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.
Igurisu says:
Raymundo, what taxation would apply to immovable property located inside Spain for non resident? In our case, my father owns an apartment but is a UK resident and would like to gift the apartment to my brother and myself (also UK residents).
Regards
Pete
Raymundo Larraín Nesbitt says:
Hi Pete,
The (new) law states that a non-resident taxpayer (you and you brother), whose a giftee of immovable property (i.e. real estate) located in Spain, is now entitled to the regional tax allowances of where it lies.
As you mention both you and your brother are UK tax residents, you will both reap the benefit of this change in tax law spurred by the ECJ/European Commission. The tax residency of your father is irrelevant; he will not be tax liable for this transaction.
Put simply, you and your bother are liable for gift tax in Spain (it follows a sliding scale). With this change in law, depending on in which autonomous community in Spain the property is located, you are now able to benefit of the regional tax allowances on gifts on par with tax residents. As I write in my article above, these regional allowances were previously reserved only to residents; in some cases they are fairly lenient as opposed to state law. Bottom line you stand to pay fewer taxes after this change in law (in Spain).
Please take professional tax advice from the UK perspective. I can only advise from the Spanish side.
Hope that answers your query Pete.
Regards
Raymond
Igurisu says:
Hi Raymundo,
Many thanks for your reply, it’s very clear. So the next thing I need to do is find out what the regional taxes are, in our case for Murcia. I’ve been trying to search but so far haven’t found where this information may be available. I’m back oput in 3 weeks so I’ll ask locally for further information about the tax rates.
Thanks again for your reply, much appreciated.
Regards
Pete
rosey_s says:
Hi Pete,
Did you ever find out what the gift tax rates are in Murcia. My husband is gifting his half of an apartment to his brother and I’m trying to find out who, if any of us are liable for tax. The apartment is worth €80,000 so the gift would be €40,000.
Thanks
rosey_s
Raymundo Larraín Nesbitt says:
You are welcome Pete.
Georgina Thomas says:
Hi Raymundo,
I have been trying to find a break-down of who ‘gifts’ or ‘donations’ apply to and have been unable to do so. Do the changes in Spanish tax laws apply to donations from sister to sister or is it only from parent to child? Regards, Georgina
Raymundo Larraín Nesbitt says:
Morning Georgina,
These changes are unrelated to what you write.
The gist of the changes is that lenient regional allowances that were once exclusive to residents are now open to non-residents as well. The allowances themselves have not been changed.
So a non-resident can now benefit from both state and regional allowances on inheritance and gift tax.
Spain is divided administratively into 17 mini-estates all which have competence over IHT and Gift tax. So they each have their own allowances in place besides the state ones which are common to all.
To find an answer first you need to know in which autonomous community does you or your sister live to know what allowances, if any, are in place for Gift tax.
Regards
Michael says:
Dear Raymundo,
Thank you for all that information. My wife and I own a piso in Malaga which we use mainly as a holiday home at present. We are resident most of the year in the UK where we pay our taxes. Will we benefit from the Inheritance Tax changes you’ve outlined?
With best wishes,
Mike
Raymundo Larraín Nesbitt says:
Morning Mike,
Yes, both you and your wife qualify to take advantage of these changes.
Providing you are both tax resident in the UK, the surviving spouse will benefit of the regional tax allowances which in this case are set out by the autonomous community of Andalusia (where your property is located).
Unfortunately Andalusia is one of those communities to which I referred in my article above which are not particularly lavish when it comes to inheritance allowances. EU-residents are now exempt from IHT in Andalusia on an estate valued at €175,000 or less. Any amount over and above will be liable for IHT following a progressive sliding scale.
So you can expect to pay IHT or Gift tax as it has not been suppressed. Nevertheless, these regional allowances are still more generous than general state law.
Hope that helps Mike.
Regards
Raymond
Michael says:
Many thanks, Raymond. That is both most helpful and encouraging. With best wishes to you and yours,
Mike
Raymundo Larraín Nesbitt says:
You are welcome Mike.
Raymundo Larraín Nesbitt says:
Hi Shirene,
Your daughter, as the giftee, would be liable to pay for Spain’s Gift tax (ISD) on you donating her the property located in Javea. You would not be liable.
As you mention she is already a tax payer in Spain then my article above does not apply to her.
The reason is because she is resident in Spain and therefore already benefits from the regional tax allowance of the autonomous community where she lives in. You would need to request a detailed breakdown of the Gift tax to pay before you make any decision as it can be fairly high in some autonomous communities.
Hope that clarifies Shirene.
Regards
Raymond
John says:
Helo Raymundo
My wife and I own a property in Villena (60km from Alicante). The house is worth approx. 150k euros with no mortgage, bought 10 years ago. We with inheritance in mind would like to gift it to our two grown up daughters (via our Spanish will if needed). What would be the implications and percentage of tax payable for our daughters.
Kind regards
John Cottam
Raymundo Larraín Nesbitt says:
Morning John,
Your legal query requires more information to be replied to. The Valencian Community takes into account the age of the beneficiaries as well as their pre-existing wealth. Gift tax in Spain follows the same sliding scale as Inheritance Tax but it doesn’t have associated its generous tax allowances.
If the property is worth 150k and you plan to gift them 50% each and they are 21 years old or less no tax would be payable in Spain (Valencia). If they are over 21 years old the capped tax-free amount is 100k each. Their individual pre-existing wealth must be < €2mn to qualify. From a UK perspective, taking for granted your daughters are fiscal residents there, you should take professional advice as they may be liable for taxes. The donation needs to be done with a Notary Public as witness in a public document.
These generous allowances were reserved to residents in the Valencian Community. But as I write in my article above the ECJ's ruling has allowed non-residents to take advantage of these when the real estate being donated is located in Spain.
Hope that helps John.
Regards
Elaine says:
Hello Raymundo
We will move to Andalucia next month. Before leaving the UK my husband and I are going to a solicitor to have new UK Wills drawn up. We are aware of the new succession law coming into force in Spain in August 2015. After we complete on our new Spanish property we will have Spanish Wills drawn up too. Our problem is we are worried we will make an error somewhere having 2 Wills and our UK solicitor is not familiar with Spanish law. Our understanding is that we have to state on our Spanish Wills that a) we wish our assets to be disposed of according to the laws of our nationality and b) the Spanish Will is only in relation to our Spanish assets. By doing this we believe it allows our UK Will to be our last Will & Testament. We have also read that we should NOT have the clause on our UK Will stating ‘This Will makes all other Wills invalid’. Our appointment is Friday 27 March with the UK solicitor and we are getting concerned that we are doing things correctly. I really appreciate any advice you can give us. Thank you very much. Elaine
Raymundo Larraín Nesbitt says:
Morning Elaine,
Deary me, if all my clients were as diligent as you I would soon be out of business! I think you have almost self-replied your own queries.
I suggest you read my new article on Spanish wills as there have been some changes in European legislation. It is very important to mention in your Spanish will that you want the laws of your own nationality (England & Wales or Scotland) to apply in lieu of Spanish ones. Please read the my article below for more in-depth details.
Spanish Wills and Probate Law In Light Of European Regulation – 8th January 2015
http://www.spanishpropertyinsight.com/2015/01/08/spanish-wills-probate-law-light-european-regulation/
It is highly advisable for British nationals to have two wills drawn up. A UK will and a Spanish will which is exclusive to your Spanish assets. The advantages on following this are numerous and I have taken the time to collate them in this other article of mine:
Making a Spanish Will – 21st August 2012
http://www.spanishpropertyinsight.com/legal/making-a-spanish-will/
Your UK solicitor cannot make any errors on a Spanish will because he will not be drawing it up. This can be done at a Spanish consulate (London, Manchester, Edinburgh) or else when you come on over to Spain before a Spanish Notary Public witnessing it.
The only error a UK solicitor can make is when he adds a clause to a UK will, such as the one you mention yourself in your query, which would preclude a Spanish will (or any other foreign will for that matter).
Hundreds of thousands of British nationals own property in Spain and have dual wills covering both their UK and Spanish assets without any problems. These wills act separately and don’t clash with one another. Spanish Notaries and their officers are well-trained and familiarized with UK law, don’t worry.
Hope that helps Elaine.
Regards
Elaine says:
Thank you very much for your response Raymundo. We had read both those articles. Are you based in Spain? It would be nice to use your services (paid) at some point when we get there. Regards Elaine
Raymundo Larraín Nesbitt says:
You are welcome Elaine.
Yes, I am now based in Spain again. Sounds great, let me know when you are here.
