Lawyer Raymundo Larraín Nesbitt examines the legal impact in Spain on matters such as non-resident taxation and inheritance tax brought about by the key ruling of the European Court of Justice (ECJ) from last 3rd of September 2014 (Case C-127/12).
By Raymundo Larraín Nesbitt
Lawyer – Abogado
21st of February 2015
Introduction
Continuing the trend set out last month on Succession, I think it was long overdue I wrote an article on the ECJ’s landmark ruling of last 3rd of September 2014. The legal repercussions, on the wake of this ruling, have rippled wide and deep across Spanish law; particularly regarding non-resident taxation. For this article’s sake the most prominent change is Law 26/2014 of the 27th of November which amends, amongst other laws, the Personal Income Tax Act (I.R.P.F.), the Non-Resident Income Tax Act (I.R.N.R.) and the Inheritance and Gift Tax Law (Impuesto de Sucesiones y Donaciones, I.S.D. for short). These changes came into force on the 1st of January 2015. I had already referred to them fleetingly in December’s article Taxes on Selling Spanish Property.
Law 26/2014 adapts the decision taken by the ECJ amending internal Spanish national laws. In a nutshell, amongst many other changes that escape the goal of this article, it puts an end to (fiscal) discrimination between residents and non-residents in a wide array of matters; most notably on inheritance and gift taxation. If you are looking for in-depth articles on Spanish Inheritance Tax please follow the links: Spanish Inheritance Tax for Non-residents (Part I) and Spanish Inheritance Tax for Non-residents (Part II).
For the purpose of this article, when I make reference to ‘non-tax residents’ I will always be referring to citizens which are either tax resident in another Member State of the European Union or else in the European Economic Area (E.E.A.). Just to clarify, the below-listed changes do not benefit tax residents outside of the EU or EEA.
I will now, as briefly as I can muster, highlight the major changes.
Succession – Situation Prior to the ECJs’ Ruling
To better understand the scope and wide impact of the legal changes it is necessary for me to digress and explain what the existing situation was prior to the ECJ’s ruling.
Basically there were two sets of allowances on inheritance tax; one set out by rigid state law, which is the common regime and is applied nationwide subsidiarily, and another more indulgent regional one set out by each of Spain’s seventeen Autonomous Communities. Broadly speaking, state law applied to non-tax residents by default in all cases. Regional tax laws applied to residents by default.
State law is hands down more unforgiving and decisively less lenient than regional tax allowances which only applied to (tax) residents. Non-tax residents were forced to follow state inheritance law regardless of where the estate was located in Spain.
Spain is divided administratively into seventeen Autonomous Communities. Each of these have devolved competencies on Inheritance tax matters up to a certain point and may apply generous deductions to the point that Inheritance and Gift tax is almost suppressed in some Autonomous Communities. Making a sweeping generalisation, and just to make things clearer to understand, Spain is divided broadly in communities ruled by centre-right and centre-left wing parties. Their ideological spectrum directly impacts on taxation.
On the one hand, Autonomous Communities ruled by centre-right wing parties (i.e. Partido Popular) have generous tax provisions in place almost suppressing inheritance and gift tax i.e. Madrid, Basque Country, Navarre, Valencia, Balearic and Canary Islands. You can read further in-depth on the matter in my article Non-residents: Six Advantages of Making a Spanish Will from 2012.
On the other hand, you have autonomous regions led by centre-left parties (or left-wing) which, coherently with their ideology, not only do not apply generous regimes to succession but even penalise it furthermore as they firmly believe wealth ought to be ‘redistributed’.
This is the ideological trench warfare in which non-tax residents are parachuted in being caught in the crossfire. Non-tax residents were, until the ECJ’s ruling, unfairly barred from taking advantage from the generous regional tax allowances which were only reserved to residents and significantly improved upon those set out by state law.
A non-tax resident beneficiary of a deceased’s Spanish estate followed the general state law on inheritance and the inheritance was directly dealt with from Madrid (centrally as opposed to regionally in the case of tax residents). This was irrespective of in which of the seventeen Autonomous Communities had the deceased passed away or where the majority of his assets were held. In other words, non-tax residents were being discriminated as, unlike tax residents, they could not take advantage of the generous tax provisions which almost suppressed inheritance tax in some Autonomous Communities.
This was clearly incompatible with the founding principles and self-admitted goals of a European Union which vies to create a single economic and political space posed to compete in equal footing with the US, China and other major rising superpowers.
Post-ECJs’ Ruling – Changes to Spain’s Inheritance and Gift Tax Laws
The European Commission, through the ECJ’s ruling of 3rd of September 2014, ended all discrimination and forced Spain to amend its internal laws and accommodate the European principles on which the EU is based on.
