European) non-residents may now also benefit of the much more generous regional allowances which in not few instances almost suppress the IHT liability bringing that tax bill to zero (with the support of a lawyer, of course).

When one of the parties is non-tax resident in Spain (but resident in EU or EEA) the above mentioned changes will bear a dramatic impact on the beneficiary’s taxation; significantly decreasing or even suppressing the tax altogether providing the estate is located in one of the Autonomous Communities outlined in this article’s introduction with lavish allowances on inheritance and gift taxation. In other words, for clarity’s sake, a EU-resident beneficiary stands to pay less tax now under this new law as from the 1st of January 2015. Take careful legal advice as these tax allowances differ significantly from one region to the next, allowing for some very interesting tax planning.

I am not even going to attempt collating the full list of all available allowances throughout the 17 regions in Spain as it is much too convoluted, subject to change from one year to the next and would add considerably to the length of an already long article.

I will only be listing the allowances on the six most popular regions in Spain where English like to buy property in (typically coastal areas). There is no point in me listing the remaining eleven regions as they garner little to no attention from non-residents. The only reason I am doing this is because regional tax allowances are hands down the key to paying little to no Spanish inheritance tax for the majority of beneficiaries (including European non-residents).

1. Andalusia.
2. Balearic Islands.
3. Canary Islands.
4. Catalonia.
5. Murcia.
6. Valencian Community.

As mentioned in this article’s introduction, I have split the six regions into two tiers depending on how accommodating they are with IHT exemptions:

Tier 1: IHT tax-friendly. They improve significantly on state allowances as well as introducing their own unique exemptions to the point of almost suppressing inheritance tax. Prototype region is Madrid.
Tier 2: IHT regional exemptions are found wanting. Prototype region is Murcia.

I have considerably abridged the below allowances for reasons of space constraint (there are plenty more I do not list). The allowances I quote below are always per inheritor (unless specified otherwise). So if there are more than two beneficiaries, each of them benefit individually from them

1. Andalusia (Tier 2)

EDIT 8th September 2016: New legal changes have updated this section for the region of Andalusia. Please read the following: Inheritance Tax Novelties in Andalusia. FAQ on IHT.

– No IHT paid on the estate itself on compliance with the following three requirements, per inheritor:

• Inheritance taxable base (per inheritor) < €175,000.
• Heir is classified in Groups I & II.
• Heir’s pre-existing net wealth in Spain < €402,678.

To clarify, if you inherit as much as one euro cent over the quoted €175,000 (per inheritor) you pay inheritance on the full amount (the exemption does not apply).

– Main (family) home: 99.99% exemption on deaths occurred since the 1st January 2003, subject to a maximum reduction in value per inheritor of €122,606. Applies only to beneficiaries which were already living in the family home at the time of death. Only applies if beneficiaries do not sell the property within the next five years from the death:

• Surviving spouse
• Descendants (natural or adoptive children, grandchildren)
• Ascendants (parents, grandparents)
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Beneficiaries are disabled:

• Groups I & II: physical disability >33%: no IHT paid on taxable base < €250,000.
• Groups III & IV: physical disability >33 % and pre-existing net wealth in Spain is <€402,678: no IHT paid on taxable base < €250,000.

– Further exemptions on acquiring family business, companies, company shares etc.

2. Balearic Islands (Tier 1)

– The following allowances improve upon the state ones:

Group I. Beneficiaries aged under 21 y.o.: €25,000. There is an additional deduction of €6,250 for each year they are under 21. The total deduction is restricted to €50,000 per child or grandchild.
Group II. Beneficiaries aged 21 y.o. or over, spouses or ascendants: €25,000.
Group III: €8,000.
Group IV: €1,000.

– Beneficiaries are disabled:

• Physical disability >33%, <65%: €48,000.
• Physical disability > 65 %: €300,000.
• Psychic disability > 33%: €300,000.

– Main home: up to €180,000 exemption per inheritor as long as they don’t sell the property within the next five years from the death. Applies to the following beneficiaries:

• Surviving spouse
• Descendants
• Ascendants
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Life insurance cover: exemption capped at €12,000.

– Further exemptions on acquiring family business, companies, company shares etc.