Regards
Raymundo
Elaine says:
Whereabouts are you located Raymundo? Also another quick question if you don’t mind. How does Capital Gains Tax work if we sell shares we own in a company that is listed on the UK AIMs stock market once we are resident in Spain. Thanks again. Kind Regards Elaine
Raymundo Larraín Nesbitt says:
Morning Elaine,
I’m based in Marbella (Andalusia, Southern Spain).
Regarding share selling:
Fiscal resident in Spain
You’re liable for CGT as per Spain’s Personal Income Tax (IRPF)
If selling shares in 2015:
Up to €6,000 20 %
Between €6,000 and €50,000 22 %
As from €50,000 24 %
If selling shares in 2016:
Up to €6,000 19 %
Between €6,000 and €50,000 21 %
As from €50,000 23 %
Hope that clarifies Elaine.
Best regards
Raymundo
Elaine says:
Thanks very much for your input. Kind Regards Elaine
Elaine says:
Hello Raymundo
I have been trying to find your contact details online (email or landline phone no), but haven’t been successful. What is the website for your company? I would like to find out your charges for advising on Inheritance Tax Planning before we make our Will which we need to do as soon as we arrive in Spain (about 6 weeks time) and general tax issues (capital gains). Unfortunately we are based near Baza (Guadix area) so it is quite a long trek to see you, but were very impressed with the articles and information you have given on here. Thanks a lot Elaine
Raymundo Larraín Nesbitt says:
Hi Elaine,
Until recently I was working in the UK. I still have not set up my practice as I’m organizing the move.
I’ll be opening it this fall.
I hadn’t realized you needed a service so soon.
Regards
Elaine says:
Hi Raymundo
Yes, we need someone within the next few weeks. That’s a shame you’re not set up yet. Can you recommend someone else? We need advice on inheritance tax, capital gains tax, and whether or not to purchase the property in Spain in the name of a company. Thanks and Regards Elaine
Elaine says:
Hi Raymundo, Sorry for another question, really wish you had your practice set up so we could use your services to assist us with our upcoming move to Spain. We are currently trying to find an advisor to help on lots of questions and who we can engage, are you able to recommend anyone? Meanwhile, can I ask you another question please? Our understanding is that once we are resident in Spain that Spanish IHT is payable on our worldwide assets, so including any assets in the UK. Our only UK assets will be a life insurance policy (finishes in 2020) but if one of us/both of us were to ‘go’ now it pays out £250000. Add that to our Personal Penion plans then there would be approx £500000 of assets in the UK. As this figure is below what we both can have in the UK i.e. £325000 each, we haven’t put either the life assurance or pension policies into trust, however, it has just occurred to us that if we do put them into trust here that it might protect the money from Spanish inheritance tax. What is your opinion? Really appreciate your assistance. Thanks & Regards Elaine
Raymundo Larraín Nesbitt says:
Morning Elaine,
Your beneficiaries, upon your death, would pay Spanish IHT (ISD) on your worldwide assets if you were resident in Spain at the time of passing away.
Trusts do not exist under Spanish law and are not recognized by the Tax office (Hacienda).
Regards
brian says:
Hi Raymundo. I am UK citizen and tax resident in Barcelona. My wife is US citizen and also taxresident here. We do not have any property but savings here and in the UK. Can I, by 17th August elect to have <UK succession law in the event of my death and would that mean that we can use the UKpnds325000 allowance against 50 per cent of my cash assets.(All our savings are in joint names) I assume that I would have to make a UK and Spanish will declaring that. Any help you can give would be appreciated.
Brian
Raymundo Larraín Nesbitt says:
Hi Brian,
The £325,000 inheritance tax allowance you mention only applies to the UK’s IHT. I’m afraid you cannot take advantage of a UK nil rate band on being tax resident in Spain.
All things equal, when you pass away the joint bank account will be immediately frozen until Spanish IHT is settled (6 months on average).
Any assets you hold in Spain (i.e. cash in bank) will be taxed following Spain’s Inheritance Tax; not the UK’s IHT regardless if your Spanish will indicates you want your estate to be disposed of following your own national law (England & Wale’s or Scotland’s as you don’t specify which is your nationality within the UK).
Your spouse is liable to pay Spain’s IHT as beneficiary. She may take advantage of the tax allowances set by the autonomous community of Catalonia. But at no time can she benefit from the UK’s £325k threshold for the surviving spouse.
Both you and your wife are, following your own words, tax residents in Spain. You may not take advantage of any UK tax allowance.
http://www.spanishpropertyinsight.com/2015/01/08/spanish-wills-probate-law-light-european-regulation/
My article above, on dealing with Spanish wills, explains you may choose your own national law to dispose of your estate; this does not refer to choosing the UK’s generous IHT provisions. If you are both tax resident in Spain, the surviving spouse will pay Spanish IHT. When in my article I mention choosing your own national law in a Spanish will I refer to actually being able to bequeath, for example, 100% of your estate to your American wife following England and Wale’s law. Spanish law for example may not allow this as in Spain we have the legal figure of compulsory heirs (parents, grandparents, children and grandchildren) which take preeminence over any surviving spouse on inheriting.
Please let me know If I have clearly addressed your query Brian. It is very important the ideas above are clear.
Regards
Raymundo Larraín Nesbitt says:
You are welcome Elaine.
Mr G.Tearle says:
Dear Raymundo,
My Father passed away last year, covered by Alicante. He had only an English will.
We have had the will translated and apostiled plus the deeds etc.
It is only going to my Mother who lives in England now due to age and ill health.
Rather than a new escatura arriving this morning, we received a request for a letter of probate ?.
We had already paid all of the fees at the notary.
What on earth is going on, the E.U. Was set up to make this easier, not harder.
Thank you for helping, we are at the end of our tether.
Raymundo Larraín Nesbitt says:
Morning Mr Tearle,
I’m sorry to hear your father passed away last year.
Unfortunately, as you write, he only had an English will – no Spanish will made. This creates problems and serious delays. I highlight the advantages on having two wills drawn up for British nationals (and other nationalities) in my article Making a Spanish Will:
http://www.spanishpropertyinsight.com/legal/making-a-spanish-will/
In said article I specifically mention that if the deceased only has a UK will then probate is required which is a lengthy procedure that in my experience can take up to a year. Meanwhile the limitation period to file and pay Spanish Inheritance Tax has elapsed as it’s six months as from the time of the demise. You can however request a one-time extension to pay after the six-month deadline.
Bottom line, the mistake your father made was not to have two wills; a second will (a Spanish one) exclusively for his Spanish assets (which does not preclude in any way his English will).
On having only an English will you, as beneficiary of his late estate, incur in more time, expenses and overcharges as I care to explain in my article above.
Notwithstanding the above, EU lawmakers created in 2012 what is known as a ‘European Certificate of Succession’ which will come into force on the 17th of August 2015 streamlining the procedure in EU cross-border successions:
http://ec.europa.eu/justice/civil/family-matters/successions/index_en.htm
You can also read my article on the matter and how it impacts beneficiaries: Spanish Wills and Probate Law in Light of European Regulation
http://www.spanishpropertyinsight.com/2015/01/08/spanish-wills-probate-law-light-european-regulation/
Hope that helps
Regards
Me G.Tearle says:
Knowing how busy you are I cannot thank you enough for such a well researched and insightfully written reply.
We acted on advice from Spanish Solicitors in Spain,
We had all of the documents that we were told were required, all translated and stamped at our expense.
Should we await the 17th or try to slog through probate, waiting would suit us as it has been presented before Notary already.
Regards,
Mr G.Tearle
Raymundo Larraín Nesbitt says:
You are welcome Mr Tearle.
I think waiting is no longer an option as your father passed away last year, well before this law comes into force.
I am afraid you will have to slog through probate. I am sure your solicitors have already requested an extension to file & pay Spain’s IHT. The problem with probate, as you point out, is all the extra time, having everything translated, apostilled etc at your own expense. All this aggravation could have been avoided if your father had drawn up two wills: one for his English assets, one solely for his Spanish assets.
That is basically the gist of my article on Making a Spanish Will so as to avoid beneficiaries of Spanish estates all the extra hassle and expenses you are now enduring. All this could have been avoided through careful planning.
Come August all this cross-border succession procedures *should* be simplified and the associated costs significantly reduced.