As an example of such changes, Spain’s Constitutional Tribunal (Tribunal Constitucional) has annulled in March 2015 a part of Law 13/1997 relating to inheritance tax (ISD or IHT) from the Autonomous Community of Valencia when it states that only residents with habitual residency in said Autonomous Community can benefit from the lenient tax allowances on inheritance procedures (decisively more generous than state law as it allows an allowance of up to 99% for next-of-kin beneficiaries, Groups I and II). The Constitutional Tribunal has quashed this and stated that these allowances also apply to non-residents in the Community of Valencia (STC 3337/2013, from the 18th of March 2015). The effects of this ruling are ‘pro futuro’; going forward. It doesn’t affect closed matters.
Without further ado the changes brought about by Law 26/2014 (third final disposition):
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.
Consequences of the Changes in Inheritance and Gift Tax Laws
When one of the parties is non-tax resident in Spain 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 above with generous allowances on inheritance and gift taxation. In other words, for clarity’s sake, a beneficiary stands to pay much less now under this new law as from the 1st of January 2015.
For those who are non-tax resident in the E.U. or E.E.A. there are no changes. State law still applies to them unabated.
Changes to Spain’s Inheritance and Gift Tax Law – Conclusion
This is a welcome respite and much-needed change. Kudos to European lawmakers. It made little to no sense to discriminate against fellow EU-members. The previous regulation clearly undermined the principles in which the European Union is firmly grounded upon. Member States must all row as one if the Union is to stand. Or we all become one thing or all the other; but not both. Spain can’t have it both ways.
“A house divided against itself cannot stand” – Abraham Lincoln.
American 16th US President (1809 – 1865). He resolutely ensured a pro-union victory and brought about the emancipation of slaves.
Larraín Nesbitt Lawyers, small on fees, big on service.
Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.
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Related articles
- New EU Regulation to be Passed on Succession and Wills –18th May 2010
- Non-residents: Six Advantages of Making a Will in Spain – 8th August 2012
- Buying and Owning Spanish Property through Companies: Pros and Cons – 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
- Dispelling Spanish Inheritance Tax Myths – 8th August 2015
- Spanish Inheritance Tax for Non-residents (Part I) – 8th March 2016
- Spanish Inheritance Tax for Non-residents (Part II) – 8th March 2016
- Inheritance Tax Novelties in Andalusia. FAQ on IHT – 8th September 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. Voluntas omnia vincit.
2015 © Raymundo Larraín Nesbitt. All rights reserved.
Brad Wiletts says:
Hello Raymundo
My wife and I will be moving over to live permanently in the Murcia Province of Mazarron.
We will become resident in due course and wanted to know about inheritance tax should one of us suddenly die. Our major asset will be the house we will own in Mazarron which will be in joint names and worth around 180,000 euro.
As the house and indeed all our assets are in joint names would we be liable to Spanish Inheritance tax or would we be excempt as we are married and our assets are in joint names
Raymundo Larraín Nesbitt says:
Morning Brad,
Residents and non-residents alike are liable to file and pay Spanish Inheritance Tax (ISD) on inheriting assets located in Spanish territory (tax model 650).
Owning assets in joint names does not exempt you from paying and filing this tax. You are probably thinking of the UK tax exemption between spouses. We do not have an equivalent in Spain (unfortunately).
If your main asset is this 180k property, I understand you stand to inherit circa 100k.
Murcia has been very busy eliminating personal allowances but has introduced interesting ones for family companies as of the 8th of August 2.015. Unfortunately Murcia values properties at market level; that is at pre-recession levels which are substantially higher than current market values post-credit-crunch.
In your particular case you are looking at a tax liability of 4k or less on inheriting your wife’s share. You still need to hire a qualified lawyer to file Spanish Inheritance Tax on your behalf. So you must also budget his legal fees. To this you must also add Land Registry fees to amend the ownership of the quota. Inheritance tax can be requested to be made in deferred payments.
Hope that helps.
Regards
Andy says:
Morning Raymundo
My parents have a property in Guardamar near Alicante worth roughly 140000e which they would like to gift to me and my wife. Can you let me know what the costs for doing this would be for all parties including fees and taxes. We are all UK residents although my parents were Spanish residents for the last 10 years up until last year.
Many thanks
Andy
Raymundo Larraín Nesbitt says:
Hi Andy,
I am more than happy to answer general legal queries relating to an article’s subject but yours isn’t really one.
You want me to give you a full breakdown of associated taxes and expenses on gifting a property which would require me to ask you for a host of information to ascertain for which allowance you qualify and make the necessary calculations. Supplying a tailored tax breakdown, which is not legal advice, on a given matter is not really the purpose of me providing voluntary legal support on these forums, sorry. You’d need to hire a lawyer for something so specific.
You would be exempt from paying Gift tax if you are below 21 years old as you are their son and the amount is below the 150k threshold. If you are over 21 y.o. then a 75% tax reduction is applicable provided certain criteria is met.
Your wife would have to pay a significant sum on the 70k for gift tax as she is not next of kin to your parents.
