Inheritance Tax paid by surviving spouse.

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This topic contains 21 replies, has 9 voices, and was last updated by Profile photo of Anonymous Anonymous 10 years ago.

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  • #52410
    Profile photo of Anonymous
    Anonymous
    Participant

    My wife and I live in UK, but intend to retire to a villa we’ve jointly bought in Lanzarote. We have normal UK wills. We also have Spanish wills naming each other as heir. If the heir predeceases then they are substituted by our two children equally.

    We now realise that when we become resident, and the first of us dies, the survivor immediately becomes liable to pay a large inheritance tax. A Lanzarote company advertises it can solve this problem, but I’m told they are relatively expensive. I’m not sure if Lanzarote rules are the same as for Mainland Spain.

    1. Is my understanding correct?

    2. If so, what should we do that is legal, relatively inexpensive, and effective in mimimising the survivor’s liability?

  • #67154
    Profile photo of Anonymous
    Anonymous
    Participant

    Make your children your heirs, maybe. Register the property in yours. your wife and your childrens names.(jointly) As I understand it, problems could arise if your children are married, they subsequently divorce. Their ex’s could lay claim to a portion of the property.
    I’m no expert. It is something we looked into.

  • #67158
    Profile photo of katy
    katy
    Spectator

    Beware a lot of the companies who advertise they can minimise your inheritance taxes as it usually involves some expensive dodgy investment scheme. I know because a friend got involved with a financial advisor on the CDS offering these. Have a look at http://www.costa-action.co.uk

  • #67175
    Profile photo of mariadecastro
    mariadecastro
    Participant

    It surprises me as Inheritance tax when you just own the property you live in is becoming almost insexistent.

  • #67188
    Profile photo of Anonymous
    Anonymous
    Participant

    @john Brindley wrote:

    2. If so, what should we do that is legal, relatively inexpensive, and effective in mimimising the survivor’s liability?

    If you find a legal way, don’t forget to post it here.

    As Claire correctly pointed out, putting the property under the name of your children at the time of the purchase, providing you trust them, is the best way. You could always give them the property but reserve yourself the usufruct just to play safe should they divorce or sell the property, which is now legally theirs.

    Be very weary of dodgy schemes offered by expats to avoid spanish inheritance tax. Let’s be sensible please, do these foreigners have greater expertise on our own laws than us, native lawyers ? Or are they after your money in yet another scam aimed at fellow countrymen, which incidentally is not even new as someone has already posted.

  • #67192
    Profile photo of mariadecastro
    mariadecastro
    Participant

    – There is a reduction for being a relative ( LEY 18/2003, de 29 de diciembre) wityh the requisite of having a pre-existent wealth of less than 500.000 euros.

    – There is another reduction of the 99,99% of the tax if that was the habitual dwelling of the predecessor. The new owner must remain being th owner of that house for 10 years in order to no revert the reduction.

  • #67197
    Profile photo of Anonymous
    Anonymous
    Participant

    I might be mistaken, but isn’t the reduction in 99,99% only applicable to Andalucía, not Lanzarote ? Art. 9 of Law 3/2004, of 28th December modifies article 20.2.c of Law 29/87 for Andalucía only I believe.

    In Lanzarote, If you dwell in the house within those 10 years its 95% but you must have lived the 2 immediate years with that person who dies (general regime). I’m sure Lanzarote (Canary Islands) has its own laws and specific allowances which I just don’t know.

    Although each community has their own laws and specific allowances as well as those granted by the Spanish State which is the general regime common to all regional communities.

  • #67215
    Profile photo of Anonymous
    Anonymous
    Participant

    Drakan/Mariadecastro,

    That sounds interesting. Are you suggesting that if the total assets of a married couple are less than one million euros and they have lived in the house together long enough, then there is a 95 or 99% (mainland/Lanzarote) reduction in the tax payable by the surviving spouse? If so, what Spanish Law or statute covers this? If they own more than one million, do they pay the full tax on the property over one million, or on the whole amount?