Regards
Linda Martin says:
Hi Raymundo,
I have a house in canary islands that I donated to my daughter 5/6 yrs ago. we were both resident for many years there,(she was born there) but now we live in the UK, I had thought she would go back to the canarias, but she has settled in the UK, and now wants to sell the house in the canarias. I am a tax payer in the UK now and she is about to be,(she is 18) (But I also have a S.L. company in canarias and pay tax) Is she able to sell the house and if so what % of inheritance or gift tax would she be expected to pay as she wants to use the monies to buy a property here in the UK. Appreciate your comments.
Raymundo Larraín Nesbitt says:
Morning Linda,
I’m a tad confused by your legal query. You mention both Gift tax and the taxes associated to the sale of a property. You also mention some S.L. you own.
If you already donated the Canary property to your daughter 6 years ago, she is no longer liable to pay Gift tax (‘Donaciones’); specially after 5 or 6 years have elapsed. I assume you paid those taxes in her name at the time, otherwise the property could not be under her name at the Land Registry and therefore she would not be the registered owner.
When she attains 18 years old, majority of age in Spain, she can freely sell the property – providing it is indeed lodged under her name. She is liable to pay for for both Capital Gains Tax and Plusvalia tax. You have a nice little article written by me that describes in much more detail the taxes she will face on selling:
Taxes on Selling Spanish Property
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
Hope that answers your query.
Regards
Linda Martin says:
Hi Raymundo,
Yes excuse my ignorance, but so many things are said about inheritance tax, I was there last month and was told by a property agent that she would have to pay at least 25%! She will be pleased that this is not the case as I did pay all taxes at the begininng.Thank you so much for your information I will look at your link.
Kind Regards
Linda
Linda Martin says:
Hi Raymundo,
Yes excuse my ignorance, but so many things are said about inheritance tax, I was there last month and was told by a property agent that she would have to pay at least 25%! She will be pleased that this is not the case as I did pay all taxes at the begininng.Thank you so much for your information I will look at your link.
Kind Regards
Linda
Ron Biggs says:
Hi Raymundo, I have neighbours here in Tenerife who are non tax residents and own a house locally. They wish to leave their house to the son of a local neighbour on their death. How should they proceed to minimise his tax liability, ie, should they become fiscal residents etc?
Raymundo Larraín Nesbitt says:
Morning Ron,
Your query is professional and exceeds the purpose of this article. You require a tailored answer.
In short they can do little to nothing to mitigate his tax exposure because it is him who will be liable for Gift tax, not them. They hold no sway over his tax position. Gift tax is ruled by where the real estate is located, unlike movable goods.
The Canary Islands along with Andalusia, Murcia, Extremadura and Asturias has one of the most onerous (read punishing) Succession and Gift taxes in all of Spain’s 17 autonomous regions.
As he is no kin to them, he would be classified in Group IV for tax purposes which has no associated tax allowances and would attract the highest tax band. Gift tax follows a sliding scale.
Where he kin to them, he would benefit from generous tax allowances on Gift tax.
Regards
David Kimber says:
Hello Raymundo,
I am UK resident and our son is resident in Madrid.
We are gifting some UK assets to him and believe we should receive exemption from ISD unless there is a change of local government.
What documentation would be required to support the gifts?
I believe this has to be witnessed in front of a Spanish notary.
Would our son be entitled to exemption on an inheritance from UK residents of asset based in the UK.provided the is no policy cal change in the meantime?
Regards
David
Raymundo Larraín Nesbitt says:
Morning David,
As you correctly point out a Gift deed needs to be organised before a Spanish Notary Public. Let’s say in Madrid.
Only your son is liable to pay Gift tax, not yourselves. As he’s resident in Madrid, this autonomous region has some extraordinarily lenient Gift tax allowances which almost suppress payment of Gift tax altogether.
The following excerpt of my article would apply to your particular case:
“II. Gift Rules
a) …not applicable…
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.”
The Notary Public will let you know what documents are required to sign the transfer of ownership/Gift deed. Chiefly the UK Title deed, UK Land Registry document that proves the property is lodged under your name and copies of UK passports plus your son’s.
Hope that answers your query David.
Regards
Joanna Brown says:
Dear Raymundo
Thank you for your very interesting article.
My mother (UK tax resident) drew up a Spanish will many years ago, the beneficiaries of which are myself (UK tax resident) and my brother (tax resident outside the EU). She owns a property in Andaucia worth about €200,000. Who is liable for the IHT? Is it my mother’s estate or are my brother and I liable separately for the tax calculated for each of us?
Raymundo Larraín Nesbitt says:
Hi Joanna,
You are welcome.
Unlike the UK, it is not the estate that pays for IHT in Spain, it is the beneficiary; in this case both yourself and your brother.
You would both be liable for Spain’s IHT or ‘Impuesto de Sucesiones’ separately. I take it for granted you both inherit in equal shares; please correct me If I’ve made the wrong assumption.
Your legal positions are different due to your tax residency. As you are both next-of-kin you are classified for inheritance tax purposes in Group II.
1. Yourself: as you are a UK tax resident, Andalusia’s inheritance allowances kick in. Whereby if you inherit less than €177,000 and your pre-existing wealth (your net wealth in the UK or elsewhere) is below €402,678 you are exempt at 99.99%. In other words you wouldn’t pay any inheritance tax in Andalusia. However, you still have to file the tax within a six-month period after her death. You can request a one-time extension of a further six months if necessary (your lawyer does this on your behalf). If your pre-existing wealth exceeds the €402k then you would pay following a sliding scale; the more assets you pre-own in the UK or elsewhere, the more you pay for IHT.
2. Brother: as his tax residency is outwith the European Union or the E.E.A. he does not qualify to benefit from regional tax allowances, unlike yourself. He would follow the state allowances which are less forgiving and decisively less lenient. Notwithstanding he doesn’t have to pay much or even nothing given he would be inheriting €100,000. There is also a personal allowance of almost €16,000 (tax-free). Depending on age, this allowance is increased but you have to be 21-years-old or less. The younger the beneficiary, the less he pays.
Funeral expenses in Spain are tax-deductible and may be offset against IHT liability. Further allowances apply in case of physical disability etc.
So bottom line you would both stand to pay almost nil for Spain’s ‘dreaded’ inheritance tax.
Hope that helps Joanna.
Regards
Joanna Brown says:
Dear Raymundo
Thank you for your prompt reply to my query.
Can you tell me whether capital gains tax would also apply?
Please let us know when you get set up in Spain. I am sure that we will have other issues to talk to you about in due course!
Kind regards
Joanna
Raymundo Larraín Nesbitt says:
Morning Joanna,
You’re welcome.
CGT would apply only if your mother was gifting you the property (whilst alive).
She would then be liable for CGT and you (and your brother) for Gift tax.
If we are just talking of inheriting property, as per your first post, then it’s only Spanish IHT. Mind you, you may be liable to pay for Inheritance tax in the UK as well on inheriting a Spanish property.
Now if after inheriting the property you plan to sell it, then indeed you’d be liable for CGT and plusvalia tax. You can read this in more detail in my article: Taxes on Selling Spanish Property
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
At some point early next year I’ll set up shop. You’ll know because I’ll start placing links to my company as well as contact details in all my articles.
Thanks for your kind words Joanna.
Best
Raymundo
Robert Vandeven says:
Hello Raymundo,
My 5 year old daughter who was born and is resident in Spain Fuengirola, Andalusia is about to receive a gift of 100,000 euros from her Grandmother who is a Canadian resident. My daughters mother who lives with her in Fuengirola would in turn like to invest in a property there with this money buying in the daughters name.
Can you give any indication of what the taxation might be and if using the money in the above mentioned way is allowable under Spanish law?
We would very much like to use your paid services but I understand from a previous post that you won’t be set up until sometime in the fall. Is this still the case?
Many thanks in advance.
Kind Regards,
Robert
Raymundo Larraín Nesbitt says:
Hi Robert,
As she’s the niece then she would be classified in Group III for Gift tax purposes.
She would have a tax liability of approximately €20,000.
As long as the tax is paid there would be no problem in buying a property after. I don’t advise lodging property at the Land Registry in the name of under aged children as it causes practical problems. You may need a judge’s permission to sell the property at a later date, whilst she is a minor, and this may take some time.
Regards
Robert Vandeven says:
Hi Raymundo,
Actually she is the grand-daughter, it is my Mother who wants to gift my daughter the money. Is this still in the same group?
Yes I did wonder about the ability to re-sell the property.
Thanks very much for your help.
Best Regards,
Robert
Raymundo Larraín Nesbitt says:
Apologies Robert. No it doesn’t change her group, sorry.