Regards
Mary says:
Hello Raymundo
My partner (British citizen and Spanish resident and taxpayer) has recently inherited from his mother (British citizen and British resident with properties only in the UK). The amount he received is just above €140,000 in total, although “officially” his part of the estate is above €150,000 (there was an agreement to compensate one of the siblings who was looking after their mother for two years beofre she died. This compensation was agreed informally and there is no mention of it in the Will or anywhere else). We live in Asturias, where there is a threshold of €150k for IHT exemption. There were no taxes to be paid on the estate in the UK. Is there any way my husband can avoid paying taxes considering he did not actually receieve more than €150k?
Thanks a lot in advance for your help.
Raymundo Larraín Nesbitt says:
Hello Mary,
You are going to put me out of business knowing so much!
You are correct, the Community of Asturias has an allowance of up to €150,000 as a nil rate band. Any amount inherited lower or equal to said threshold does not attract inheritance tax.
Any excess, even by just by one cent, and you become liable to pay on the full amount inheritance tax. So if on paper the taxable base exceeds €150,000 your husband does not qualify for this exemption and pays Spanish Inheritance Tax on the full amount. It is a shame you did not do some forward tax planning on this one as you would have saved yourselves a tidy amount. Sometimes what lawyers charge is a paltry amount compared to what they can save you on the long run…
It is unfortunate that this ‘informal’ agreement with his sibling has gone undocumented. Were it, somehow, reflected on paper then, providing the amount is below or equal to the 150k, no inheritance tax would be paid (you’d still need to file the tax mind you). I gather this may prove rather challenging given the fact that Probate did not reflect this in any manner (presumably). Also the pre-existing net wealth of your husband must be below the 402k threshold to comply with this allowance.
Unless this agreement with his sibling is documented and justified somewhere I am afraid the Asturias local Tax Office will turn down your request and demand its pound of flesh; apologies, I meant tax.
I am sorry I can’t be be of greater assistance on your matter. The rules cannot be bent on this instance.
Regards
Mary says:
Thanks a lot for your prompt reply. It is what I thought. We are putting together a family statement signed by all siblings and whatever other “proofs” we have (mainly an annuity purchase as part of the compensation) to document the agreement and justify the amount taken from the estate and not given to the inheritors. I’m not too hopeful but we have to try.
Another problem we have is that one of the documents they ask for is the certificate of “Últimas Voluntades”. The most similar thing in the UK is, I imagine, the Probate, but the Probate doesn’t state specifically which Will it refers to (i.e. it doesn’t say “this Will dated on xxx”) and, according to our accountant, that could pose a problem as, in theory, one could attach any Will to the probate. Have you had any experience on this matter?
Thanks a lot again!
Raymundo Larraín Nesbitt says:
Morning Mary,
The certificate you mention is described in detail in my article Making a Spanish Will (scroll down to the end):
http://www.spanishpropertyinsight.com/legal/making-a-spanish-will/
Following your own posts, as no Spanish will was made, this certificate will yield a negative result (as in no Spanish wills were made). You have a detailed explanation, in English, on how to attain it here:
http://www.mjusticia.gob.es/cs/Satellite/Portal/en/servicios-ciudadano/tramites-gestiones-personales/certificado-actos-ultima
Probate must specifically state the will it is referring to, which must be his last will.
As I explain in my article it is very advantageous to make a Spanish will on having assets in Spain as UK Probate, in my experience, takes over a year to sort out. In Spain there is a deadline of six months to file and pay Spanish Inheritance Tax. You may request a one-time extension of six months (total time to pay 12 months). After said deadline you will start accruing delay interests which mount higher the longer you take. You should request an extension ASAP unless you want to pay penalties for late payment of the tax.
You should hire a Spanish lawyer to request said extension and file and pay Spanish Inheritance Tax on his behalf. You cannot achieve this on your own as it is far too complex and technical.
Regards
Mary says:
Thanks again, Raymond, but I am confused. The deceased (a UK citizen and resident) had no assets in Spain, only in the UK. Is it necessary (and possible) to get a Spanish Certificate of Last Will?
Also, the grant of probate was issued without any clear reference to the Will it relates to. It only says “…the last Will and Testament of the said deceased (a copy of which is annexed) was proved and registered…”. As far as I can see, there is nothing we can do about it, or can we?
Regards
Raymundo Larraín Nesbitt says:
Hi Mary,
Obviously not, sorry. I had overlooked she only owned properties in the UK and was resident there.
Then it all hinges on what’s stated in the Probate documents. To me the wording in English sounds fine; it specifically states it is in fact her last will and testament.
Regards
Ken Povey says:
Hi Ramundo
I have recently purchased a property in Tenerife with my wife and was not aware of the inheritance tax issues in Spain. I was told by the selling agent that you just need to set up a Spanish will and in the event of my wife or myself passing away the surviving person would not be liable to pay inheritance tax. Can you confirm if this is correct in Tenerife.
Regards
Kent
Raymundo Larraín Nesbitt says:
Morning Ken,
I confirm this is poppycock.
Regardless on whether you are a resident or non-resident on inheriting assets in Spain you are liable for Spanish Inheritance Tax.