3. Canary Islands (Tier 1)

– The following exemptions improve upon the state allowances:

Group I. Beneficiaries aged:

• <10 y.o. = 100% capped at €138,650.
• >10 y.o.; <15 y.o.= 100% capped at €92,150.
• > 15 y.o.; < 18 y.o.= 100% capped at €57,650.
• > 18 y.o.; < 21 y.o. = 100% capped at €40,400.

Group II.

• Surviving spouse: €40,400.
• Natural or adoptive children: €23,125.
• Remainder of descendants: €18,500
• Ascendants or adoptive parents: €18,500.

Group III: €9,300.
Group IV: nil.

– Beneficiaries are disabled:

• Physical disability >33%; <65%: €72,000.
• Disability (physical or psychic) > 65 %: €400,000.

– Group II (i.e. surviving spouse) beneficiary is aged 75 years old or over: exemption of €125,000 (incompatible with the above disability allowances).

– Life insurance cover: 100% exemption capped at €23,150.

– Main home: 99% exemption capped at €200,000 pro rata per each inheritor. Applies to the following beneficiaries:

• Surviving spouse
• Descendants (natural or adoptive children, grandchildren)
• Ascendants (parents, grandparents)
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Further exemptions apply on acquiring family business, companies, company shares etc.

4. Catalonia (Tier 1)

– The following exemptions improve upon the state allowances:

Group I. Beneficiaries aged under 21 y.o.: €100,000. There is an additional deduction of €12,000 for each year they are under 21. The total deduction is restricted to €196,000 per child or grandchild.
Group II.

• Surviving spouse: €100,000.
• Natural or adoptive children: €100,000.
• Remainder of descendants: €50,000
• Ascendants or adoptive parents: €30,000.

Group III: €8,000.
Group IV: nil.

– Beneficiaries are disabled:

• Disability (physical or psychic) >33%; <64%: €275,000.
• Disability (physical or psychic) > 65 %: €650,000.

– Group II (i.e. surviving spouse) beneficiary is aged 75 years old or over: exemption of €275,000 (incompatible with the above disability allowances).

– Life insurance cover: 100% exemption capped at €25,000. Only applies if beneficiary is surviving spouse, descendants or ascendants.

– Further exemptions on acquiring family business, companies, company shares etc.

– Main home: 95% exemption capped at €500,000 of property value pro rata per inheritor, maximum exempt is capped at €180,000 per inheritor. Subject to the house not being sold within the next five years as from the death of the deceased. Applies to the following beneficiaries:

• Surviving spouse
• Descendants (natural or adoptive children, grandchildren)
• Ascendants (parents, grandparents)
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Further exemptions on acquiring family business, companies, company shares etc.

5. Murcia (Tier 2)

None worth mentioning!

Exemptions centred on acquiring family business, companies, company shares etc.

6. Valencian Community (Tier 1)

– Improvement on state allowances:

Group I. Beneficiaries aged under 21 y.o.: €100,000. There is an additional deduction of €8,000 for each year they are under 21. The total deduction is restricted to €156,000 per child or grandchild.
Group II.

• Surviving spouse: €100,000.
• Natural or adoptive children: €100,000.
• Remainder of descendants: €100,000
• Ascendants or adoptive parents: €100,000.

Group III: nil.
Group IV: nil.

– Beneficiaries are disabled (per inheritor):

• Disability (physical) >33%: €120,000.
• Disability (physical) >65 %: €240,000.
• Disability (psychic) >35%: €240,000.

– Main home: 95% exemption, capped at €150,000 per inheritor. Subject to the house not being sold within the next five years as from the death of the deceased. Applies to the following beneficiaries:

• Surviving spouse.
• Descendants (natural or adoptive children, grandchildren).
• Ascendants (parents, grandparents).
• Exemption also applies where the beneficiary is a more distant relative over the age of 65 and lived the previous two years with the deceased.

– Further exemptions on acquiring family business, companies, company shares etc.

Taxation Example

Mr. Geralt Rivia and wife Triss Merigold jointly own a summer holiday property in the Community of Valencia valued at €400,000. They have two children, aged 16 and 25. They have Spanish mirror wills leaving their assets to their two children (beneficiaries). The house has an outstanding mortgage of €180,000. All four live in England (tax domiciled in the UK), so they are non-residents for Spanish tax purposes. Mr. Rivia passes away.