Best
Robert Vandeven says:
Thanks again Raymundo
Raymundo Larraín Nesbitt says:
You are welcome Robert.
Robert says:
Hi Raymundo,
In regard to our previous correspondence over the last few posts:
I am still a bit confused as to what group my daughter falls into. My mother wants to gift my daughter (born and living in Spain). Does that not make my daughter a direct descendent as opposed to a collateral descendent based on the categorisation as outlined here?:
Group I consists of natural and adopted children, grandchildren and so forth in direct (ie not collateral) line of descent who are under the age of 21
Group II consists of the same descendants listed above in Group 1 but of the age of 21(+), ascendants in direct line, and spouses. As mentioned earlier, spouses are not favoured beneficiaries and are treated in no way differently from adult children or, indeed, parents and grandparents.
Group III consists of those in the next degrees of kinship out to first cousins. (For the technically inclined, that is to say including the collateral third grade).
I am also confused as to whether any regional ISD allowances on inheritance tax equally apply to gift tax.
Thirdly, I can’t seem to determine if the fact my mother lives in Canada and therefore outside the EU and EAA has any bearing on any allowances that might apply?
Once again many thanks.
Best Regards,
Robert
Raymundo Larraín Nesbitt says:
Hi Robert,
1. As grand daughter she is classified in Group I as she’s below 21 y.o., correct. What changes is that a coefficient is not applied. Her liability would then fall to €12,500 approx following this change.
2. Gift tax follows its own specific allowances as the transmission is ‘inter vivos’, not ‘mortis causa’. So Andalusia applies its own (regional) allowances on Gift tax in addition to the state ones. What Inheritance tax and gift tax mainly have in common is that they follow the same sliding scale. Were she inheriting this amount from her grand mother she would be tax exempt.
The only allowance that comes close applies to ascendants gifting money to descendants on acquiring their primary abode. But I believe this may not be thought for under aged children; I am not certain to be honest. The regulation does not really specify it other than stating the beneficiary must be below 35 years old and the amount gifted is capped at €120,000. The tax exemption would be 99%.
3. It doesn’t really matter if she’s Canadian, What matters is where her grand daughter has her residence in Spain, in what autonomous region following recent changes from last year as explained in detail in my above article. This is something new. This impacts on which Gift tax allowances are applied.
Regards
John dempsey says:
Hello Raymundo,
I own a property in Andalucia and I am currently looking to Gift the property to my 2 adult children (ie both older than 21). The property is worth euro 250,000. I understand that both my children will have an individual Gift Tax liability but what I am not sure on is what reliefs or allowances they can claim to minimise the tax. Are you able to provide some guidance.
Kind Regards
John
Raymundo Larraín Nesbitt says:
Afternoon John,
You are correct.
Both of your children would be liable for Gift tax as giftees.
And you will be liable for both CGT and Plasvalia tax as giftor. More on your tax liabilities as giftor here:
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
Regarding your children, they are classified in Group II for tax purposes. Andalusia has a generous allowance which allows a 99.99% exemption (no Gift tax is paid) for each child so long as the following criteria are met:
1. The amount gifted is below €120,000 per child (this threshold is increased to 180k for those children with a medically accredited disability).
2. Descendants are < 35 years old.
2. The money/property is destined as main abode (and be able to prove it!) i.e. a holiday dwelling would not do. Has to be all-year-round.
As presumably you would gift in equal shares, they would each stand to gain €125,000 which is above the allowed threshold. I'm confident something could be done to circumvent this minor problem…
And you in turn would have to pay the above two taxes I'm afraid which, as you've noticed already, are the same two that apply on selling a property.
The allowance your children could benefit from was previously not available to non-residents. This was quashed by the ECJ last September as per my above article.
Hope that helps.
Regards
John dempsey says:
Thanks Raymundo for your detailed and prompt reply. As both my children are +35 years old it would indicate that paying IHT is preferential to Gift Tax from a pure financial and tax liability perspective – unless I am missing something?
Thanks again.
Regards John
Raymundo Larraín Nesbitt says:
Morning John,
You are welcome. You are correct once more.
In your particular case, from a tax mitigation point of view, it’s best they inherit.
Group II have a 99.99% tax exemption in Andalusia, per child, of up to €177,000 providing their individual pre-existing net worth is below €402k. Following your query, your children may benefit from it so long as their net worth falls within the parameter.
In line with the gist of my article above they would benefit from this regional allowance whether resident or non-resident; it no longer matters to take advantage of regional allowances which improve upon those set by the State.
Hope that helps.
Regards
Lloyd says:
Hi Raymundo,
I plan on Moving to Spain in the next few months, but am worried about a tax implication that might arise.
I plan on gifting my brother a sum of money around €200 000 in 3 years when my money is freed up in a Swiss account. He is in the USA and i understand if i gifted him the money while still in the UK i understand there would be no gift tax, but am concerned about what the tax would be if i did move to Spain this year and gifted him the money in 3 years.
I would be a permanent resident of Spain as my Wife is an EU Citizen and i would be there as a spouse of an EEA Family member and then get Permanent residency.
Kind Regards,
Lloyd
Raymundo Larraín Nesbitt says:
Hi Lloyd,
I cannot advise on UK law.
Spain is divided into 17 autonomous regions which have passed their own laws on this matter. You don’t mention where in Spain you will become resident.
Gift tax in Spain is normally high. I cannot give you a straight answer as I would need to spend time studying the double taxation treaty with the US.
Also take note of my comment in my article above: “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.”
As your brother is resident in the US, he would not benefit from regional allowances making any gift of money very onerous.
Regards
Katie says:
Hi Raymundo,
I’ve really appreciated your interaction with your readers and your willingness to help us make sense of everything. Do you mind helping with our situation as well? Our family (my husband and me, and our children) are American citizens who now have residency in Galicia. We would like to buy a home here, and my parents would like to gift us, and the kids, the maximum gift allowable by US law. We would then wire the funds over to Spain in order to buy the home. All gift and bank transactions would take place between bank accounts in the US, though, before the lump sum was wired over. Do you know whether we need to pay gift tax in Spain, since all financial transactions (except the final one) would occur in the US?
Thank you!
Raymundo Larraín Nesbitt says:
Morning Katie,
Thank you for your kind words.
You would be liable to pay Gift tax in Galicia payable to the ATRIGA (Galicia’s Tax office) as you are tax resident there. I don’t believe Gift tax is part of Spain/US Double Taxation Treaty.
To benefit from a 95% tax allowance you need to comply with the following requirements;
1. Gift must be formalised before a Notary Public in a deed. You will require a lawyer to organise this.
2. Giftee must be below 35 years old or else have been gender victim.
3. Money must be used to acquire main home in Galicia
4. Property must be acquired on the following six months from the gift signing the gift deed at the Notary.
5. Capped amount of €60,000.
6. Your income must be below the €30,000 threshold to qualify.
There are other tax allowances but this one is the closest match following what you write above.
Any amount over and above 60k will be taxed. Your pre-existing wealth will be taken into account for tax purposes. Gift tax in Galicia is not very high when compared to other autonomous regions.
You are welcome Katie.
Regards
PS. Disqus ‘crisis’ averted.
Katie says:
Dear Raymundo, thank you so much for your quick response. Just a few follow-up questions before I take this to our accountant (it’s great we can ask you in English!):
For requirement #1 above, would this be before or during the actual signing for the house (when we close on the house and the keys are handed over to us)?
For #2, do our kids count as giftees? They’re under 35, whereas my husband and I are over 35.
For #5, is this a 60k cap for each giftee?
And finally, if my parents decided to loan us the amounts instead of gifting them to us, would we still need to pay taxes or make a declaration to ATRIGA? And I assume from your answer above that we don’t deal with Hacienda at all, just ATRIGA?
Lots of questions. Thank you so much!
Take care.
Raymundo Larraín Nesbitt says:
Hi Katie,
The gift deed should be signed before completion, yes.
The kids may count if the property is to be put under their name (inadvisable as it creates issues). This is not really thought for kids (under aged) but for young adults seeking to get a footing on the property ladder.
60k is global, not for each giftee.
Any significant loans must be reported to the ATRIGA, yes, as well as the rate of interest on the loan. Otherwise it will be regarded as a gift and be taxed accordingly.
Just ATRIGA.
You are welcome.
Regards
Tara Grayson says:
Hi there Raymundo
I wonder if you could myself and my brothers our father died in January 2013 whilst holidaying with us in England. We were left his property in Manilva Spain which was valued at 170,000.00 euros.