Unlike back home in the UK where it is the estate that is taxed, in Spain it is the beneficiary that is taxed.
Also, unlike the UK, in Spain there is no generous spouse exemption on inheriting Spanish assets (the famous £325,000 or £650,000 in the UK).
That said, making a Spanish will is very advantageous for a host of reasons which I care to explain in my article: Making a Spanish Will:
http://www.spanishpropertyinsight.com/legal/making-a-spanish-will/
It will save your heirs money, time and hassle at a time of bereavement. But the fact you make a Spanish will does NOT mean you will pay less inheritance tax, much less be exempt from it. That’s a load of tosh.
Now that you own property in Spain, you are liable for the following annual taxes: Non-Resident Taxes in Spain
http://www.spanishpropertyinsight.com/2015/12/08/non-resident-taxes-spain/
Hope that clarifies.
Regards
Ken says:
Hi Raymundo
Thank you for your quick response and the information provided. IHT seems to be a bit of a minefield in Spain/Tenerife. Am I correct in understanding if a property is owned (valued at €200,000.00) jointly by a married couple and one of the party passes away. Would the surviving party ( the benificiary via the Will) be liable to pay IHT on €100,000.00 within 6 months of the death of the spouse ? If this is the case what would the % of tax be payable.
Regards
Ken
Raymundo Larraín Nesbitt says:
Hi Ken,
Yes, but you may request a one-time extension for a further 6 months; total time to pay would then be 12 months. Payment can be fractioned (in instalments) at your request.
But now is when reductions and allowances come into play. You never asked me for them.
I don’t provide exact calculations on IHT as I would need to ask a host of questions and do calculations; and I will not do that for free. You are looking at 15% approximately on inheriting 100k (without any reductions or deductions explained below).
There is a state allowance of nearly €16,000 that reduces your taxable base.
Additionally, in your case as surviving spouse, you also have a local reduction from the Canary Islands region of €40,400 on the taxable base. So between both of them you are reducing by 50% your IHT tax liability.
Also, if you (or your wife) are older than 65 years old at the time of death when you inherit then you do not pay any inheritance tax for an amount of €125,000 or less. You would still need to hire a lawyer to file Spanish Inheritance Tax, mind you, but no tax would be due.
If the partner who dies holds a life insurance, and you are the beneficiary, you get a further reduction of €23,500 on inheriting money from this insurance policy.
Hope that helps.
Regards
James says:
Dear Raymundo,
Please accept my apologies if I am raising a question inappropriately, however, I have been unable to establish how to enter your question and answer forum.My wife is Spanish and I am English and we are both English tax residents. My wife is 76 and inherited in 1994 a local which is occupied by an independent supermarket, which pays rent,and an apartment both properties being located in Tenerife, Canary Islands. She wishes to gift the properties to her 2 children in view of the recent tax changes and whilst we are aware of the need to pay plus valia we are unsure about the liability for capital gains tax in Spain. We understand that the transfer of the apartment will be capital gains tax free in view of my wife’s age but the local is quite different. Finally, my wife’s identity card was issued in Tenerife and we spend up to 5 months a year in the apartment. Thank you in anticipation. Regards James
Raymundo Larraín Nesbitt says:
Hi James,
You are good making your query here, don’t worry.
I address the recent change in Inheritance and Gift Tax in the Canary Islands in my new article: Spanish Inheritance Tax
http://www.spanishpropertyinsight.com/2016/02/08/spanish-inheritance-tax/
Your children, which age you do not specify, are classified for tax purposes in Groups I or II (the latter if over 21 y.o.).
To formalise a Gift it can only be done by means of a deed having a Spanish Notary Public witnessing it. The Canary Islands have just approved a gift tax change effective as from the 1st of January 2016 which reduces by 99,99% gift tax from parents to children. If you do not formalise it before a Notary Public there is no tax exemption and your children will be taxed on the full amount.
Gift tax is paid for by the giftee (the one who receives the assets), that is your children.
The Giftors – you and your wife – would be jointly liable for both Plusvalia and Capital Gains Tax (assuming both properties are owned jointly by yourselves).
Why do you write your wife is exempt from paying CGT? I don’t get it. Are you confusing the rollover reliefs for over and under 65 year olds for Capital Gains Tax? These do not apply to yourselves, you are non-resident in Spain: “we spend up to five months a year in Spain (the apartment).” More information in my article: Taxes on Selling Spain property
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
You are welcome.
Regards
Caroline Newby says:
Good morning Raymundo,
I wont’t even pretend to understand the Spanish law on taxes but have just returned from Lanzarote after trying to sort out my late father’s bank a/c out there. He passed away last March, was a non-resident and held that a/c with me and my sister ( also UK resident). I was told by the bank that they need a copy of the will and grant of probate and I will need to contact the Spanish tax office to pay the tax first before they can transfer the rest to us in Uk. What rate tax will I have to pay please, and any further info you can give would be much appreciated.