  • #67216
    Profile photo of Anonymous
    Anonymous
    Participant

    Under UK tax legislation a UK domiciled individual is subject to IHT on all property owned whether located in the UK or overseas.

    Whilst you may become non-resident for income tax purposes by retiring to Spain, unless you give up your domicile, which would involve giving up your citizenship, UK passport and various other matters; you will still be treated as UK domiciled.

    Giving property to children and continuing to live in a property may also make you liable under the gift with reservation of benefit rules introduced in the Finance Act 1986 and extended in the FA 2004.

    The above would apply in addition to any taxes you might face in Spain.

  • #67217
    Profile photo of Anonymous
    Anonymous
    Participant

    Hi John,

    I am based in Lanzarote as an Estate Agent and this question arises a lot.
    I know the company you are referring to and there are mixed opinions on whether what they are purporting to be able to do is best, or proper advice. Interesting to see that the two – very knowledgeable – lawyers, Drakan and Maria who regularly post superb advice on here are a little unsure themselves. So that gives you some idea of what a minefield it is.
    In days gone by, it was usual for an individual to set himself up as an S.L. company (Mr Jones S.L.) so that they could get away from paying property transfer tax on the purchase of a property. This still goes on to a certain extent, but the tax man wants to see actual trading companies these days and if he calls round to Mr Jones after he has bought the house in the name of a company, and there isn’t one, then it would get mighty interesting.
    The people you are referring to advise that they can place all your worldly assests in a basket and so on and so forth to limit any IHT liabilities there may be.
    They use a lot of “scare tactics” in their advertising over here and always quote the worst case scenarios which, when you read them, are pretty terrifying!
    Personally, I had a purchaser a couple of months ago who used the company in question in order to set up an S.L. and a tax shelter in order to buy a property and take care of the subsequent IHT questions. This added approximately 4 months to the buying process whilst everything went through the local Registry.
    I did not recommend my purchaser to this company – nor did I tell them to steer clear. My knowledge does not extend to these areas. As in any major transaction, I think it is best advice to talk to a few people on the subject and then make your own mind up as no doubt there will be areas of conflicting advice.
    However, the advice I always give my purchasers is to speak to the Gestor I use for both my personal and business dealings and to the lawyer I use in Lanzarote, again for both personal and business matters. Should they not be able to give definitive answers themselves, they move in circles where they will know where to direct you for even further specialist advice.
    It seems to be the case on this forum where prospective purchasers – and post event purchasers – are told to stay away from Lawyers recommended to them by estate agents. However, if nobody gave or took recommendations, then the world of business would be an even shadier place than it is today, and I have no hesitation in recommending the people I use for both personal and business transactions and would ask you to have a word with them before you proceed on what is reportedly an expensive thing to do. My partner in the business was quoted over 5000 euros in order to set up his IHT basket.
    Once again, the company you are referring to are well known over here and in fact I have drawn up my own will with them. However, on the subject of their IHT scemes, I am unsure and personally have not done anything along these lines.
    There is definitely a split opinion in local circles with some people swearing by what is on offer…and others swearing off it.
    If you want to PM me I will give you the contact details of the lawyer and Gestor.

    Stewart

  • #67219
    Profile photo of Anonymous
    Anonymous
    Participant

    No Mr Brindley, I did not write that. 99.99% of properties in Spain are below 500k, so no one would pay this tax then which is just not feasable.

    If you take up residency in Spain either of you (the inheritor) will have an allowance of 122.604,47 Euros (maximum reduction) on your taxeable assets worldwide.

    If you are not resident you do not have such an allowance and will pay on any asset whose value is over approximately 8.000€ onwards starting at 7.65% and reaching as high as 34% (over 800.000 € approximately).

    There are allowances between husband and wife as inheritors of 16.000€.

    There are general rules (general regime) and specific rules for each community in Spain. Please take advise from a lawyer ot Tax Advisor on your specific area. In some communities in Spain the Inheritance Tax has been abolished. Moreover, for many British it is not recommendable to become fiscal residents in Spain because they will pay for assets which in the UK are exempt (so they end up paying even more than they would there).