We were ordered to pay approx 24,000.00 euros within 6 months are we now in a position to reclaim these monies
Kind Reagrds
Tara
Raymundo Larraín Nesbitt says:
Hi Tara,
Yes, you can reclaim it.
Regards
Jo Hinton says:
Hi Raymundo
Thank you for your informative article.
My father (age 76) owns a modest property in Mojacar (Andalucia) and wishes to gift the property to me (his daughter aged 36). Can you direct me as to how much ‘tax’ would needed to be paid on the transfer? The house has a fiscal value of 101.600 Euros.
Many Thanks
Jo Hinton says:
Oh….. forgot to mention we are both UK residents!
Thanks again…..
Raymundo Larraín Nesbitt says:
Morning Jo,
Thank you for your kind words. You are better off inheriting than being gifted the property from a fiscal point of view. Inheritance tax is almost negligible in your case.
If your pre-existing wealth is below €402,000, your tax allowance is 99,99% in Andalusia meaning almost no tax is paid for the amount you quote.
You still need to file the Inheritance Tax but, as I write, your tax bill is negligible. You have six months to file and pay the tax as from his death. You may request an extension of six months more if you need it (if he did not have a Spanish will probate takes that long).
It no longer matters whether you are UK resident following my article above.
Regards
Jo Hinton says:
Thank you for your response Raymundo. We do not want to wait until my fathers death, as we would prefer to do the transfer immediately.
Would you be able to give me a rough idea of what we would be looking at tax wise?
Also, is it possible to do the transfer remotely….. Ie: without us both having to go to Spain to complete.
Thanks again for your help!
Raymundo Larraín Nesbitt says:
Hi Jo,
I would need to know a number of things to make an accurate assessment. I can only give you an estimate. The cadastral value needs to be multiplied by the applicable CMVC to attain the current ‘real’ taxable value.
You: Providing your pre-existing wealth (in UK or elsewhere) is below €402,000 then you are looking at approximately €13,000 tax bill on the amount you quote for Gift tax.
Your father: is liable for both Capital Gains Tax (20%) and Plusvalia tax. If this is the main abode of your father (must be resident in Spain) he qualifies for absolute relief on CGT as he’s over sixty five years old. If the property was bought before 1994 allowances may kick in. You can read my article Taxes on Selling Spanish Property for more details:
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
Yes, exchange may be arranged through lawyers by granting a Power of Attorney.
Regards
Anna Stone says:
Hi Raymundo
Thanks also for this article which was very helpful.
My Uncle owns a flat in Valencia but lives in England and is thinking whether to sell/gift to my brother and I or. It seems from what you have said in the article that inheritance is preferable from a tax point of view, but I wanted to check whether that applies to us as niece and nephew (UK tax residents)? My Uncle has no dependents and no wife, and my Mum (his only sibling) and Gran and Grandad (his parents) are all dead.
Thanks for any advice you can give,
Anna
Raymundo Larraín Nesbitt says:
Morning Anna,
Not necessarily, it’s case dependent.
Not every autonomous region has the same allowances for inheritance or gift tax. Some are more lenient than others. Generally speaking inheritance is treated in a more favourable manner than gift tax.
There are no general answers one-size-fits-all.
Regards
neil says:
Hi Raymundo,
if i own a property in Spain and a property in England am i required by Spanish law to appoint someone to represent me in a financial capacity. .By not having a representative could it result in heavy fines. Many Thanks
Raymundo Larraín Nesbitt says:
Morning Neil,
Short answer is yes.
There are four cases in which a fiscal representative must be appointed. On owning property in Spain, as a non-resident, you have to file and pay annually Non-Resident Income Tax. All four cases are listed below:
http://www.agenciatributaria.es/AEAT.internet/en_gb/Inicio_en_GB/La_Agencia_Tributaria/Campanas/No_residentes/Impuesto_sobre_la_Renta_de_No_Residentes/No_residentes_sin_establecimiento_permanente/Gestion_del_impuesto__modelos__representacion_y_retenedor/Nombramiento_representante.shtml
As for the fines being “hefty” on non-compliance, I don’t believe they can be labelled as such.
Regards
Richard says:
Hi Raymundo
I have found the information you give on this web site to be well explained and very informative and certainly highlights the many different possible scenarios that exist regarding individual circumstances and property transfer.
We were wondering if you may be able to provide some guidance regarding what the likely tax liabilities would be to transfer a Spanish property, located in Andalucia, from a sister to a brother (as a gift). Both are resident in the UK and UK tax payers. The value of the property is around 75,000 Euros although the valor catastral is around 35,000 Euros. Both the sister and brother are over 50. We are not clear what taxes would apply (or how much) to either party in Spain or the UK (Gift tax, succession tax, Inheritance tax, Capital gains tax, Plusvalia tax, etc.). The property is just used as a holiday dwelling. Any guidance you could provide on what taxes would apply would be much appreciated. Are there any options to reduce the costs of transferring the property? Are there any other costs that we need to consider? Who should we engage with to formalise the transfer? Yourself? Apologies for the many questions.
Thank-you Richard
Raymundo Larraín Nesbitt says:
Morning Richard,
Apologies for the belated reply, I was on holidays.
Giftor: liable for both Capital Gains Tax and Plusvalia tax (exactly the same as if if were selling the property). For more details please read my article Taxes on Selling Spanish Property: http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
Giftee: Liable for Andalusia’s Gift tax. Approx €8,500. This amount may be increased depending on her pre-exisiting wealth which would have to be disclosed on filing the tax.
Hope that helps.
Regards
Ann says:
Hello Raymundo,
My husband and I are debating whether to buy a holiday home in Spain. If we do and the property is purchased, either in joint names or in my sole name, can our Spanish Will declare me or my husband as sole inheritor or does it also have to inlcude his two children, both of whom are in their 50’s.
Thanks
Ann
Raymundo Larraín Nesbitt says:
Morning Ann,
If you are British you can do this, yes. You do not need to include his two children.
Read this article:
Spanish Wills and Probate Law In Light Of European Regulation – 8th January 2015
http://www.spanishpropertyinsight.com/2015/01/08/spanish-wills-probate-law-light-european-regulation/
Regards
Dave says:
Hi Raymundo, we are a uk couple living in the Valencia region and have been in a UK civil partnership since 2006. We have lived in Spain full time for over two years and jointly own our house here. I am getting conflicting information as to if we will be recognised the same as a married couple in terms of tax and inhertence law as I have been told we will not. Any advice would be appreciated
Thank you
Dave
Raymundo Larraín Nesbitt says:
Morning Dave,
I’m afraid not, you need to be married (either in a civil or religious ceremony).
Regards
Liz says:
Hi Raymundo
Apologies if you have already answered this question.
My husband and I live in the Communitat Valenciana and we are both tax residents here in Spain. We have redone our wills, although I’m not sure we needed to as neither of us have children, parents or grandparents living.
My question is; will Spanish inheritance tax apply to our worldwide assets in view of the fact that we had to declare them in April this year or will assets outside of Spain be taxed in the country in which they are held?
Many thanks.
Raymundo Larraín Nesbitt says:
Hi Liz,
No need to apologize.
The UK has no double taxation treaty with Spain regarding IHT.
Any asset located in UK will attract UK IHT.
If your husband is resident in Spain, and he’s the beneficiary of your late estate, he will pay inheritance tax on all assets, yes.
Regards
Lyndsey says:
Hi Raymundo
I have just stumbled across your amazingly informative and clearly written articles and have realised that I have probably been given some very bad advice by a lawyer here in Spain, which is about to cost me a lot of money.
Knowing that there had been a change in to the law regarding wills, I went to a lawyer in Spain to seek advice regarding my parents wills. My parents are resident in the UK but own a property in Spain. They have made wills in Spain, but without a reference to UK national law. If I am right, reading your articles, the fact that they are not Spanish resident and not likely to become resident means that it doesn’t matter that they have not specified UK national law. Property would in any case go to myself and my sister, so not be a problem with Spanish law.
I sought advice from these particular lawyers who immediately advised that rather than making new wills we should in fact transfer the property into mine and my sister’s names now as a ‘gift’. I was told that the Valencian community, where the property is based was allowing this with no gift tax for a period of time. They said this would mean we would save a lot of money as otherwise we would have to pay 18% inheritance tax.
Having read this article, it would seem to me that this advice is completely wrong as you state
“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.”
The majority of my parents assets are in the UK, so does this mean UK tax inheritance tax allowances would apply. If this were the case, the estate would not be of high enough value to fall into inheritance tax in any case – so there would therefore be no advantage in transferring the property as a gift now. Could you tell me if I have understood this correctly.