He bequeaths his 50%, which amounts to €200,000, to his two children. First of all we must deduct half of the mortgage (€90,000). That leaves €110,000 split between the two children. Once we apply all the above listed deductions, allowances and exemptions the IHT liability is (European non-residents benefit from lenient regional allowances in addition to state allowances):

• Child aged 16: nil.
• Child aged 25: nil.

You may wonder, would the outcome have been the same if the mortgage was fully paid up? Answer is yes.

What about if both children were over 21 y.o.? Answer is still yes, the IHT bill for both would still be nil.

Regardless, even if no IHT is due, a Spanish lawyer must still be hired to file and lodge with the Tax Office Spanish Inheritance Tax so as not to be fined and change 50% of the property ownership over to the two children at the Land Registry.

The case is real. I have made up the names of the two parents. In real life they were duped into incorporating a UK Limited Company to “shield” 100% their two beneficiaries (the children) against Spain’s IHT. They paid £5,000 in legal fees to a UK-based company for the ‘privilege’. This is a clear case of being mis-sold a legal service. The truth is this couple did not need a UK Limited Company; they only needed to prepare two Spanish mirror wills, period.

Furthermore, from a Spanish perspective this structure would not be exempt from IHT. Moreover, I do not claim to be an expert in UK tax law, God forbid, but this scheme would see to assume that the UK’s IHT does not tax the change of ownership of shares in a UK Limited Company. A company that is not actually trading as it has no real activity; it is just a single property investment company.

Had the property been worth substantially more or had the property been located elsewhere in Spain, in what I call a ‘tier 2’ region, then indeed it may have been worth considering a holding company or else exploring other (legal) options to mitigate the IHT exposure of their two children.

Bottom line, corporate structures are a legal tool that may or may not be beneficial depending on each individual case – they are not a universal tax panacea to be sold to everyone. Request a tailored estimation of what your appointed beneficiaries stand to pay for IHT before you act rashly setting up companies or else taking on complex equity release schemes. More on these matters further below and also in my conclusion to this article.

I. Inheritance Rules

a) Deceased is non-tax resident.

If the deceased was resident in a Member State of the European Union or else in the European Economic Area (non-tax resident in Spain) the beneficiary will now benefit from:

• The regional tax allowances where the majority of the assets of the deceased are located in.
• If there are no assets in Spain, the rules of the Autonomous Community where the beneficiary lives apply.

b) Deceased is tax resident and beneficiary is non-tax resident.

If the deceased was resident in Spain and the beneficiary is resident in a Member State of the European Union or else in the European Economic Area (non-tax resident) he will benefit from:

• The regional tax allowances where the deceased lived.

II. Gift Rules

a) Immovable property located in Spain (i.e. real estate). If a non-tax resident is donated an immovable asset (located in Spain) he will now be entitled to the regional tax allowances of the Autonomous Community where it lies.
b) Immovable property located outside of Spain (i.e. real estate). If a tax resident is donated an immovable asset located in a Member State of the European Union or else in the European Economic Area, other than Spain, he will be entitled to the tax allowances of the Autonomous Community where he lives in Spain.
c) Movable property located in Spain (i.e. a painting). If a tax resident in a Member State of the European Union or else in the European Economic Area is gifted a movable asset located in Spain he is entitled to apply the tax allowances and gift rules of the Autonomous Community where that asset spent most of the days during the previous five years.

In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin.

Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.

Related articles

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politician was harmed on writing this article. VOV.

2016 © Raymundo Larraín Nesbitt. All rights reserved.

Comments

comments

27 thoughts on “Spanish Inheritance Tax for Non-Residents (Part II)”

  1. Anna

    My husbands mother passed away in June 2014 she was a uk resident with a property in the UK, nothing in Spain, after debts had been paid and the property sold the remaining was split 50 50 between my husband and his son, and my husband received money in January 2015
    My husband and I are resident in Spain and pay tax as such, we asked our tax adviser in January 2015 if we had any tax to pay in Spain, the answer was NO because the deceased assets were not in Spain.
    We are doing our 720 declaration as now that money leads us to declare, once again the inheritance issue was raised, and they said again 2 weeks ago NO tax due, yesterday they emailed to say we would need to pay inheritance tax, we are totally confused why does it keep changing, we just want to do the right thing, but what is it?

