Illegal Ways on How to Avoid Inheritance Tax on Spanish Property

Lawbird Legal Services
22nd of June 2005

Unknown to many property owners, Inheritance Tax (IHT) is an added potential grievance for many inheritors who have lost their loves ones. Although largely criticized and unpopular due to its negative effect on the capacity and desire to save, it is there and it has to be dealt with.

When does inheritance tax become a problem?

Spanish laws differ between regional community, but there is a main legal body which governs the application of tax (Ley de Impuesto de Sucesiones – Inheritance Tax Act) and a number of specific deductions depending on where the inheritors are residents for tax purposes and their age (pursuant to 21/2001 Fiscal and Administrative Measures Act).

Basically, IHT is calculated on the basis of a number of variables, namely value of assets being transferred, family relationship between giver and receiver and pre-existing wealth of the latter. Deductions are based on the age and residency for tax purposes status of the inheritors, on the consideration of habitual domicile of the property inherited (between spouses) and also miscellaneous expenses (funeral etc.).

In order to simplify matters we have created an IHT calculator to enable you to know your liability as of now, and on the following paragraphs we explain who best to avoid it. Keep in mind that IHT can go up, in specific situations, to 81% of the value of the estate!

What do we propose then?

Depending on several factors, it is of paramount importance to find a legal method to minimise IHT with as little cost as possible thus making it worth the while. We will set forth a number of options, indicating costs of inheritance in normal circumstances versus cost of alternative propositions, whether they are arranged before completing or after. In all cases, there is a presupposition that elders pass away before and we therefore presume that their inheritors will survive them.

Option 1: Buying jointly with future inheritors

This option has the advantage that it does not require any special arrangements to be in place prior to completing, making it a straight purchase, and IHT is reduced in the proportion of the ownership share.

Disadvantages: If the inheritors do not have enough financial means to prove their capacity to purchase the property the Spanish Tax Authority could raise a tax bill in concept of gift, which can be higher than the IHT we are trying to avoid. This situation, albeit unlikely, can be avoided by transferring the funds to the inheritors in the UK to make it subject to UK tax laws and availing therefore from the deductions therein envisaged.

Another disadvantage is of another nature: does everyone wish to have their properties in their children's name, losing control of it? Even though this is not strictly a legal issue the concerns raised can be addressed by operating a variation of this option: splitting ownership into bare ownership and life interest. This sub-option enables the real owners to retain an interest during their life as if the property was fully owned by them. It can be used, rented out and even modified, but not sold. The bare owners can only use it with the permission of the beneficiaries of the life interest, and on death of the formers the inheritance will be calculated depending on a scale.

Costs: No additional costs.

Savings on IHT: The reduction on IHT can be calculated by using IHT calculator with the value of the property share left. If ownership is split between the person wishing to mitigate IHT and potential inheritors, a table is used to calculate IHT on the value of the residual value ownership.

Option 2: Selling the Property to Future Inheritors

If the property is already owned directly by the person wishing to mitigate IHT, they can sell the property to the potential inheritors, either fully or partly.

Disadvantages: Same as in Option 1.

Costs: 7% Transfer Tax on the value of the share transferred, and 35% Capital Gains Tax, if a profit is declared on the deeds. In any event, 5% of the share value sold will have to be lodged with the tax office on account of Cgt, but can be claimed back if there is not profit.

Savings on IHT: The reduction on IHT can be calculated by using IHT calculator with the value of the property share left. If 100% of the property value is transferred no IHT is applicable.

Option 3: Taking out a mortgage loan on the property

This option is interesting in that it allows a reduction on the value of the property for tax purposes, mitigating the liability accordingly. Such an operation requires that the equity released from the property is placed in some form of tax haven in order to avoid it being taxed.

Disadvantages: It does not fully mitigate IHT liability as most banks will only lend up to 70% of the property valuation, but it can be combined with other options. Also, this option requires that the property owners are not over a certain age (65-70 years is considered the maximum age limit to be eligible for a loan) and is subject to the vagaries of individual life expectancy, as an optimal IHT mitigation requires the loan to be fully owed when death occurs (it would be necessary to top up the loan amount every year and this may not always be possible, especially after a certain age).

Costs: Approximately 3% of the equity released.

Savings on IHT: Up to 70% (amount of the mortgage not yet repaid)

Option 4: Buying or owning through a Spanish Limited Company

This is becoming a very attractive form of minimising the effects of IHT if certain steps are taken. By virtue of article 108 of the LMV (Ley de Mercados de Valores) Act, company shares can be transferred with no transfer tax associated to it provided that none of the acquirers take control of the company (no more than 50% of the shares) and that one year has passed from the act of incorporation of the company or the transfer of the property to the company if this happens after the act of incorporation.

Many property owners are availing of this structure to avoid IHT by effecting the sale of the shares to their inheritors before death. Such a sale is not susceptible of being taxed as a gift. If more anonymity is required, the sale of the shares can take place via a UK Notary Public, and further legalised with the Hague Apostille.