If not, as the house in Spain would be inherited by the children of the property owners, what inheritance tax liability would there be? And is there any advantage to transferring the property now?
Thank you
Lyndsey
Raymundo Larraín Nesbitt says:
Morning Lyndsey,
Thank you for your kind words. I try to convey complex legal matters in a clear and concise manner to reach as wide an audience as possible.
Regarding the legal advice you have been given I must disagree as I find it correct. Your parents are UK tax resident. The UK (nor the RoI or Denmark for that matter) are parties to this new law; they opted out. In which case their wills, Spanish or UK, will be ruled by their own national law (England and Wales presumably in your parent’s case). My article is only aimed at expats who are (tax) residents in Spain.
Regarding the excerpt you quote, I believe you have misunderstood what I wrote. This article refers to a legal change spurred by the ECJ through a new bold ruling which now allows non-residents to benefit from regional lenient tax allowances (by ‘regional’ I mean Spanish Autonomous Communities, I’m not referring to the UK which is a Member State) in equal footing as Spanish tax residents. The gist is basically that all EU and E.E.A. Member Countries citizens are entitled to equal rights; there can be no discrimination as we are trying to build a common financial-political zone.
So back to your case this translates into you being a UK tax resident. Should your parents pass away, post the ECJ’s ruling, you are NOW entitled to benefit from a broad array of regional tax allowances (i.e. Valencian Autonomous Community which is where the asset is located).
Additionally you may benefit from their tax allowances which, as you have been correctly advised, hold generous tax provisions when it comes to Gift tax from parents to descendants (offspring). In some cases the tax amount is nil for that region. So it makes financial sense to gift the property to your next-of-kin rather than waiting to inherit it which would attract higher taxes. It’s just forward tax planning. This advice is exclusive to the Valencian region and not extensive to other parts in Spain unless I mention it.
So long story short, you are doing what’s right to mitigate your tax exposure; don’t worry.
Hope that clarifies Lyndsey. You are welcome.
Regards
Lyndsey says:
Hi Raymundo, thank you very much for your reply.
This has reassured me.
My only thought is if there is so little inheritance tax to pay, is it really worth spending quite a few thousand now to transfer the property. I don’t seem to be able to get a straight answer from my lawyers about what inheritance tax would be payable if we did not do the transfer.
Situation is parents own the house – they are both non-resident (resident in the UK)
Myself and sister would inherit – I am Spanish resident and she is UK resident. Are you able to tell me what percentage would be payable currently in IHT in our circumstances in the Valencian Community?
Thanks again. Shame you are not working in my area. Is your practice up and running in Spain yet? If so please give me details as may be very useful in the future. Let me know if it would be helpful for me to write a review for you anywhere.
Lyndsey
John says:
Hi Raymundo,
I wonder if you would be kind enough to clarify the following for me?
A retired married couple live and jointly own a €1,500,000 home in the UK. They also jointly own a €100,000 flat in Malaga, which they use for three months each year. Each has made a UK will leaving everything to the other.
They are considering emigrating to Spain and living in the flat in Malaga all year round. They plan to keep the property in the UK and rent it out for an income of around €30,000. They would make Spanish wills with the same terms as the UK wills.
If they remain resident in the UK there is no IHT liability as transfers between spouses are exempt. In contrast, once they become fiscal residents in Spain, on the first death, the surviving spouse would have a Spanish IHT liability of around €800,000, which is taxed at close to 40%, so would face a tax bill of around €300,000?
Have I got this right? If so, would there be any way to move to Spain and avoid this tax?
Many thanks for any help,
John
Raymundo Larraín Nesbitt says:
Morning John,
Excellent question.
The tax liability of the surviving spouse would actually be closer to just under two-thirds on the figure you quote.
Andalusia has a tax exemption of 99.99% on the main dwelling if the surviving spouse lived in it for the prior two years (for deaths post 01/01/2003). The property needs to be kept for the following ten years to qualify for the allowance. So basically no tax would be paid on the Spanish property (50% of 100k flat in Malaga). The main problem are your UK assets; these tip the scales, making the tax bill (too) high.
To (legally) avoid paying any inheritance tax you could set up residence in a tax-friendly region within Spain i.e. Madrid, Balears, Navarre. The surviving spouse would pay almost nil Spanish Inheritance tax as opposed to paying just shy of €200,000 in Andalusia.
You could always spend quality time in Andalusia so long as your main residence is in Madrid – and you can prove it. The catch is that a five-year residence is required for this allowance to kick in prior to the death in the region of choice. Detailed prove of residency will be required. And when I write ‘detailed’, I mean it. That’s why if you look at a map with Spanish HNWIs they are mostly concentrated in a triangle spanning Madrid, Navarre and Balears.
Regarding setting up a trust, I would not recommend it in your case. This is an option for (very) affluent people as running annual expenses can be high.
To close, bear in mind that tax planning is dynamic. Fiscal laws change frequently, specially with general elections looming on the horizon, so any advise given now may well change in the future.
You are welcome.
Regards
John says:
Thank you so much for your very prompt and thorough reply. Are you up and running in Spain now?
Raymundo Larraín Nesbitt says:
You are welcome John.
Unfortunately not yet; by next mid-year if all goes according to plan.
Regards
John says:
I wonder if I might push my luck a bit and ask a supplementary question. The couple have two sons who are resident in the UK. Let’s say that they each change their UK wills so that they leave their UK property to their sons (instead of to each other). The couple then move to Malaga. Would I be right in thinking that the sons would not be liable for IHT in Spain on the value of the UK property? (please ignore any UK IHT concerns, as I believe I understand those fully).
Many thanks again for all your help,
John
Raymundo Larraín Nesbitt says:
Not at all John.
Unlike the UK where it is the estate that is taxed, in Spain it is the beneficiary who is taxed.
On you becoming resident in Spain, along with your wife and two children, Spanish Inheritance Tax will tax appointed beneficiaries on your worldwide assets (including those located in the UK).
Spain has double taxation treaties in place on Succession with only with three countries: France, Greece and Sweden. There is no double taxation treaty between UK and Spain regarding inheritance tax.
Meaning your beneficiaries (children) would be liable for both Spanish Inheritance tax on your UK assets AND they would also be liable in the UK for the same reason. In other words, double taxation.
However, as outlined above, both resident and non-resident beneficiaries of a Spanish estate (i.e. your children) may now benefit from the regional tax allowances in Spain where the deceased lived. If you take residence in a tax-friendly region in Spain the Spanish Inheritance tax paid by your children on the UK assets would be nil i.e. Valencia.
From my article above:
I. Inheritance Rules
a) …
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.
Some people may be tempted in simply concealing the UK assets from Spanish authorities once they take up residence in Spain. However, Spanish residents must comply with what’s called ‘tax model 720’ on holding assets abroad in excess of €50,000. Fines are stiff on non-disclosure and/or non-compliance. Spain and the UK have signed and initiative where they are sharing quite a bit of fiscal information. You may want to read this:
Buying and Owning Spanish Property through Companies: Pros and Cons (Dispelling Spanish Inheritance Tax Myths) : http://www.spanishpropertyinsight.com/legal/buying-owning-spanish-property-companies-pros-cons/
Additionally, and more worryingly, inspired by the US’s successful FATCA agreement, five European countries – including the United Kingdom and Spain – signed in April 2013 a pilot initiative enabling an automatic exchange of fiscal information which overall impact still remains to be seen…
Following up on what I’ve written in the first line of this post, you may consider leaving assets to three beneficiaries: wife and two children and viceversa. As stressed, it is the beneficiary that is taxed in Spain, not the estate, unlike the UK. Each one would inherit €266,666. Your spouse would in Andalusia pay approx €40,000 in inheritance tax. And your children, depending on their age (as under twenty-one-year-olds qualify for generous tax allowances) would pay under €40,000 in Andalusia as well or even nil (in some tax-friendly regions). Additionally should the surviving spouse pass away within the next ten years after the first spouse died, the beneficiaries do not pay any inheritance tax at all on what was inherited from the first spouse.
Bottom line, the fact that it is beneficiaries that are taxed allows room to ‘play’ with tax residence (within Spain) to mitigate tax exposure to Spanish IHT. So even if you choose Andalusia as the region to live in your beneficiary’s tax bill can be dramatically reduced the more beneficiaries there are as the overall tax base is split among them.
Hope that clarifies John.