    Obviously, the same as in the UK, if you have already bought the property in Spain under your names and after you decide to put it under tha names of your children (so as to avoid inheritance tax) you still pay the Gift Tax, as it is obvious.

  • #67227
    Profile photo of Anonymous
    Anonymous
    Participant

    Thank you all for your replies. It seems, as in most financial and legal affairs in Lanzarote, there are few straight answers, and there must be many retirees there that don’t realise the issue facing them. I’ve refreshed this thread to keep it at the top of the list for a little longer.

    Michael21, I’m not trying to avoid my children paying an inheritance tax, nor am I asking about my UK taxes. In general, in both countries, your inheriting children get to pay inheritance tax, death duties, succession tax whatever. The difference I’m asking about is that in Spain, unlike UK, if a person dies, their spouse is liable for a large sum.

  • #67231
    Profile photo of mariadecastro
    mariadecastro
    Participant

    I would have to askl my friend Miguel CHeca, who is a Proffessor of International Private Law in University of Cadiz on that point.

    Of course sure that if you are an Andalusian resident ( and from my knowledge on some other regions too) inheritance tax under those or similar circumnstances becomes almost inexistent.

    Anyhow as in every tax issue, specifi consideration is needed, specially in INternational forums.

    Anyhow I can aks about INheritance Tax Taxation Treaties between Spain and the UK to Miguel. Please let me know if you like the query to be done.

  • #67256
    Profile photo of Anonymous
    Anonymous
    Participant

    Dear John,

    I was not suggesting that you were trying to avoid taxes in the UK, but merely pointing out that despite any inheritance tax liability you have in Spain, you will still remain under UK inheritance tax legislation and be liable for UK inheritance tax on your worldwide assets.

    Relief for tax paid in Spain is available under the double taxation treaty, but the interaction between the two is a complicated matter and as Maria
    has suggested is best dealt with by an expert either in Spain or the UK.

    However I would warn that in the UK this advice does not come cheap
    with typical fees of about £ 200 – £ 300 per HOUR.

    Regards
    Michael

    ( A Chartered Accountant)

  • #67270
    Profile photo of mariadecastro
    mariadecastro
    Participant

    There is no Treaty on double imposition avoidance on Inheritance Tax between Spain and the UK. Just with Greece, France and Sweden. I wonder why? 🙂

    Article 9.1 of the Spanish Civil Code states that the law applicable to mortis causa transmissions ( transmission by death) is that corresponding to the nationality of the originator, but British Law states that it is the Law in the country where the asset is situated, i.e. Spain.

    If you can allegate (in the UK system) that you have already paid the tax related to that asset in Spain and therefore you are not liable of taxation for the Spanish Asset in the UK. … But that is the mission of a UK international taxation specialist.

    I confirm that in most of the Autonomous Communities the INheritance Tax is becoming almost inexistent under certain requirements:

    (i.e Andalucia:

    – Wealth of the originator under 500.000 euros .

    -The individual share of the inheritor under 125.000 €

    – Relatives: the originator muct be spouse, descendant or adopted, ascendant or adopter, or equivalent family relationships under the Andalusian Legislation

    – Wealth of the tax liable person not over 402.678,11 €

    This reductions are compatible with National Reductions.

  • #67271
    Profile photo of Anonymous
    Anonymous
    Participant

    Which assets are taxable in the UK?
    Generally, if you are domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to your assets wherever they are situated