    1. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

      Hi Anna,

      Quoting my article Spanish Inheritance Tax (Part I):

      http://www.spanishpropertyinsight.com/2016/02/08/spanish-inheritance-tax/

      Who is Liable for Spanish Inheritance Tax?

      Broadly anyone who inherits assets or rights in Spain is liable to pay Spanish Inheritance Tax; regardless if they are resident or non-resident.

      Residents: are liable for IHT under personal obligation (taxpayer’s fiscal residency is in Spain).

      • Non-Residents: are liable for IHT under real obligation (location of assets or rights bequeathed/inherited is in Spain).

      Under personal obligation (because you are tax resident in Spain) you are liable to pay IHT regardless of where the assets inherited may be located.

      If you are resident in Spain and inherit UK assets you must pay Spanish Inheritance Tax (besides UK tax). As I write in my above article there is no double taxation treaty on inheritance tax.

      Hope that helps.

      Regards

      1. Anna

        Thank you Raymundo. Am I correct in saying the law changed in November 2014 as my mother in law passed away in June 2014 does that mean inheritance tax would be as the law before the changes or at the time that any inheritance money was received once probate had been completed and monies
        distributed, sorry it is so confusing.

        1. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

          You are welcome Anna.

          Yes, if she passed away in 2014 the law hadn’t changed yet. I take it you are referring to the changes I list in my article regarding the European Court of Justice’s landmark ruling from 3rd September 2014:

          http://www.spanishpropertyinsight.com/2015/02/08/changes-spains-inheritance-gift-tax-law/

          The changes came into effect as from the 1st of January 2015. These changes do not affect what you’ve asked on (personal obligation).

          Regards

  2. Anna

    Thank you Raymundo for your help, I wish your office was nearby We would certainly come and see you.
    Sorry I don’t think I explained the situation very well, I do apologize, I know Murcia region did at one point make a good tax allowance for residents inheriting from father / mother to son and that it now looks to have changed but I can not pin point the date of change, do you know if it was January 2015, September 2014 or earlier?

    1. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

      Thank you for your kind words.

      The region of Murcia has endured a financial ordeal during the crisis. Murcia’s public finances have impacted on their regional legislation policy on inheritance matters significantly. Which is why new laws have been approved on a yearly basis, adding or eliminating allowances depending on how its economy fared.

      The region of Murcia approved in July 2013, at the peak of the crisis, a reform that would suppress inheritance tax allowances. On the following years it sadly became the leading region in Spain in which inheritors renounced their inheritance because they could not afford to pay the inheritance tax (given how aggressively they had eliminated the generous tax allowances).

      The ‘good’ reform you write on is from August 2014. But these affected people that owned companies and businesses.

      In August 2015 another ‘good’ reform recovered some of the allowances they had eliminated through a new law as Murcia’s economy improved which affected specifically parents to children inheritance improving it:

      http://noticias.juridicas.com/base_datos/CCAA/557824-dl-1-2015-de-6-ago-ca-murcia-medidas-para-reducir-la-carga-tributaria-en.html

      “Seis. Bonificaciones en la cuota.

      De acuerdo con lo dispuesto en el artículo 48.1.d) de la Ley 22/2009, de 18 de diciembre, por la que se regula el sistema de financiación de las Comunidades Autónomas de régimen común y Ciudades con Estatuto de Autonomía y se modifican determinadas normas tributarias, en las adquisiciones mortis causa se aplicarán las siguientes deducciones autonómicas:

      a) Deducción por sujetos pasivos incluidos en el grupo I del artículo 20.2.a) de la Ley 29/1987, de 18 de diciembre, del Impuesto sobre Sucesiones y Donaciones, del 99% de la cuota que resulte después de aplicar las deducciones estatales y autonómicas que, en su caso, procedan.
      b) Deducción por sujetos pasivos incluidos en el grupo II del artículo 20.2.a) de la Ley 29/1987, de 18 de diciembre, del Impuesto sobre Sucesiones y Donaciones, del 50% de la cuota que resulte después de aplicar las deducciones estatales y autonómicas que, en su caso, procedan.”