Regards,
Caroline
Raymundo Larraín Nesbitt says:
Afternoon Caroline,
The laws on Spanish Inheritance Tax are complex and even confuse professionals so there is no need to excuse yourself. There isn’t one law, there are many. For each of Spain’s 17 autonomous regions has their own laws on the matter besides the state law.
Right off the bat I’ll let you know that I don’t supply an exact figure for no one does this for free; only an estimation.
That said, you do not provide enough details to even give you an estimate. How much do you stand to inherit in Spain (I need a figure)? Are you resident in Spain, UK? Are you over 21 y.o.? Under or over 65 y.o.?
First thing you should do is hire a Spanish lawyer. He will guide you on the procedure. Attempting to file Spanish Inheritance Tax without engaging a lawyer is suicide.
You should read my article Making A Spanish Will; scroll all the way to the bottom where there is a heading talking about the next step for heirs:
http://www.spanishpropertyinsight.com/legal/making-a-spanish-will/
If your father made a Spanish will it is going to save you considerable time, money and hassle. If he did not, then you must follow probate (assuming you are English) and attain a Grant of Probate. You will require the following three documents:
1. Certified copy of his last will
2. Certified copy of his death certificate
3. Grant of Probate.
All three documents above must be translated into Spanish by a sworn translator. They must also have affixed the Apostille seal of the Hague Convention of 1.961. The Apostille seal can be obtained through the U.K. Foreign & Commonwealth Office.
On average a Grant of Probate is taking over a year. Once you have all three, only then can you start to file Spanish Inheritance Tax. Once you have filed and paid IHT can you then have access to the joint account you have with your sibling. All Spanish assets will remain frozen until the inheritance tax is paid.
As your father passed away last March, and you are asking on this almost a year later, you have already incurred in penalties before the Spanish Tax Office for late payment.
As from the time someone dies, his heirs or beneficiary have only six months to file and pay Spanish Inheritance Tax without attracting penalties and late payment interests. You can request a one-time extension of a further 6 months (total 12 months). Spanish Inheritance Tax can be requested to be fractioned or paid in instalments.
Hope that gets you started. Again, your first step is to hire a Spanish lawyer to support you on the Spanish side; you cannot follow this procedure on your own.
Regards
Caroline Newby says:
Thank you very much for your very detailed response, this is quite a complicated matter, I have already sent the bank a translated will, grant of probate and death certificate several months ago as you suggest but my English lawyer has not heard back for five months, no acknowledgement, nothing. Our contact at the local branch in Lanzarote has now left, and they say they never received the paperwork etc etc so looks like we have to start from scratch… Dad didn’t make a Spanish will …… Time to instruct a Spanish lawyer I think.
Thanks again.
Raymundo Larraín Nesbitt says:
Morning Caroline,
You sent your bank contact those three documents? A bank clerk would have just binned them; they are totally useless to him. It is tantamount to expecting a bank clerk in the UK to file and pay your income tax before the HRMC on your behalf; it is ludicrous! Whoever told you that was either wasting your time or else was utterly ignorant of our legal procedures.
Those three documents are required by a lawyer to file and pay Spanish Inheritance Tax on your behalf. Once your appointed lawyer has paid it, and only then, he will hand you proof of payment which you can then take to your branch in Lanzarote. Your lender will then release the account allowing both yourself and your sibling unfettered access to the Spanish funds.
I guess you will have to start from scratch; but this time round hire a lawyer from the onset.
Lesson learnt – the hard way.
Regards
Deborah says:
Dear Raymundo
I’m so happy I’ve discovered your website! It’s so hard to get a straight answer about how much tax needs to be paid in Spain!
I hope you can help me…
I live in Catalunya and my parents live in the uk. They would like to send me 100k and I need to know what tax I will need to pay on receiving this amount of money?
I should mention that I am 41 years old and that I live, work and pay my taxes in Catalunya.
Many thanks in advance for your time!
Deborah
Raymundo Larraín Nesbitt says:
Hello Deborah,
If you were inheriting the 100k, you would pay zero. You would still need to hire a lawyer and file Spanish Inheritance Tax.
If they are gifting you 100k, then you are liable for 5%, or €5,000 approximately. This must be done formally; a Notary Public in Spain must witness the Gift deed. You will need to hire a lawyer to organise it.
If you don’t, then you pay double the amount quoted above.
If you are going to use this money to set up a company, then you would pay zero taxes on the 100k providing ALL the following are met:
1. You are between 18 – 40 years old.
2. Your pre-existing net assets in Spain are < €300,000.
3. You use these funds to set up a business in Catalonia.
4. The gift is organized and witnessed by a Notary Public in Catalonia and takes the form of a Gift deed. You need to hire a lawyer to organize it.
5. Amount gifted is equal to or below €200,000.
Hope that helps.
Regards
Deborah says:
Raymundo
Thank you very much for your response.
I wouldn’t be using this money to set up a company but as part payment of a flat.
If I were to be given less than 100k would that make a difference to the tax? (For example, 95k).