Regards
John says:
It does. Many thanks again for taking the time (and effort) to reply. Please excuse my confusion, which is being caused by articles like the following:
http://www.thinkspain.com/hottopics/residencytax/interitance.asp
“To put it another way, Spanish inheritance tax is not payable if assets are outside Spain and the recipient is also not resident in Spain.”
So is this article (and others like it that suggest the same thing) wrong / out of date?:
Raymundo Larraín Nesbitt says:
Apologies, my bad.
I misunderstood the second query thinking your two children had also become resident. Resident beneficiaries pay inheritance tax on ALL worldwide assets, hence my reply.
To clarify my reply above to your extended query, your two children, if non-resident in Spain, would only pay Spanish Inheritance tax on assets located in Spanish territory (i.e. flat in Malaga). Any asset located outside of Spanish territory (i.e. UK house) would NOT attract Spain’s Inheritance tax as long as they continue being non-resident. Concretely they would each pay nil for the flat located in Malaga as there is a nil-rate band on taxable bases of < €175,000 in Andalusia.
I'll edit my reply to avoid further confusions and please excuse my blunder John.
Regards
Ian says:
This site is a real find, clear and concise…un like my current advisor. Briefly, the changes take into account property or assets in SPAIN being left to beneficiaries either in Spain or the UK. Our situation involves a UK RESIDENT (Mother) leaving about 150,000 euros to my wife (Daughter) in their will, solely in respect of UK assets ONLYl. We live permanently in Andalucía, and are tax residents in Spain for 2015 tax year. My Tax Advisor INSISTS that as the money has been inherited from the UK and is not in respect of any Spanish asset etc. we would have to pay ‘Spanish National’ (i.e. Madrid rates 15 odd thousand allowance, and IHT on the rest) on the inheritance, rather than Andalucian rates (far more generous, up to 175k before any IHT I believe) . She says this is because:
1. We have not been resident in Spain for more than 5 five years. (I read that this does NOT now apply after the ECJ ruling.)
2. Its from a UK estate only.
I believe that is the WRONG advice on both counts!!
Raymundo Larraín Nesbitt says:
Morning Ian,
Your wife is liable to pay Spanish Inheritance Tax as she is Spanish resident, following your words.
As she lives in Andalusia these regions’ laws apply.
She can benefit from a regional tax allowance which has a nil-rate band on the first €175,000; providing her pre-existing wealth is below €402,000.
Additionally she may be liable to pay IHT in UK as well as double taxation applies. Please seek legal advice from a UK solicitor on this point.
Hope that helps.
Regards
Ian says:
Raymundo,
Thank you so much. I hope that there is so form of ‘Register’ and Professional body for Advisors in Spain, as if we would have followed the advice given, all sorts of problems would have arisen. I can only say that I would feel sorry for anyone who is given similar ‘advice’ and does not question it or at least ask someone who knows. (i.e You).
Thank you once more, I hope that anyone else in a potentially similar situation sees this.
Ian
Raymundo Larraín Nesbitt says:
You are most welcome Ian.
Glad I could help out.
Sharon says:
Dear Raymundo
I came across your extremely helpful website while looking for some guidance on how best to take forward my late father’s affairs in Spain. My parents own a house in the Torrevieja, Orihuela Costa area worth approx €130,000. My father, who was an Irish citizen, passed away last August and I have been advised that my mother needs to register the death with the Spanish authorities within 6 months. Both my parents have Spanish wills leaving everything to each other and the house deeds are in both my parents names. My parents were/are normally resident in Ireland and spent approximately 3 months per year in Spain. I wonder if you would be kind enough to advise if my mother (also Irish citizen) would have to pay inheritance tax as a spouse and if yes, whom would she have to notify and pay it to, could this be done online? Does this have to be done in person. If she has no liability, does she still need to register the death within the six months?
Thanking you in advance. Kindest regards Sharon.
Raymundo Larraín Nesbitt says:
Morning Sharon,
Your mother, as appointed beneficiary, may have to pay Spanish Inheritance Tax, yes.
She will definitely need to file this tax whether she has to pay anything or not.
Your starting point is hiring a lawyer. This tax is much too complex to be self-assessed. You cannot pay it online.
This tax needs to be filed and paid within six months of his death. A one-time extension of a further six months may be requested. The steps to follow are described in my article: Making a Spanish Will.
http://www.spanishpropertyinsight.com/legal/making-a-spanish-will/
Once a heir has all three documents:
1. Original death certificate
2. Certificate of Last Will
3. Notarised copy of the testator’s last will
They may now obtain what is known as a Deed of Declaration of Acceptance of Inheritance (‘Escritura de Aceptación de Herencia’) before a Spanish Notary. With this deed they are now able to file, pay and lodge the death duties.
Only once IHT is paid and lodged – never before – will the property be registered under the beneficiaries’ name at the Land Registry where the property is located. Once registered, the property can be disposed of freely i.e. they can sell it on. Heirs cannot mortgage or sell any of the estates’ assets, such as the Spanish home, to pay IHT as it still doesn’t belong to them legally. This is something that escapes many as they are banking on the Spanish estate itself to foot the tax bill – won’t happen.
In Spain it is the beneficiary (your mother) who gets taxed, not the estate.
Hope that helps Sharon.
Regards
Sharon says:
Dear Raymundo
Thank you so much for taking the time to give me your excellent, concise guidance, it is very much appreciated. Things are much clearer now and I will take forward with a local Spanish solicitor.
Kindest regards
Sharon
Raymundo Larraín Nesbitt says:
You are welcome Sharon.
Glad I could help out.
Keith says:
Hello Raymundo,
I am not sure whether you can help me. We live in Catalonia, have residencia and pay tax in Spain. My wife and I each have one third of the shares in a UK company which we founded in 1990 and our eldest son, who lives in the UK, has the remaining third. In 2013 we were informed that each third was worth about GBP200,000. This valuation was for the purpose of asset declaration here in Spain. We still have an apartment in the UK and the company still pays me a salary which is taxed in the UK.
We have been told that we must pay capital gains tax of over 20% in Spain if we gift our shares to our son. Are you able to tell me whether this is correct?
Regards
Keith
Raymundo Larraín Nesbitt says:
Afternoon Keith,
In Spain a giftee (your son as beneficiary) is liable for Gift tax either as a personal obligation or else as a real obligation.
i) Personal obligation requires your son to live in Spain – and clearly he is a UK tax resident.
ii) Real obligation requires the asset or right to be exercised is located within Spanish territory. Following your words, the company was incorporated in the UK and and is registered – presumably – at the Company’s House.
So really I cannot see how Spanish Tax Authorities can lay claim on you gifting the shares to your own son following the above premise.
Another matter is what the HMRC is entitled to. I believe you/your son should be taxed back at home (in the UK) for Gift tax. I recommend you seek legal counsel from a British solicitor on this matter as I believe it is a ‘domestic’ issue which is no concern of the the Spanish Tax Authorities.
Had this company been based in Spain, in lieu of the United Kingdom, there are instances where your son would be tax exempt of up to 99% on being gifted the family company’s shares. But this doesn’t seem to be your case following your own words above.
Moving on to yourself, you as giftor, will be liable for Income Tax in Spain as you are Spanish tax resident. Capital Gains Tax would be taxed at 19.5% as the law was amended on the 12th of July 2015. An exact calculation surpasses the format of a simple forum question. You can read my article on Taxes on Selling Spanish Property which deals with CGT (the same principles are applied on calculating the tax):
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
Hope that clarifies Keith.
Regards
Gavin says:
Hi Raymundo,
Many thanks for providing such a useful and well informed resource on line. I’m sure many of us would welcome the opportunity to take advantage of your services in a professional context so please let us know when you start your practice in Spain.
In the meantime I have a couple of questions which I hope you may be able to shed some light on.
My mother and father (UK residents) have jointly owned an apartment in Fuengirola for the last thirty years. They have recently been advised that it may be beneficial to have my fathers share of the property transferred to myself and my brother given his state of health, neither of my parents currently have Spanish wills.My brother and I are both above 35, both probably have assets just over over or near 402k Euros.
From reading your advice it would appear that there may not be any financial benefit to this as he would have to pay C.G.T plus the Plasvalia tax and my brother and I would have to pay the Andulucia Gift Tax which i believe is 8,500 euro.