      Hope that helps.

      Regards

      1. Anna

        Thank you so much Raymundo, it’s seems that we are not the only ones confused over all the changes, some of the Spanish tax advisors are too! Hopefully we are at last sorting things out.

        Thanking you once again.

  3. Rob

    Hi Raymundo
    I am considering permanently relocating with my partner to the Valencia region in a few years. I plan to buy a property for cash for around £500 – 750K pounds and would then live off a pension and savings. Including the house I guess my estate would be around 1.2 million pounds. I also have a UK limited company which myself and my partner have an equal shareholding in which also pays us an ongoing income which is variable.

    i would plan for my partner to inherit my total estate and she would also be able to inherit part of my pension ongoing after my death. She would currently be a category IV group which in Valencia seems to be a nil rate which I don’t understand as another article says category IV can be hit hard re IHT. Can you explain this please.

    Do I have any options other than getting married and if married do I also need to formally divide my wealth between us or could I just stay single and state on my Spanish will for my estate to be managed according to my national law? If this was the case what are the IHT implications?

    I imagine we would end up with a house worth around 700,000 euros which we could own jointly (would there be any advantage of only buying a house worth up to a max of 700.00 euros as I understand this would avoid wealth tax on main home) and then split the rest of the cash between us say 500,000 Euros each.

    I understand 95% of half the house value would be due (as long as no sale for 5 years – Valencia Region) but what about the remaining cash. Ideally I would prefer not to set up a Spanish company scheme which sounds fraught with problems.

    Any advice much appreciated

    Thanks

    Rob

    1. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

      Hi Rob,

      You are actually asking me for tax planning advice which exceeds the idea of a forum post. Tax planning is a paid for service, sorry.

      ‘Nil’ as in no allowances. I haven’t written “nil rate” in that context; you have written that. Group IV is the hardest hit, yes, as explained in much detail in Part I of this article above. Which is why people as yourself, leaving a sizeable estate to someone classified in Group IV, should seek tax planning to mitigate your partner’s IHT liability.

      The most simple advice is for you to marry her. The assets would still belong to you, but on her inheriting her tax bill would be mitigated. I strongly advice you read Part I of the article above:

      http://www.spanishpropertyinsight.com/2016/02/08/spanish-inheritance-tax/

      If you are a British citizen, you have free disposition of assets. Meaning you can distribute your estate following your own wishes without being constrained by Spain’s forced heirship rules which would not apply to you. This is discussed in detail in these two articles of mine:

      http://www.spanishpropertyinsight.com/legal/making-a-spanish-will/

      http://www.spanishpropertyinsight.com/2015/01/08/spanish-wills-probate-law-light-european-regulation/

      You are welcome.

      Regards

  4. Profile photo of PaulPaul

    Dear Raymundo
    Well written articles, very helpful, thank you. Can you tell me what the situation is if a beneficiary inherits an estate and simply does not have the cash to pay the IHT tax. Are they expected to get a loan and can they actually get a loan on the strength of their forthcoming inheritance. On larger estates a beneficiary could be faced with a tax bill they might not be able to afford if they cannot get access to the inheritance in the first instance. It seems so odd the way the Spanish IHT system works. Is there any logical reason why they have set it up this way.
    Thanks
    Paul

  5. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

    Hi Paul,

    The system is thought to guarantee the payment of taxes; that is why you cannot dispose of the estate unless you pay the taxes first. But I agree with you that it could have been made somewhat gentler on the taxpayer. You are aware you can request to fraction payment of the tax to make it more manageable?

    You can request for a loan to pay your IHT but I doubt a lender will accept as collateral the estate itself. In fact some taxpayers cannot afford the IHT and simply turn down the inheritance altogether.

    In some cases it is advisable an insurance policy is taken to cover payment of IHT.

    You are welcome.

    Regards

  6. Profile photo of Sa2sassySa2sassy

    Hello. I have found your blog/website very useful. We have a small property in the district of a Almeria in Spain in joint names between my husband and myself. My husband now wishes to transfer the deeds of his half of the house to me. I believe this can be done but will attract a gift or donation tax. I have read your article about the laws regarding gift tax. In this article you have highlighted IHT in Andalucia, is gift tax charged similarly? Try as I might, I am unable to find any information regarding the charging of gift tax in Andalusia and if there are any allowances to be considered. I would appreciate any guidance from you.