Also, can you tell me if the money was firstly paid into my bank account in England and then I transferred that amount to my account in Spain would I be liable to any kind of tax?
Many thanks in advance!
Deborah
Raymundo Larraín Nesbitt says:
You are welcome Deborah.
Receiving 5k less would make no change other than paying slightly less tax.
Regarding the transfer to UK and then to Spain it would not make any difference.
As a tax resident in Spain you are obliged to submit tax model 720. If 100k suddenly pop into your UK account you would have to justify their origin and many questions would be asked. If you fail to prove it, you would get slapped a hefty fine. If you choose to keep it a secret, UK Authorities, in compliance with new tax agreements, will inform the Spanish tax authorities and you will be in trouble.
Regards
Deborah says:
Many thanks Raymundo. It’s good to have a clear answer about this.
Deborah
Raymundo Larraín Nesbitt says:
You are welcome Deborah.
Emilio says:
Dear Raymundo
My father is a Spanish citizen who was born in Turkey to Spanish parents and he has never lived in Spain. He lived in Turkey with a foreigner visa his whole life and he died recently
I am also Spanish citizen due to my father’s nationality and I have also never lived in Spain.I am currently living in Turkey
We have a joint house with my father in Turkey and which I will inherit now
Considering my father and myself both never lived in Spain and considering the property I am inheriting is located in Turkey, do I have to pay any inheritance tax or any other tax in Spain?
Thanks in advance for your response and I could’t see your email address.Otherwise I would try to direct my question to you directly or in a more relevant forum.
Have a nice day and I look forward to hearing from you
Raymundo Larraín Nesbitt says:
Hi Emilio,
No, you do not have to pay Spanish Inheritance Tax.
No, you do not have to pay any other tax in Spain.
I don’t post my e-mail address to anyone – I don’t want to get spammed.
Regards
Emilio says:
Dear Raymundo
Thanks for your kind advice and quick reply. I really appreciate it
I have one last question if you dont mind
If I rent this house in Turkey in future and generate monthly income for myself, do I need to pay any tax to/in Spain for my monthly income which I receive from renting my house in Turkey?
I look forward to hearing from you
Regards
Raymundo Larraín Nesbitt says:
You are welcome.
The answer is no, you don’t have to pay any tax in Spain. This question is unrelated to the article above.
Deborah says:
Hi Raymundo
I have a quick question regarding the money that my parents will give me to buy my first property in Spain (Catalunya). If my father inherited the money from his mother, and therefore paid inheritance tax in the uk, do we have to pay pax on this money again in Spain?
Many thanks again
Deborah
Raymundo Larraín Nesbitt says:
Hi Deborah,
If your father (UK tax resident) inherits money in the UK from his mother he does not have to pay Spanish Inheritance Tax.
You are welcome.
Regards
Raymundo Larraín Nesbitt says:
Hi Deborah,
I have finished writing an article on this to be published in February.
The United Kingdom has no double taxation treaty with Spain on inheritance matters.
If your father is a British national, resident in the UK, and inherits money from his mother in the UK, he does NOT have to pay inheritance tax in Spain (because there is no connection with Spain).
If your father is a Spanish resident and inherits money from his mother in the United Kingdom he MUST pay inheritance tax in Spain (because he is tax resident in Spain).
If your father is a British national, resident in the UK, and inherits from his mother (also a UK resident) a property in Cataluna, then he MUST pays Spanish Inheritance Tax (because the asset is located in Spain).
You are welcome. Hope that clarifies.
Regards
Steve says:
Hi Raymundo
In 2002 my elderly parents purchased an illegal property in Andalucia. The property has recently become legal and the escritura has been drawn up in my name. As the original contract and all the bills are in my parents name am I liable for gift tax.
If so, how much should I expect to pay. The property is currently valued at approx 170,000 euros. We are all UK resident. I am 60 years old.
Kind regards
Steve
Raymundo Larraín Nesbitt says:
Hi Steve,
I don’t really understand what your parents have done.
A gift can only be done by means of a gift deed having a Notary Public witnessing it. It is not simply changing the deeds into your name.
How much you pay will depend on your pre-existing net wealth. I don’t really answer these sort of questions because they require an elaborate study which escapes the purpose of this forum.
It will be approximately 20% (if indeed you have to pay it as I still do not understand what your parents did).
You may have to multiply the above tax rate by the following multiplicand I’ve borrowed from my next article (February).
You are classified in Group I:
Pre-existing Net Wealth
(in Euros) Groups
I & II III IV
0 up to 402.678,11 1,0000 1,5882 2,0000
402,678.11 up to 2,007,380.43 1,0500 1,6676 2,1000
2,007,380.43 up to 4,020,770.98 1,1000 1,7471 2,2000
Over 4,020,770.98 1,2000 1,9059 2,4000
Regards
Deborah says:
Hi Raymundo
Thanks for your answer.
Just to be clear, my father has inherited this money from his mother in the uk and paid the inheritance tax on it in the uk. He now wants to pass that money to me in Spain. Do I need to pay gift tax on that money? The amount is 95,000€.