    Liability to UK inheritance tax depends on your domicile at the time you make the transfer.
    Domicile is a legal concept. It is not possible to list all the factors that affect your domicile, but we explain some of the main points in this section.
    You are domiciled in the country where you have your permanent home. Domicile is different from nationality or residence.
    You can only have one domicile at any given time.
    What is a domicile of origin?
    Your ‘domicile of origin’ is normally acquired from your father when you are born. It may not be the country in which you are born. For example, if you are born in France while your father is working there, but his permanent home is in the UK, your domicile of origin is the UK.
    What is a domicile of dependency?
    Until you can legally change it by acquiring a domicile of choice, your domicile will be the same as that of the person on whom you are legally dependent. If that person’s domicile changes, you automatically acquire the same domicile in place of your domicile of origin. This is known as a domicile of dependency.
    What is a domicile of choice?
    You can legally acquire a new domicile, a domicile of choice, from the age of 16. To do so, you must
    • leave the country in which you are now domiciled and settle in another country, and
    • provide strong evidence that you intend to live there permanently or indefinitely.
    Living in another country for a long time, although an important factor, does not prove you have acquired a new domicile.

  • #67275
    Profile photo of Anonymous
    Anonymous
    Participant

    Michael521

    Thanks again. I think I’m still missing a vital link here. I’m not concerned in this discussion about the tax paid when children inherit after both parents have died, only about the surviving spouse paying tax on the deceased spouse’s half of the property in Spain. Unless I’m very mistaken, if I die before my wife, my estate passes to her without paying UK tax on my half of our UK house or Spanish property, but she will be liable to pay tax to the Spanish authorities for my half of our Spansh property which she has “gained”. Am I correct?

    Looking at Mariadecastro’s reply, I am amazed that this is now not fully worked out on the basis of many preceding similar cases. Tt can’t be unusual for a UK citizen to die leaving his wife as sole owner of a house in Spain, so what happens?

    I’m glad I’m only a chartered aeronautical engineer, this is far too complicated!

    regards

    John

  • #67277
    Profile photo of mariadecastro
    mariadecastro
    Participant

    In that case, if you had your domicile in Spain, at the moment of your death, as Michael521 has explained, and therefore your spouse is liable of paying inheritance taxes under the Spanish Law. Your spouse will be beneficiary of all the reductions of the Spanish Inheritance Tax system if you and she meet the legal requirements. Your spouse´s liability will be just a formal voluntary compliance of her almost 0 liability in a period of 6 months after your death.

  • #67278
    Profile photo of mariadecastro
    mariadecastro
    Participant

    AH JOHN: MAY GOD BLESS YOU WITH A HAPPY LIFE FOR MANY YEARS… 😉

  • #67279
    Profile photo of Anonymous
    Anonymous
    Participant

    Some superb replies and advice on this here.
    Some light-hearted ones too!
    But seriously….it is easy to see how some companies claiming to “help” you in this serious matter and to save you thousands and thousands can easily scare people.
    I would be interested to know what John does or does not do with the company in question.
    Please let me know John – either on here or PM as it will help me a lot in the future when I am asked this question and asked about the company your first referred to.

    Cheers

    Stewart

  • #67281
    Profile photo of Anonymous
    Anonymous
    Participant

    @mariadecastro wrote:

    There is another reduction of the 99,99% of the tax if that was the habitual dwelling of the predecessor. The new owner must remain being th owner of that house for 10 years in order to no revert the reduction.

    Maria are you saying that this reduction ONLY applies if the surviving spouse remains in the house for 10 years?
    After the death of a spouse/partner, many people want to sell up to move to a smaller place/be nearer friends and family/return to the UK. What would be the inheritance tax situation in that event?

  • #67287
    Profile photo of Anonymous
    Anonymous
    Participant

    @Michael521 wrote:

    Under UK tax legislation a UK domiciled individual is subject to IHT on all property owned whether located in the UK or overseas.
    The above would apply in addition to any taxes you might face in Spain.

    I think one point that many expat UK residents are unaware of is that inheritances from people in the UK are taxable in Spain even though no UK IHT may be due because of the (relatively compared to Spain) high allowances in the UK.

    For example, the death of a parent in the UK, with an estate below the UK tax threshold of 250K “ish”, leaving it all to a Spanish resident, will incur the full Spanish IHT with very few allowances.

    Assuming of course that it is declared!!

    Sid

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