Would we be better off financially if we simply inherited a share of the property on his passing and were able to claim Andalucia’s regional allowance? (is it likely to be more financially generous than the Andalucia Gift Tax? (i’m not sure if this is capped at 8,500 euro or is likely to be more)
The situation is also complicated by the fact that I act as Power of Attorney over my father’s estate and, whilst this is a legally valid document in the UK, I have been told that, for it to be valid in Spain it must be notarised in the UK, apostiled then translated into Spanish (all of which we have done) but also now a ‘ceritficate of law’ issued by a UK lawyer to establish its legal credibility in Spain.
Any advice would be most welcome.
Regards
Gavin
Raymundo Larraín Nesbitt says:
Afternoon Gavin,
Thank you for your kind words, much appreciated.
What’s the value of the Fuengirola property approx if you don’t mind me asking? I need to know it.
Do I gather you both have pre-existing assets over and above €402k? Is this correct?
As you have read above, there is a regional tax allowance which applies only in the region of Andalusia where your parent’s property is located (Fuengirola). If your pre-existing wealth is under €402k and your share of the property that is inherited is under €175,000 you wouldn’t pay any Spanish Inheritance Tax. You would still need to file the Succession Tax in Spain (obviously) in a timely manner assisted by a lawyer.
If you or your brother’s pre-existing assets/wealth exceed the €402k threshold you cannot benefit from this regional tax allowance of Andalusia and will be taxed from the first euro.
Regards
Gavin says:
Hi Raymundo,
Many thanks for your reply.
As to the value of the property in Los Boliches, I’m not sure. I have had a look on line at similar properties for sale (a three bed appartment in a block in Los Boliches) but the prices seem to vary substantially. I’m pretty certain that it would not be greater than 700,000 Euro (ie less than 175k for 25% for each share that my brother and I would inherit)
Regarding the 402 Euro asset allowance. Can you advise on how this is calculated and how evidence of wealth would be presented to the Spanish Tax Authorities (for example my wife and I own several properties jointly which are still mortgaged).
It is possible that my father could ‘gift’ his share to my brother and I now but I assume that this would attract CGT and Plasvalia tax. Are the allowances for ‘giftees’ (my brother and I) the same as for succession tax?
Finally, the situation is complicated further by the fact that I hold a ‘lasting power of attorney’ for my father which gives me authority over his assets and estate (he is mentally incapacitated). Although I have had this document notorized and apostilled in the UK i have also been advised that I would need a ‘certificate of law’ issued by a UK solicitor to make it valid in Spain.
Once again, thank you for your help
Regards
Gavin
Raymundo Larraín Nesbitt says:
Hi Gavin,
Pre-existing (net) wealth in Spain. It refers to any and all assets you may own (including legal rights etc) in Spanish territory before the death. If you are joint owner with your spouse of assets (in Spain) then 50% is yours for tax purposes. Any liabilities (i.e. outstanding mortgage repayments in real estate) must be deducted from your wealth so we have a net figure (art 22.3 ISD).
Yes, you assume correctly. If your father gifts the property, or part thereof, as giftor he is liable for Plusvalia and Capital Gains Tax (more on both taxes in my article Taxes on Selling Spanish Property http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/).
The giftee would be liable for Gift tax.
Also, frequently forgotten, is art 20.3. Which states that if the same property is inherited twice (i.e. once from your father and a second time from your mother as surviving spouse) 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 in your case; providing the second death is in the following ten years.
When you talk of 700k you mean current market price. The value used for tax purposes is the updated or ‘real’ cadastral value which is always well below the current market value. As a rule-of-thumb up to 1/3 less on average. More on how this is calculated in my article La Complementaria or Bargain-Hunter Tax:
http://www.spanishpropertyinsight.com/2015/05/08/la-complementaria-or-bargain-hunter-tax/
So inheriting 50% of your father’s 50% is 25%. 25% of a value that is well below 700k (as cadastral value) means you wouldn’t pay Spanish Inheritance Tax in Andalusia providing your pre-existing (net) wealth is below the 402k threshold. Mind you, you would still need to file it before the Tax Office, needless to say. Otherwise there will be no transfer of ownership at the Land Registry.
And no, you cannot make further questions! You are welcome.
Regards
Gavin says:
Ha, no further questions I promise! once again many thanks for your detailed responses and please let us know when you open a practice, best regards
Pamela Happé says:
Hello Raymundo,
I’m impressed. Your knowledge is vast.
I’m belgium and residing in belgium. I own a small appartement in catalonia in Palafrugel which I’ve had for over 20 years.
It’s value would probably not exceed 250000 euros. I have 4 grown sons to whom I would like to donate the appt.
The appt having never been rented has generated no income.
Can you help? What must i do? What papers are necessary? Can this all be done from Belgium? ( I don’t travel much these days!)
Thank you and have a great day
Pamela
Raymundo Larraín Nesbitt says:
Hi Pamela,
Thank you for your kind words but you are giving me way too much credit.
Gifting the property can all be arranged from Belgium by means of a Power of Attorney (PoA).
1. You retain (hire) a lawyer in Spain (preferably local).
2. You sign a PoA.
3. A Gift deed is arranged to be signed before a Notary Public acting as a witness. The lawyer, acting on your behalf as proxy, will gift your property in four equal shares to your four adult children.
4. You, as giftor, will be liable for both Plusvalia and Capital Gains tax. More details on this in my article Taxes on Selling Spanish Property:
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
5. Your four children, as giftees, will be liable for Gift tax. Following new European Regulation they can benefit from lenient regional allowances (Catalonia) even if they are non-resident. I have analysed the tax allowances and I believe they qualify for none so they would have to pay Gift tax.
6. After all taxes are paid the property is lodged under their name at the Land Registry.
That answers your question on gifting the property.
However… should they inherit the same property in Catalonia, in four equal shares, they would pay no Spanish Inheritance Tax at all. Mind you, they still need to file the inheritance tax within six months of your death (even if they are liable for no tax; that is a different matter).
Perhaps it would be wiser for you, read tax mitigation from your and their perspective, not to gift the property but rather to have them inherit it when you pass away. Providing you do not hold more assets in Spain. If you have more assets then they may have to pay Spanish IHT.
Hope that clarifies.
Pas de quoi.
Regards
Marcus says:
Thanks for the excellent information, Raymundo. Some guidance if possible.
My father has assets in Spain (investment accounts and homes{Madrid and Valencia}). The total value is approx 1m Euros. He is a Spanish national but resident of the US.
He is quite ill and considering his condition would happily gift, donate or liquidate any or all of these assets provided it would assist the beneficiaries (3 children, residents of US) in avoiding taxes, probate etc.
He’s agnostic as to what he should do, but wants to achieve the highest net yield. Any advice you can provide would be appreciated.
Best – Marcus
Raymundo Larraín Nesbitt says:
Hi Marcus,
Thank you for your kind words.
The main problem is that he is not resident in Spain and neither are his three children, including yourself.
Were he, for example, resident in Madrid on the previous five years before passing away you would pay little to no inheritance tax, if at all. That’s because the Autonomous Regional law that would be considered would be that of Madrid which is fairly lenient as opposed to State law.
Unfortunately, as I write in my article above: “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“.
Meaning that as your father in a non-EU/EEA resident then State law will apply to you on inheriting his assets.
My whole article above does not apply to your case as neither he nor his three appointed beneficiaries are resident in Spain. You cannot take advantage of lenient regional allowances I am afraid. You need to find another solution to mitigate Spanish Inheritance Tax.
Regards
Keith Cooper says:
Hello Raymundo,
Apologies for not replying sooner but thank you very much for the most useful information that you sent on the 27th November.
Kind regards
Keith Cooper
Raymundo Larraín Nesbitt says:
No problem Keith, glad you found it useful.
Regards
Nikola Cotter says:
Hi Raymundo
I wonder if you could advise me please. My father lives in Mollina in a house he inherited from his partner (they were not married). Upon inheriting it he paid inheritance tax but he is now being told that he needs to pay capital gains tax as well. Is this correct? He is a Spanish resident (lived there since 2002) but is a British citizen. He is retired and a pensioner and the prospect of paying a further 21% tax is very distressing to him. He has no plans to sell the house and the house has only decreased in value due to the slump in the property market. Any advice would be most welcome.
Thank you in advance.
Raymundo Larraín Nesbitt says:
Morning Nikola,
I deeply apologise for my belated reply. I have just noticed you posted your query back in December.
Your father, on inheriting assets in Spain, needs only to file and pay Spanish Inheritance Tax.
Capital Gains Tax is payable only when you either sell or gift a property you own as per my article: Taxes on Selling (Gifting) Spanish Property:
http://www.spanishpropertyinsight.com/2014/12/08/taxes-selling-spanish-property/
Hope that clarifies.
Regards