Many thanks
Deborah
Raymundo Larraín Nesbitt says:
Morning Deborah,
I believe I already answered your query, with much detail, further above on the 17th of January at 9.51am.
Yes, you are liable to pay Gift tax. But this must be done before a Notary Public in Spain signing a Gift deed. You need to hire a lawyer to organize it and file the tax on your behalf.
See my reply above.
Regards
Deborah says:
Thanks Raymundo
I just wanted to check that as inheritance tax as already been paid there was the possibility that the money wouldn’t be taxed again. I see from your answer that this is not the case.
Many thanks for your time.
Deborah
Raymundo Larraín Nesbitt says:
Unfortunately not. This is something I mention in next month’s article (February). UK and Spain have no double-taxation treaty when it comes to inheritance tax. They do on other taxes, but regrettably not on this one.
You are welcome.
Deborah says:
Many thanks Raymundo, your comments have been really helpful!
Raymundo Larraín Nesbitt says:
Glad I could help out Deborah.
Karen Marie says:
Hello Raymondo.
As everyone has said, your insight and knowledge has given me so much more information than anyone else before. Thank you.
Could you help with this: My parents have been resident in Lanzarote for 20 years in a property worth roughly €220,000 and a joint savings (ISA) worth £35,000. They both had matching wills in Spain. The first spouse leaving all assets to the surviving one and then to me and my two sisters. My mother died 2011 and now my father is gravely ill. Looking through his paperwork I now believe my father failed to file an IHT in 2011, or at all.
My question is what kind of penalties will he have incurred?
The ISA has now been frozen because of failure to remove my mothers name from the account (my indication he hadn’t filed an IHT), how can he access this? It will be needed to pay of any penalties.
What taxation should my sisters and expect when my father dies?
We are UK citizens.
We have no intention of selling the property within 10 years.
Thank you in advance.
Raymundo Larraín Nesbitt says:
Morning Karen Marie,
Thank you for your kind words.
I strongly suggest you read my article dealing specifically with Spanish Inheritance Tax (which explains the penalties in detail):
http://www.spanishpropertyinsight.com/2016/02/08/spanish-inheritance-tax/
If more than 4 years, six months and one day have elapsed since your mother’s death then the statute of limitations kicks in time-barring inheritance tax. Meaning that inheritance tax can no longer be demanded by the Tax Office in Spain (penalties included). Put simply, no tax would be payable in such a case (and by extension no penalties either).
It would be extremely useful to know the exact date of death of your mother to calculate the prescription.
Regards
Karen Marie says:
I can’t thank you enough for your help.
Phew! Ok. I have read your article on ISD (IHT).
My mother passed away 21st sept 2011.
Just a few more questions if I may?
My father has been severely disabled since April 2015. Would that have any bearing on his status in terms of ISD (IHT) if he is due penalties?
Could the penalties for my mothers duties be passed on to us on my father’s death?
We do not intend to sell their property as it was their home for many years. What will the ISD (IHT) implications be for me and my two sisters.
And lastly, may I ask that you contact me directly and privately regarding representation?
Many, many thanks for all your help thus far.
Karen Marie. X
Raymundo Larraín Nesbitt says:
You are welcome Karen Marie.
There are still 37 days remaining before the inheritance tax on your mother’s death is due, so it is NOT time-barred yet…
The fact your father was ill will make no difference; the fines, penalties and surcharges still apply in full.
You can contact me through Linkedin’s private messaging service to discuss your matter more at length.
Regards
Natasha says:
Hi Raymundo,
I have a question regarding gift tax in Spain. My parents want to send me 420,000€ to purchase a house in Alicante, Spain, in my name. I am a tax-resident in Madrid. They are both tax-residents in the UK. What would the gift tax I would have to pay on this be? I am over 21.
Thanks in advance,
Natasha
Raymundo Larraín Nesbitt says:
Hi Natasha,
I am sorry but I do not reply to these kind of queries asking me for tax estimations.
The answer is not straightforward and is often elaborate which exceeds the purpose of this forum. You would have to pay for a tax estimation, as it is a legal service.
Regards
jack says:
Hi Raymundo
I have been separated from my wife for 6 years and in the process of divorce, now I wish to gift the wife my half of a property in andalusia, the property has been deemed illigal but has €35,000 joint mortgage but is valued at €150,000 on the catastral though it has €200,000 on the escrutra, she would look to have the mortgage put in her name, what taxes would we have to pay, we are both UK residents
Raymundo Larraín Nesbitt says:
Hi Jack,
You: are liable for both Plusvalia tax and Capital Gains Tax.
She: liable for Gift tax.
The mortgage is not taken into account.
