Spanish Inheritance Tax
Spanish inheritance tax is usually a great concern for owners of Spanish properties and many are the clients who enquire with our Spanish property lawyer and UK solicitor about the future tax liability upon their death and how this works.
Inheritance tax in Spain is paid by the beneficiary and not the estate like in the UK. The beneficiaries are liable to pay inheritance tax in Spain for the assets that they inherit including any Spanish property.
Spanish Inheritance tax depends on the value of the estate, the degree of relationship with the deceased and the previous assets of the beneficiary.
There are individual allowances for each beneficiary and the tax rate is progressive and varies depending on the beneficiary’s existing wealth in Spain. Our UK Spanish specialist property lawyer also stresses that remote relatives and non-relatives are charged at a greater rate and their final tax liability can be multiplied by 2 or more.
Any debts, outstanding payments, mortgages etc will reduce the value of the assets in the estate which will subsequently reduce the inheritance tax liability.
Inheritance tax must be paid in Spain within 6 months of the date of death whilst a further 6 months’ extension can be requested within certain timescales. Late payment penalty fees and interests will be charged by the Spanish tax authorities should inheritance tax be paid outside the mentioned timescales.
The Spanish authorities would rarely require a formal valuation of the Spanish assets and Spanish properties however a true value of the assets should be declared. The Spanish authorities also have the right to review the valuations that are given should they consider these to be lower than the real value and claim further taxes based on the true values.
The value of the Spanish estate will include the value of all the assets located in Spain; Spanish properties and real estate, Spanish bank accounts etc together with the 3% of the net value of the Estate on account of personal chattels.
Whilst there is not a Double Taxation treaty for Inheritance tax purposes between England and Spain the UK tax authorities would give credit against inheritance tax for the tax already paid in Spain in order to avoid a double taxation on those assets that are located in Spain. Our Spanish property solicitor will be able to liaise with your UK probate solicitor to assist with this and provide your UK probate solicitor with the required Spanish documentation and evidence of the Spanish tax that has been already paid.
The European Court of Justice ruled on 3rd September 2014 that Spain was contravening EU law, by treating residents and non-residents differently with regard to IHT.
Until then the Madrid Central regulations applied to beneficiaries who were non-Spanish residents whilst the regional regulations applied to beneficiaries who lived in those areas. Some of these regional regulations have benevolent exemptions and nil rate bands which in some cases might mean a small tax liability or even no inheritance tax being due and creating different inheritance tax regimes for residents and non-residents.
The Spanish authorities have since then been applying the local inheritance tax regulations where the properties are located to beneficiaries who inherit a Spanish property in that area despite being non-Spanish residents.
Some Spanish regional areas have more benevolent regulations than others and this is an area that unfortunately changes as and when the authorities review taxation and the rates applicable.
Our Spanish solicitor would recommend that the necessary tax planning is put in place to make sure that you understand the future tax implications and how this may affect your family upon your death.
Every client’s situation and circumstances are different and there is no one-size-fits–all model. We will be delighted to assist you, discuss your personal circumstances and our Spanish property lawyer will be able to advise you further based on these.