Regular legal-contributor Raymundo Larraín Nesbitt explains recent changes to Inheritance Tax in Andalusia, and answers frequently asked questions (FAQ) about IHT in Spain.
By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of September 2016
I have split my article in two sections.
The first one deals with the recent legal changes to IHT in Andalusia brought about by the Junta. I had written an inheritance tax article earlier on this year where I classified the IHT ‘tax friendliness’ of regions in Spain. Andalusia was a tier 2 region (IHT-unfriendly). In my article I explained in detail the ongoing trend in Spain to reduce the IHT burden championed by some political parties. Following the newly introduced batch of positive changes in IHT in Andalusia I may now have to go back and review my classification, moving Andalusia to a tier 1 region (IHT tax-friendly).
The second part of my article is a straightforward FAQ on what to do when someone passes away in Spain. Lots of questions arise when a loved one dies; the purpose of this short FAQ is to – hopefully – address the most common ones.
IHT Changes in Andalusia
There are two batch of laws. The first one came into force last August and the second one will be effective as from the first of January 2017. I will only focus on IHT changes that affect the majority of residents and non-residents.
I. August´s changes:
- Main (family) home: Inheritance tax threshold increased. Before this change there was a blanket maximum (national) reduction in value per inheritor of €122,606. Any amount above was taxed. Applies only to beneficiaries which were already living in the family home at the time of death (all year round). This has now been replaced by a sliding scale:
Main home value up to €123,000 (always per inheritor) are now 100% IHT exempt.
Main home values > €123,000 < €242,000 follow a sliding scale with an exemption that varies between 99 and 96%.
Main home values > €242,000 will have a flat 95% IHT exemption.
As can be gleaned from above, this translates into a 95% IHT exemption for main homes over €242,000 (per inheritor) which is a much welcome respite for inheritors.
- The above only applies if beneficiaries do not sell the property within the next three years from the death. The timeframe has been reduced as it was five years before.
To benefit from the above you must be one of the following:
- 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.
II. Legal changes as from the 1st of January 2017:
- Nil rate band increased. Before this change the inheritance tax-free allowance (per inheritor) in Andalusia was < €175,000. No IHT was charged below this threshold. As from next year, this allowance is increased to €250,000 per inheritor.
- Another positive change, related to the one above, has been introduced on inheriting estates up to €350,000. There is now a blanket allowance on the first €200,000. The significance of this is better understood with an example. On inheriting say €300,000, the first €200,000 are exempt. You would only pay IHT on the remaining 100k.
This is a welcome respite as before you had to pay the full IHT on any excess over the threshold. This created serious tax anomalies i.e. if the excess over the tax-free allowance was as little as by only one euro, the Tax Office made you pay the IHT liability on the full amount (on the whole €175,000) as you did not qualify for the tax exemption – which was bonkers.
This new change strives to correct this much criticized injustice allowing for a greater degree of flexibility. It will greatly reduce the inheritance tax bill for all those inheriting above the tax-free allowance of €250,000 (new ‘soft’ threshold) but below the €350,000 cap (new ‘hard’ threshold).
Frequently Asked Questions on Spanish IHT
- Is it feasible to do any of the admin ourselves or will we have to hand it all over to a solicitor?
Inheritance in Spain is a convoluted process that requires the input of tax experts. This is further compounded by the fact that besides a national law each of Spain’s 17 regions have devolved competencies on the matter and have passed their own laws creating a legal labyrinth.
What you can do on your own is to collate all the required legal paperwork that will be asked by your appointed expert e.g. notarised copy of last will, original death certificate etc.
- My father passed away. Can I simply change the (Spanish) deeds over to my name? How long does this take?
No, you cannot.
You first need to appoint a legal expert who will handle the Spanish side of the inheritance. Once Spanish inheritance tax has been filed and paid can you then change the ownership in the deeds over to your own name.
On average you are looking at six to twelve months overall until the deeds are in your name; providing a Spanish will was made. If no Spanish will was made then in all likelihood the whole procedure will be in excess of a year.
- How do we arrive at a probate value, is there a state website with guide prices based on the square footage or yearly tax paid, or is it done by an estate agent?
There is no national website and no, estate agents do not assess the value for IHT purposes. It is actually the Tax Office that does this.
If the beneficiary is resident in Spain, it will be the regional tax office where the majority of the estate is located that does this. If the beneficiary is non-resident, then this assessment is carried out in Madrid.
- Can you tell me how the value of a property is assessed for inheritance tax purposes? Is it what you paid for it or is it the market value at the time of death?
The value of the estate for the purpose of calculating the IHT liability, is the net value acquired by each inheritor. All charges and liabilities must be deducted first.
The Tax Office values inherited real estate according to the highest amount of the following three:
- Cadastral value of the property (revised).
- Acquisition value of the property (what you paid for it).
- Tax Office’s assessed fiscal property value.
In practice it will be close to the market value but usually (well) below it.
5. I am skint. Can Spain’s IHT be paid in instalments? Can it be paid off the estate itself?
Yes, Spanish inheritance tax can be paid in instalments. You must request it within the first six months as from the time of the death.
No, Spanish inheritance tax cannot be paid off the estate itself. You must first pay IHT and only then can you change the ownership to your name and dispose of it as you see fit.
Succession in Spain is a complex matter. I strongly recommend appointing a Spanish expert to help you wade through the admin minefield.
To get you started, I advise you read some (or all!) of my related articles below. This will give you a leg up when you start your dealings with a tax expert as the legal jargon will already be familiar.
Making a Spanish Will – 8th August 2012
Buying and Owning Spanish Property through Companies: Pros and Cons (Dispelling Spanish Inheritance Tax Myths) – 7th March 2014
Taxes on Selling Spanish Property – 8th December 2014
Spanish Wills and Probate Law in light of European Regulation 650/2012 – 8th January 2015
Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
Spanish Inheritance Tax (Part I) – 21st February 2016
Spanish Inheritance Tax (Part II) – 8th March 2016
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. VOV.
2016 © Raymundo Larraín Nesbitt. All rights reserved.