Regards
Rueiro says:
Hello Raymondo,
I am a UK citizen resident in Galicia and have recently become aware of my personal obligation to declare IHT in Spain for the money that I inherited in the UK, as one of seven residual beneficiaries, from my Fathers cousin. Probate has not yet been granted in the UK and even when that happens the full amount will not be know until a house is sold but I only have 10 days or so to apply for an extension to the six month obligatory declaration period. Should I try to apply for the extension even though I don’t have all the document that that RD1629/1991 art 68.2 seems to require or would an estimated autoliquidacion be better ( In which case how do I document the fact that IHS was paid in the UK?). I feel that I getting into deep water at the wrong end of the sticks. Can you advise? Thank you.
DouglasHale says:
Hello Raymundo,
First, let me say I think it is truly marvelous that you give free advice to people in regards to Spanish inheritance questions. I hope you are able to help me as you have helped others here in response to your article.
My wife is a Citizen of Spain, but resides in the U.S. (She is not a US Citizen, but simply a legal resident and carries a Spanish passport). Her mother is a Spanish Citizen and Resident residing in Valencia for over 30 years. Her mother owns a flat in Valencia valued at say 300K Euros, and wants to leave this property to her natural daughter, my wife, upon her death with a proper Will OR as a Gift.
It appears as a Gift the costs would be considerable for both her mother and herself. So it appears inheritance of the flat upon her mother’s death would be the least costly?
Based on my wife’s 17 year residency in the U.S., what kinds of taxes and fees would she be looking at upon her mother’s death and how long would she have to pay them? Also, is there another methodology that could be looked at in terms of limiting my wife’s liability upon inheriting the property?
Any assistance you can provide would be most appreciated, I tried to include all information I could in regards to residency and location for both parties and hope there is nothing lacking in this regard.
Thank you,
Douglas Hale
Raymundo Larraín Nesbitt says:
Hi Douglas,
Thank you for your kind words.
To address your queries I think it best you first read my two in-depth articles on the matter of inheritance tax in Spain that reply your queries. The above was just an article on the changes to IHT and Gift tax.
Please read the following two articles:
http://www.spanishpropertyinsight.com/2016/02/08/spanish-inheritance-tax/
http://www.spanishpropertyinsight.com/2016/03/08/spanish-inheritance-tax-part-ii/ (point 6 of this article covers Valencia)
US citizens cannot benefit from the above tax allowances; only EU residents.
If her mother gifts her the property she is liable as giftor for both plusvalia tax and capital gains tax. Your wife would be liable for Gift tax as giftee.
You are welcome.
Regards
Helvet says:
Dear Raymundo,
Interesting article. You are incredibly generous providing your expertise free of charge and I would not like to abuse of your free advice so I have just a couple of questions:
1- Are you able to represent me or advice me all over Spain, particularly in Barcelona? Please provide your contact details.
2- What’s the situation with regards to Switzerland? It used to be a member of the EEA but not anymore, I ask because Switzerland normally has bilateral agreements with the EU and many EU countries and a double taxation agreement with Spain. Can residents in Switzerland still being discriminated against?
Looking forward to hear from you.
Thanks,
“Helvet”
Raymundo Larraín Nesbitt says:
Hi Helvet,
Thank you for your kind words.
As mentioned in my article, the list of changes do not affect those who are resident in a country that does not belong to the EU or EEA. As you correctly point out Switzerland is not a EEA member.
https://www.gov.uk/eu-eea
Therefore you could not take advantage of the lenient allowances I highlight above.
As I happent to mention in my article on Non-Residents Inheritance Tax in Spain (Part I), Spain has only signed a double taxation agreement with three countries when it comes to Succession tax; and Switzerland is not one of them. I do not see it as a case of discrimination.
http://www.spanishpropertyinsight.com/2016/02/08/spanish-inheritance-tax/
I am in the process of setting up my own practice.
Regards
Muscatman says:
Dear Raymundo,
Thank you for all the papers on Spanish tax that you have provided on the web. It is a fantastic source of very useful information.
You focus pretty much on the situation for Spanish residents and non resident EU residents (tax payers). Understandably since these will be the majority of those reading your articles.
Although I am a EU national, for most of my working life I have worked outside the EU and are currently resident outside the EU. Furthermore I do not know if or when we will will be resident in the EU again. I am about to purchase property in Spain and understand that on an annual basis I have to pay the higher rate of the annual taxes. Furthermore, the local allowances will not be applicable to the remaining partner if one of use would pass away.
Since my daughter is studying in the UK, can I include her in the title deed which would obviously reduce the inherited part if it would come to that, but would that also have an affect on the local taxes to be paid on an annual basis?
Many Thanks,
Ron.
Raymundo Larraín Nesbitt says:
Morning Ron,
Thank you for your kind words.
You are correct, as you and your partner are both non-EU residents you are not entitled to the allowances I quote.
If you buy the property jointly with your daughter she would pay the lower figure for annual income tax as she’s a EU resident.
However, the UK have opted to leave the EU so it is foreseeable that UK residents will be treated as non-EU nationals in the near future which means they will lose access to these allowances and lower taxation. It will all depend on the terms of Brexit. At this moment in time no one knows.
Regards