  7. Profile photo of shugs5shugs5

    Dear Raymund
    i have just come across your sight and am finding it most useful
    i wonder if you could consider my question
    my husband and i are non resident in gran canaria and own apartment, we wish to gift it to our daughter who is living in it. to complicate matters she wishes to sell and buy a bungalow.
    i am wondering which would be most tax efficient
    1 to transfer current apartment to her and for her to sell and buy or
    2 to sell and buy bungalow in our names and then transfer ownership of the bungalow to her
    i would be very grateful for your thought
    regards
    sue

    1. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

      Hi Sue,

      Thank you for your kind words.

      Your query is really a paid-for-service as you are not making a general request but rather asking for tailored tax advice on your particular matter. A study needs to be done to see which option is more tax efficient.

      Regards

  8. Profile photo of catcat

    I hope you can help. My mother and her husband bought a property in spain several years ago and came to live here. My mother then died so her husband inherited everything. The will stated that when he died all assets would be divided between his hiers and myself. The problem is there was a spanish will which was straight foward leaving all assets to myself and his heirs. There are also assets in the UK but there was no UK will. The will here in spain has been held up waiting for probate from the UK. Is this normal. I cannot understand why the spanish will cannot be acted upon for the spanish assets. I am a spanish resident, his heirs live in the UK Many thanks.

  9. Profile photo of brittanymanbrittanyman

    Hi Raymundo,could you please clarify a Spanish Inheritance Tax question for me please?If a property is jointly owned,by a husband & wife,and they are Spanish Residents,on the first death,what percent does the surviving spouse have to pay?Good Luck with your new practice.Best regards,brittanyman.

    1. Profile photo of Raymundo Larraín NesbittRaymundo Larraín Nesbitt Post Author

      Hi Brittanyman,

      The answer is it depends. It depends on multiple factors. Besides a national tax allowance on the main home (€122,606) which a surviving spouse can benefit from, each of Spain’s 17 regions can further improve upon said state allowance.

      Unashamedly self-quoting my article above:

      A main home in Spain may be virtually exempt from Spanish succession tax provided the beneficiaries are either your spouse, parents or children and they continue to own the property for ten years from the date of death. ‘Main home’ is a legal term which implies you have lived in the dwelling for the previous three years. The exemption can also apply where the beneficiary is a more distant relative over the age of 65 and they have lived with you for at least two years before death.

      Assuming that all the conditions are met, the value of the house can be reduced by 95% on calculating the tax base liable to succession tax, subject to a maximum reduction in value per inheritor of €122,606. This only applies to a principal private residence owned by a Spanish resident. To clarify: if you are non-resident, you cannot benefit from this allowance as, by definition, it must be your main home and therefore you must be resident in Spain.

      In the region of Andalusia for example they have just passed a new law last month where there is a flat tax exemption of 95% on the main home for values north of €242,000 (per inheritor). So if for example your property is located in the region of Andalusia, and it is worth 500k and is jointly owned (50/50), the surviving spouse would pay next to no inheritance tax on inheriting the main home.

      But different regions in Spain have different laws which may – or may not – improve upon the national tax allowance on main homes for values up to €122,606. In addition to qualify for the exemption on the main home, the surviving spouse must hold on to the main home for a specided timeframe which varies from one region to the next. As a general (national) rule it is ten years. But different regions in Spain improve upon this. In Andalusia, for example, you only need to hold onto it three years before being able to sell it (after a new law was passed last month).

      Which is why I cannot give you a precise rate or figure because you do not provide me with enough details.

      I hope the above clarifies. And thank you for your kind words, much appreciated.

      Regards

      1. Profile photo of brittanymanbrittanyman

        Hi Raymundo,thank you for your reply,it would seem that living in the Valencian Community,rather than the Murcia region,is more beneficial to a surviving spouse,as far as the present inheritance laws stand at the moment,this is very important information when making decisions about which areas to live,many thanks again.Best regards Brittanyman.

Leave a Reply