Disadvantages: Company running costs of aproximately 2,400 € yearly.

Costs: Incorporation of company: 1,500 Euros.
If the property is already owned by the person wishing to mitigate IHT, Transfer tax at 1% of the share of the value of the property transferred to the company is applicable.

Savings on IHT: 100%

Option 5: Buying or owning through a EU company.

This option is also interesting in that the transfer of the shares after death takes place in the country where the company is domiciled, thus preventing the Spanish authorities from obtaining this information.

IHT may be, however, an issue in the country where the company is domiciled and therefore it will be necessary to clarify the tax position in the country.

Disadvantages: Regard will have to be given to the tax position on the country of residency in order to establish IHT liability there.

Costs: Cost of incorporation of company: Depending on jurisdiction and provider of the service. If the property is already owned by the person wishing to mitigate IHT, Transfer tax at 1% of the share of the value of the property transferred to the company is applicable.

Savings on IHT: 100%

Discuss this Article

DAVID THOMAS Says:

Fri, Dec 26th 2008, 10:28
Hi, what are the costs be to avoid Spainish IHT in the UK? of forming a company? etc. Dave
Lawbird Lawyer Says:

Mon, Dec 29th 2008, 11:43
Dear Sir, The reply to your queries are in the article you quote. However, I must point out that article is from 2005 and changes in the laws have been passed which change the advice given within. e.g. regarding holding companies the taxation has changed making them a less attractive option.
liz hagerty Says:

Wed, Jan 21st 2009, 13:02
Is there less tax to pay in the UK? If so can an English will override a Spanish one?
Malcroach Says:

Mon, Feb 16th 2009, 12:48
David ,The costs of forming a UK company translating, Notorising and Apostile of the Documents, obtaining a CIF number for the company in Spain ,all Legal fees and Notary fees in Spain in connection with gifting the property to the company ,IVA/VAT would be £5000 all in less than the cost of 1 persons probate in Spain
Vanessa Deakin Says:

Wed, Feb 25th 2009, 15:32
Could you please advise me on the costs of setting up an EU company for my property in Majorca? Thanks, Vanessa
Doug Says:

Wed, Jul 8th 2009, 11:42
My wife and I jointly own a property on the Costa Del Sol, Spain, worth about 600,000 - 700,000 euros. We are both residents. Would the formation of a UK or Spanish Limited Company avoid paying Spanish IHT if either of us died. We have a Spanish will, naming our two daughters in the UK as beneficiaries. Can you give us any idea of the cost? Thank you
aflores Says:

Thu, Jul 9th 2009, 14:20
Hi Doug. I do see why you would be interested in setting up a structure with a view to reducing your exposure to IHT, given the small mortgage on the property. A calculation based on the figures and the number of inheritors (2) shows a tax liability of around 40k Euros per inheritor in the current scenario (700K Euros value of property and 80k Euros mortgage). You are able to form an UK company or alternatively a Spanish company (SL) and transfer the property into it, which although would not eliminate the exposure it would however allow you to deal with it in a more effective manner. The associated costs would be as follows, in the case of a Spanish Limited Liability Company: Company incorporation costs: 1800 Euros Stamp Duty: 7.000 Euros (on a declared value of 700k Euros) Notary fees: 800 Euros (approx) Land registry fees: 700 Euros (approx) Change of utility contracts and Town Hall records: 250 Euros Registration of deeds fee: 250 Euros If you were to incorporate a UK limited company you would have the same costs as above except for the incorporation costs which presumably would be significantly lower. Should you have further queries do not hesitate to contact me.
Malcroach Says:

Sat, Jul 11th 2009, 14:19
Doug The cost of the whole transaction of investing your property into a UK Company including Notary fees in the UK and Spain are £5000 This includes company formation ,and obtaining a CIF number for the company also the setting up of a Company bank account and transferring all the property bills into the UK company . There will be Plus Valia tax to pay ,land register fees and 1% regional tax. When done the company does not pay any taxes in Spain , No IHT in Spain and no IHT in the UK for you or your Spouse .The company can claim tax relief in the UK on all attributable expenses including mortgage interest, running costs are £575 per year The transfer takes maximum 4 weeks, review www.winchamiht for more info. You don not need a Spanish Will if you have a UK one ,all that is required is a death certificate and a grant of probate from the UK translated notarised and apostiled , remember a UK Will can be varied within 2 years from death and this means that the asset could be left to a UK Company that will not pay IHT in Spain, A Spanish will can not be varied. A UK company is the only sensible method of removing Spanish taxes with no risks and at a low cost.
Dee Says:

Mon, Sep 21st 2009, 20:59
Need some advice due to death of my mother, jointly own a property with my sister and mum, there is a spanish will
Lawbird Lawyer Says:

Tue, Sep 22nd 2009, 09:23
Dear Dee, Please contact us on your matter. Yours faithfully,
Eddie Says:

Sat, Sep 26th 2009, 19:24
Hi, My wife and I own a property in the Balearics worth approx 350,000Euros. I am 64 and my wife is 57. We have had this property for 22 years. We have a Spanish will and our two sons are the beneficiaries. Can I gift the property to our two sons now to avoid Inheritance Tax in Spain and in the UK. Thank you.
Lawbird Lawyer Says:

Mon, Sep 28th 2009, 11:43
Dear Eddie, Spanish IHT has been almost supressed in the Balearic Islands. In Spain IHT is called really Impuesto de Sucesiones y Donaciones (ISD)which can be translated for Inheritance and Gift Tax. Gift tax has also been considerably reduced in the Balearic Islands. Please read our article on the matter: Spanish Inheritance Tax: Advantages of Making a Will in Spain - 3rd of September 2009 I quote an excerpt: "There’s an ongoing trend to abolish Spanish inheritance tax (much like there was for Wealth tax which was abolished last year) fostered by Spain’s conservative party. These trends are always very popular amongst voters. Many regional communities have jumped onto the band wagon and are now applying reductions on IHT to such an extent which in practice translates to almost suppressing it, i.e. Madrid, Basque Country, Navarre, Valencia, Balearic and Canary Islands." Regarding the HMRC's IHT liability I suggest you seek advice from a UK solicitor as I'm not qualified to advice on the matter. I can recommend you UK law firms if you wish. In any case the thereshhold in the UK is very ample unlike in Spain. From the Spanish legal point of view the IHT tax liability of both your heirs (your two children presumably) would be very low if not nil. I find it futile that you gift them the property. If you want a tailored IHT report on your particular case so you can rest assure, please contact us for a quote on the fees for this legal service. Yours faithfully, Raymundo Larraín Nesbitt
Unregistered Says:

Thu, Nov 19th 2009, 21:46
"There’s an ongoing trend to abolish Spanish inheritance tax (much like there was for Wealth tax which was abolished last year) fostered by Spain’s conservative party. These trends are always very popular amongst voters. Many regional communities have jumped onto the band wagon and are now applying reductions on IHT to such an extent which in practice translates to almost suppressing it, i.e. Madrid, Basque Country, Navarre, Valencia, Balearic and Canary Islands." Can you tell me the current IHT rules in Tenerife please? My scenario is that my partner and I (not married) would be purchasing a home in Tenerife. Eventually we would want the property left to my two daughters. They are not related to my partner. Should we leave the first deceased partner's share of the property to the surviving partner, which would then pass to my two daughters with the death of the last partner? Does this cause extra tax if I were to die first, as my partner would then own 100% which he would leave to my daughters, who are not related to him? OR each leave our half share to my daughters, with a life interest for the surviving partner in the property? I'd welcome your input on this.
Unregistered Says:

Thu, Nov 19th 2009, 21:50
Sorry, to continue from above... My partner and I may be resident in Tenerife, but not sure about this, and this situation may change when one of us dies. The other may want to return to the UK. Does being resident/non-resident have any effect? My two daughters will be resident in the UK. Thanks
Ellie Says:

Tue, Jan 19th 2010, 22:38
With regard to once married, then divorced and now reunited without marriage, how is the iht possition for us in Spain?
Lawbird Lawyer Says:

Wed, Jan 20th 2010, 10:17
Dear Madam, I believe in Tenerife you have to be resident and have lived there for the prior 5 years to take benefit of a regional IHT exemption of 99,99% in the taxable base, meaning almost no IHT tax is paid. However you still have the national law which has a tax exemption of 95% on the taxable base of the main primary dwelling (residence) which requires less years than the above regional allowance. If you are not married and are not registered as a couple either you will be whammed with IHT as you are deemed to be non-relatives (friends) or Group IV. Please read my article for more details: Spanish Inheritance Tax: Advantages of Making a Will in Spain - 3rd September 2009 Quoting an excerpt: Spanish IHT most onerous cases are related to the transfer of large estates or assets bequeathed to distant relatives or non-family members such as friends (Group IV). Group 4: Relatives in fourth degree, or withourt any relationship, for example, a friend. Nought. Yours faithfully, Raymundo Larraín Nesbitt
tony Says:

Thu, Jan 28th 2010, 00:06
I have a UK will bearing my names as beneficiary of fund lodged with a Spanish financial institution by my late grandmother. Is there any tax to be paid before I can have the money?
Lawbird Lawyer Says:

Thu, Jan 28th 2010, 09:22
Dear Sir, On what date did your grandmother pass away? Yours faithfully,
bill Says:

Thu, Jan 28th 2010, 14:23
can you advise on fully paid property left in spain to ex wife worth around 50,000euro how much tax will have to be paid he only lived in spain one year also the cost of tranferring bank accounts into her name
Lawbird Lawyer Says:

Mon, Feb 1st 2010, 11:36
Dear Sir, Regrettably we do not offer as a free query calculating IHT liability. You would need to hire us to assess your particular case. Yours faithfully,
Pali Says:

Mon, Mar 8th 2010, 06:05
Hi, have just found out that my uncle passed away and has left us a property in Madrid. (there are four nieces and nephews and all live in Australia). I need to know the process involved in acquiring the property and if we do not wish to sell how can we reduce the inheritance tax. Thanks
Lawbird Lawyer Says:

Thu, Mar 11th 2010, 10:23
Dear Sir or Madam, Strategies to mitigate exposure to Spain's overrated IHT are carried our generally prior to buying the property or else placing a mortgage against it once purchased as explained in my article below. Incidentally, the Spanish Tax Office does not always accept the latter as it -often correctly- deems that placing charges on the property has been done with the sole purpose of tax avoidance. You cannot really do much to reduce your IHT bill after the testator has passed away. As you are all residents outside Spain you cannot take advantage of regional tax allowances either. You would only be entitled to the national tax allowance dependant on which of the four groups the beneficiaries are classified in: Spanish Inheritance Tax: How much is it? - 1st February 2000 I take the opportunity to offer you our legal services should you be interested (please click on the blue link): Estate Transfer to Heirs This service is intended for those who are inheriting the Spanish assets of a deceased person, whether as the legal heir to an estate or by means of a Will. As from the 1st January 2010 our legal fees for this service have been lowered to 3,000€ plus 16% VAT. Payment in installments is available upon request subject to an initial downpayment. The estate transfer to heirs service includes: • Requesting of copies of the Death Certificate, in the event that the death took place in Spain. • Requesting of a Will Certificate information and location from the Central Registry of Wills in Madrid. • Obtaining of the Will from the Notary Public where it was signed / Estate Heirs Statement (in those cases where there is no will) • Drafting and signing of the Deed of Inheritance Acceptance • Partition of the inheritance according to what the will states, or, where there is now will, to the desires of the inheritors. • Inscription at the Land Registry of the new owners of the Estate inherited. • Cadastral modification of new owner • Arrangement, calculating and payment of the applicable Spanish Inheritance Tax. • Arrangement, calculating and payment of the applicable Plusvalía Tax. Yours faithfully, Raymundo Larraín Nesbitt
Pat Says:

Sat, Mar 20th 2010, 16:55
Thank-you for the article, it made interesting reading. Could you clarify for me whether the value of property is related to market value or escritura....if market value, who decides this? Thank-you.
Lawbird Lawyer Says:

Mon, Mar 22nd 2010, 10:48
Dear Sir or Madam, Do you mean the value of the real estate the Tax office takes on calculating IHT? It will be the highest of any of the following three: 1. Cadastral value 2. Declared value/value on Title deed 3. Assessed value by the Tax office Yours sincerely, Raymundo Larraín Nesbitt
Pat Says:

Mon, Mar 22nd 2010, 12:54
Dear Sir or Madam, Do you mean the value of the real estate the Tax office takes on calculating IHT? It will be the highest of any of the following three: 1. Cadastral value 2. Declared value/value on Title deed 3. Assessed value by the Tax office Yours sincerely, Raymundo Larraín Nesbitt Thank you..that has made it clear. best wishes Pat
Lawbird Lawyer Says:

Mon, Mar 22nd 2010, 13:05
You are welcome Pat. Regards,
John Curtis Says:

Tue, Apr 27th 2010, 12:19
What would the Tax position be if I transferred ownership of my apartment to my two children ? I am living in Mijas Costa.
Lawbird Lawyer Says:

Tue, Apr 27th 2010, 12:51
Dear Mr Curtis, That would fall under Spain's Gift tax which follows the same sliding scale as IHT tax but with none of its tax allowances. This option may prove very expensive and normally is not optimal from a tax mitigation point of view. Nevertheless we included it in the article that starts of this thread as another option to consider. Whilst its true that on doing the above they will waive paying IHT on you passing away there may be drawabacks besides how onerous this option is. One of the associated risks of transferring ownership whilst alive over to children is that they may divorce in the future. Their ex-partners may have a claim on the property and can actually sell it off against the will of other joint owners. An alternative to the above would be selling them the property outright will attracts 7% Transfer tax plus all associated conveyance expenses (Land Registry, Notary and Lawyer's fees). The vendor would be liable for CGT and Plusvalía tax. If your benefiairies are resident in the region of Andalucía they may be regarded as tax exempt for IHT purposes. You can read further on this in my article.- Spanish Inheritance Tax: Advantages of Making a Will in Spain - 3rd September 2009 Quoting an excerpt: Inheritance Tax in Andalucía in which beneficiaries, resulting from a death occurred after the 7th of June 2008, may benefit from the following regional tax allowances: •Reduction of 99.99% in the IHT taxable base on inheriting the family home (deaths occurred since the 1st January 2003). This requires the beneficiaries being resident in Spain. •Reduction of 99% in the IHT taxable base on those inheriting a business providing certain conditions are met. •No IHT paid on the Estate itself on compliance with certain requirements (i.e. inheritance taxable base < €175,000, heirs are next of kin or spouse, heirs pre-existing wealth < €402,678.11). •No IHT paid by physically handicapped (disability above 33%) with a taxable base < €250,000 Yours faithfully, Raymundo Larraín Nesbitt
Celia Says:

Mon, May 10th 2010, 02:54
I have been resident in Spain (Andalucia) for 6 years, my daughter is also a resident but she is currently working in the UK. I have made a Spanish will leaving her my property. I would like to know if I should set up a UK company to avoid IHT or not. The 1% charge could add up each year and if the IHT for my daughter is not too high would it be more advisable not to set up the company, I'm a little confused.
Lawbird Lawyer Says:

Mon, May 10th 2010, 10:15
Dear Madam, The information you post is so scant that it is simply not possible to give you an informed opinion. Regarding the option of setting up a UK Limited Company to avoid Spanish Inheritance tax I recommend you read carefully the following articles before committing yourself to follow this option: 1. Inheritance Tax: A Cynical Approach -13th January 2010 2. Costa Action Group: "Wincham Investments Limited" Quoting CDSAG's article: "The Wincham Inheritance Tax Protection Strategy by Wincham Investments Limited What is the Wincham Scheme? The Wincham Inheritance Tax Protection Strategy is a scheme offered by Wincham Investments Limited, a UK company, designed to ‘remove’ or ‘sidestep’ Spanish succession tax on the death of UK resident owners of Spanish property. If only life was so easy: they only tell you half the story. How does it purport to work? Under their scheme, you place the Spanish property into a UK limited company. Wincham claim that simply acquiring or transferring an existing Spanish property into a UK company will automatically circumvent Spanish succession tax for UK residents. This half of the story is true. Why doesn’t it work? Firstly, it takes no account of UK inheritance tax. This will be payable on the shares as UK limited company shares are always subject to UK inheritance tax. Arguments that business property relief will apply to exempt the shares from this tax are muddle headed: this relief only applies to real trading companies, not a single property investment company. Example: An elderly widowed individual with a total worldwide estate of around £1 million, including a Spanish property worth around €300,000, and two children, who will inherit equally on their death, the Spanish succession tax on the property would be around €36,000 in total (about €18,500 per child), with a top rate of tax in Spain of 18.7%. However, the UK inheritance tax on the same property would be around £104,350 (assuming an exchange rate of £1 to €1.15). This is clearly a much higher tax bill. Therefore, even if you manage to avoid Spanish succession tax on an inheritance, you may not avoid UK inheritance tax, and if this is higher than the Spanish tax would have been, you have gained nothing, but spent money on the scheme. Secondly, the scheme fails to emphasise the potential problems of capital gains tax when transferring an existing property in. If you have an existing Spanish property that you want to put into a company, you will be making a disposal of that property for capital gains tax purposes in both Spain and the UK (for a UK tax resident). If the value of the property has increased, you’ll be liable to tax even though you have only transferred it into a company. If there’s no gain in euro terms, there might still be a taxable gain in UK sterling terms payable to the UK tax man for UK residents. Even worse – you haven’t actually sold the property, so will have to find the money for the tax bill out of your own pocket. Thirdly, when you eventually sell the property (it’s highly unlikely that you’ll find a buyer for the shares: most buyers want the property only) the company will be liable to Spanish and UK corporation taxes, and then the gain (after paying tax) is liable to further tax as a dividend if you extract the money from the company! You’ll end up paying far more than if you had left it in your own name. Fourthly, putting the property into an existing limited company has all sorts of other problems including generating benefit in kind tax charges in the UK and losing business property relief for an otherwise trading company. You might also end up increasing the rate at which the company’s profits are taxed. Fifthly, Whilst there have been claims that transfer tax (7% on property) could be avoided by using a company to own the property (because when sold it is the shares that change hands, not the real estate itself), there are anti-avoidance provisions in Spanish law to prevent this, and so this anticipated saving may not arise either. Sixthly, many people wish to buy a property now for an ultimate retirement to Spain. This scheme could cost those people capital gains tax exemptions on that property if they ever move into it to live there. Finally, Wincham claim that any rental income generated by the property is taxed solely in the UK. This is not correct – the Double Tax Treaty between the two countries which governs what is taxed where (not EU directives, as Wincham claim) state clearly that even in the hands of a company, rental income is primarily taxed in the country where the property is located, and also in the country of residence of the owner. Whilst the Spanish tax can be offset against the UK tax so that you are not taxed twice, this still means that the higher liability is due wherever it arises, plus you will have two sets of annual accounting costs. Conclusion Don’t put your Spanish property into a limited company. You generate costs and tax liabilities for no real gain. In any case, when you work out the numbers, the amount of tax being saved isn’t nearly as much as you might believe." Source: Costa Action Group Yours faithfully, Raymundo Larraín Nesbitt
Celia Says:

Mon, May 10th 2010, 15:26
Dear Raymundo, thank you so much for your advise, I now have a clearer picture and know what to do. I will not be putting my property into a UK company, I believe, like you say, there will be no real gain for myself or my heirs. I final question, I came to Spain in 1986 and contracted the construction of my home, all paperwork was signed before December 1986 but the property was finished in 1988 and that is when i got the deeds. Does the fact that i contracted the property before december 1986 exempt me for capital gains or not?
tiddleywinks Says:

Mon, May 10th 2010, 15:43
Inheritance Tax: A Cynical Approach -13th January 2010. Very enlightening, i advise everyone who is considering putting their property into a UK based company to read this.
Lawbird Lawyer Says:

Mon, May 10th 2010, 15:45
Dear Celia, You're welcome. Please note that the above words are not mine, I just quoted an article written by the Costa Action Group, which is devoted to pursuing financial fraudsters that prey on fellow ex-pats in Spain. You may want to read pages 5 and 6 of their latest magazine for the month of April 2010: http://www.costa-action.co.uk/download/april2010mag.pdf Additionally you also have on the same issue of CDSAG magazine of April on pages 35 and 36 an article, titled "Inheritance Tax", spelling out the myths of Spanish Inheritance Tax which bears striking similarities to one I wrote last summer and published on the 3rd September 2009 on exactly the same topic: Spanish Inheritance Tax: Advantages of Making a Will in Spain - 3rd September 2009 But I digress. Back on topic, It's from 1988, when you got the deeds. You stand to pay very little CGT if you decide to sell. You can read further on CGT on the following article (some figures are now outdated with new laws; namely CGT is now taxed at 19%): Taxes when Selling Spanish Property - 2nd May 2002 Quoting an excerpt: Capital Gains Tax (non-residents) A non-resident seller is liable for payment of a 35% Capital Gains Tax on the profit of the sale of their property unless it was bought before January 1st 1.987. However, there are exemptions available for those who have owned their property since 1.994 and before. Also, the vendor can offset against the gain made on the sale other costs. A vendor will be able to mitigate his tax exposure by three different ways: Reductions on when the property was purchased •Those who bought a property after the 31st of December of 1.994 will not be entitled to any reductions. •Those who bought in 1.987 of after will enjoy of a reduction of 11.11% on the net gain for every year they have owned the property before the 31st of December 1996 after taking the first two years. This means that a seller starts benefiting from this reduction, his first 11.11%, if he bought in 1.994, 22.22% if he bought in 1.993 and so on. •Those who bought before the 31st of December 1.986 will be pay not tax, as the cuttoff point is 1.996. Reductions on the inflationary movements This reduction is obtained by applying a percentage to the l purchase price, raising the original price to the level of the value of the peseta today. This inflationary correction factor is applied to the entire purchase price, as well as to all costs surrounding the purchase. Likewise, improvements and extensions on the property will have to be updated inflation-wise. The correction factor to be applied will be the following: Reductions on the inherent costs of the purchase, works done on the property and others. •Costs of the purchase: these would include VAT or Transfer Tax, Plusvalía Tax (where paid by the buyer), Land registry and Notary fees, lawyer´s and real estate agent´s fees, where applicable. •Extensions and improvements done on the property: These should not be confused with maintenance and conservation costs, as these are not deductible. In practice, there is no clear cut distinction between one and the other. Examples of not deductible costs are repair or maintenance works, such as painting, repairs on heating systems, lifts, plumbing and so on. Examples of deductible costs are the installation of iron bars, doors, double glazing windows and similar improvements on the property. We've put together this Capital Gains Tax calculator so you can determine how much Cgt you will attract when you sell your spanish property. Yours faithfully, Raymundo Larraín Nesbitt
tiddleywinks Says:

Mon, May 10th 2010, 18:10
Thank you once again...very helpful.
Lawbird Lawyer Says:

Tue, May 11th 2010, 09:27
You are welcome.
Brian Hope Says:

Fri, May 28th 2010, 20:57
Hi Lawbird Lawyer, You mention a 99% reduction on the taxable base for a resident beneficiary. What is meant by taxable base? Presumably that includes a resident spouse so does that, in effect, virtually wipe out IHT on first death?
Lawbird Lawyer Says:

Mon, May 31st 2010, 09:06
Dear Sir, It means that if you comply with the requirements laid out above by Andalucías' regional gorvernment (Junta de Andalucía) you stand to pay almost no Inheritance Tax on inheriting the main residence (dwelling): Inheritance Tax in Andalucía in which beneficiaries, resulting from a death occurred after the 7th of June 2008, may benefit from the following regional tax allowances: •Reduction of 99.99% in the IHT taxable base on inheriting the family home (deaths occurred since the 1st January 2003). This requires the beneficiaries being resident in Spain. •Reduction of 99% in the IHT taxable base on those inheriting a business providing certain conditions are met. •No IHT paid on the Estate itself on compliance with certain requirements (i.e. inheritance taxable base < €175,000, heirs are next of kin or spouse, heirs pre-existing wealth < €402,678.11). •No IHT paid by physically handicapped (disability above 33%) with a taxable base < €250,000 Yours faithfully,
Lotty Says:

Mon, Jun 7th 2010, 20:49
My father recently died and has willed his property in Tenerife to my sister and I (all non-residents). It is valued around Euro260,000. Our pre-existing wealth is
Lawbird Lawyer Says:

Tue, Jun 8th 2010, 09:00
Dear Sir or Madam, I'm sorry, we do not make tax assessments on a free basis, even more so in IHT's case. You would need to hire us to give you an estimation of your tax liability. Yours faithfully,
Roy Packham Says:

Sat, Jun 12th 2010, 22:27
I am 69, my wife is 60. May I ask if IHT is based on the possible sale price of my house, or the actual build value of the house (i.e a possible sale value of our house is 450,000, but the build value is around 150,000. (No mortgage) We both have Spanish wills, leaving everything to each spouse, and, in the event we both die, leaving the house to our son who lives and works in the UK. Between us we have a small pension and have a limited amount of savings. How can I calculate how much IHT either of us would pay in the event of one of us dying, or the amount that would have to be paid by our son should we both die. Would you recommend any particular method for us to try and reduce the amount of IHT to be paid. We live in Alhaurin El Grande, Malaga. May I say many thanks indeed for any help/advice you can offer.
Lawbird Lawyer Says:

Mon, Jun 14th 2010, 09:45
Dear Mr Packham, For IHT purposes, the taxman takes the highest of the following three: 1. Declared value of acquisition (on title deed) 2. Compared value on other taxes 3. Cadastral value I'm aware the taxman of late is now looking with a magnifying glass at these values to apply the highest. Before this crisis, they use to have a more lenient attitude albeit now securing taxes has become a top priority for them. Regarding strategies to minimise the IHT impact the most succesful ones are normally done prior to purchasing the property, not after. I would advise taking a whole life insurance cover having as cross beneficiary your wife. Ideally these should really be hired before you reach 50 so as to to reap the maximum benefits. As per our replies above, we do not make tax assessments on a free basis, sorry, much less IHT. Should your spouse die, you would hardly have to pay any IHT tax at all so long as you comply with what I quote below: Inheritance Tax in Andalucía in which beneficiaries, resulting from a death occurred after the 7th of June 2008, may benefit from the following regional tax allowances: •Reduction of 99.99% in the IHT taxable base on inheriting the family home (main residence) for deaths occurred after the 1st January 2003. This requires the beneficiaries being resident in Andalucía, such as yourselves. I trust you file taxes here annually to benefit of this regional tax allowance. •Reduction of 99% in the IHT taxable base on those inheriting a business providing certain conditions are met. •No IHT paid on the Estate itself on compliance with certain requirements (i.e. inheritance taxable base < €175,000, heirs are next of kin or spouse, heirs pre-existing wealth < €402,678.11). •No IHT paid by physically handicapped (disability above 33%) with a taxable base < €250,000 The problem would be your only son, who is non-resident in Spain as he's domiciled in the UK for tax purposes. His IHT liability may be high on inheriting the full property. Any tax mitigation strategy should have him foremost in mind rather than yourselves (you and your spouse). Notwithstanding the above, there's a silver lining regarding your only son (beneficiary): EU Pulls the Stops and Vows to Put and End to Inheritance Taxation Discrimination on Non-Resident Beneficiaries Inheriting in Spain - 20th May 2010 Yours faithfully, Raymundo Larraín Nesbitt
vicky Says:

Sat, Jul 24th 2010, 11:03
hi i am buying a property in spain and the guy passed away and has left an english will leaving it to his nephew who now has the probate sorted with cert etc...can i now deal with this through him...if there is a spanish will made years ago will this current english will over ride the spanish one as this was his last will so long as its translated etc..my fear is that there could be a spanish will leaving it to someone else!
Lawbird Lawyer Says:

Mon, Jul 26th 2010, 11:05
Dear Vicky A last will will overrides any prior one on what is found contradictory, yes. In any case the property cannot be sold on until the rightful heir signs the Spanish Acceptance Inheritance deed and files/pays the associated IHT. Only once the property is lodged under the vendor's name can you legally buy it from him. Yours sincerely Raymundo Larraín Nesbitt
vicky Says:

Mon, Jul 26th 2010, 12:09
thanks very much...thats great
Lawbird Lawyer Says:

Mon, Jul 26th 2010, 13:24
You are welcome.
Pauline Says:

Sat, Aug 14th 2010, 10:56
My father died without leaving a will and he owned an appartment on the costa del sol with his ex partner. Their are 2 children to inherit but working out the capital after the mortgage and taxes of the half share it does not seem worth claiming. Can anyone tells me what happens to the half share if we dont claim the property. Thanks
Lawbird Lawyer Says:

Wed, Aug 18th 2010, 11:10
Dear Madam The legally next in line would inherit then. Depending on the amount of debts, creditors. You can always follow what's known as "aceptación a beneficio de inventario". The assets less the liabilities are calculated exactly to see how much you stand to inherit -or not-. If the estate is in negative equity you simply do not accept the inheritance as it's pointless and even dangerous (read below). What's very, very important to note is that in Spain on accepting an inheritance, should there be outstanding liabilities or debts, and the deceased's estate proves inssuficient to cover them you will be held personally liable to pay them off (meaning you inherit all the deceased's debts) with your own assets unless you have previously accepted it as I decribe above (aceptación a beneneficio de inventario). Sincerely Raymundo Larraín Nesbitt
tony Says:

Wed, Aug 25th 2010, 19:50
my father has a property in tenerife, he is no longer able to travel there and has decided to transfer the property to myself and my brother, both resident in the uk. Is this a wise thing to do?
Yvonne Murcia Says:

Mon, Sep 6th 2010, 16:14
My husband and I own a villa in Puerto Lumbreras Murcia and took up residency at the time of purchase in 2007. It is worth about 300,000 - 325,000. We have a mortgage of about 60,000 on it. We have made Spanish wills leaving it to one another and then our three children (two resident in UK and one in the UAE). I am not sure how much inheritance tax we would get charged should one of us die. We nearly went down the Wincham path and after reading comments on this site am so glad we didn't. Would it be wise for us to write UK wills to override the Spanish ones or would it be more beneficial to stay with the Spanish ones and include our UK apartment etc?
Raymond thomas Says:

Mon, Sep 6th 2010, 20:07
We own a property in Murcia(150,000euro) in joint names with my wifes sister and husband. My brother in law has just died and now everyone says we would have been better to have had it has a uk company. What would be the best way forward to save problems in the future.
aflores Says:

Mon, Sep 6th 2010, 21:33
Dear Yvonne If you inherit say 115.000 Euros (50% of the taxable equity), after deducting the maximum allowance (16k Euros), you will be in the 15% tax rate, approximately. Regarding the Wincham route I´m sure it suits specific cases but, as I pointed out to them, it certainly is no panacea! When one endorses just one legal option objectivity dissapears and with it, credibility (sorry Wincham, my opinion)
aflores Says:

Mon, Sep 6th 2010, 21:42
Hi Raymond, Please pass my condolences to your sister in law. If your brother in law owned, I am assuming, 25% of the property (say 40 thousand Euros), and your sister is inheriting his share, he would be in the 12% tax band. However, since they were married 16k Euros allowance are to be taken off so she is effectively only paying tax on say 24k Euros, which leaves her in the 9% tax rate, around 2.000 Euros. If a company had been used, only the incorporation costs would be twice as much, without mentioning Stamp Duty and running costs. Numbers never lie. The best option is just to stay as you are as any other mechanisms you try to put in place will just increase your costs, in the long run.
Tony King Says:

Tue, Sep 7th 2010, 13:01
Hi I asked the question below but have had no response as yet. Is there a reason why? Kind regards Tony Tony Says: Wed, Aug 25th 2010, 19:50 my father has a property in tenerife, he is no longer able to travel there and has decided to transfer the property to myself and my brother, both resident in the uk. Is this a wise thing to do?
aflores Says:

Wed, Sep 8th 2010, 18:55
Dear Tony Apologies for the late reply. This is a possibility you can do but it can be costly and also, the transaction could be considered to be null and void as a real sale is not taking place. The truth is that very few transactions get nullified for this reason but it is important to keep in mind. I advise that you do the math to see if inheriting would far more costly than buying/selling. If you advise on figures I can help you with this.
pauline Says:

Wed, Sep 8th 2010, 21:04
Do you have to claim a property in spain if you are the first in line of inheritors. My dad left a half share of an apartment with a large mortgage and I do not wish to be involved and do not want anything from the property. I f no one claims it will the Spainish government get the half share and then what happens. Thanks
aflores Says:

Fri, Sep 10th 2010, 08:07
Dear Pauline In principle this would be the case, by reference to applicable law. However, ti is unlikely that they (Spanish State) does find out unless of course they are told about it, by the other share owner. Presumably the owner of the other share will be interested to know where the other half goes because, if you think about it, his own share is worth almost nothing without the other, as who would by into a property in these conditions, that is, buying 50% of it? This would cause all sorts of problems and is not all attractive, unless the price is so low that you can't refuse. I suggest that you renounce to your share for a fee or sum, in favour of the other share owner, who should happily pay for it. How this is done will depend on whether he is also an inheritor of some type, as otherwise you have to accept it and then sell it. Let us know what you wish to do as we are interested in knowing, after all we have not come accross a situation like this one before!
pauline Says:

Fri, Sep 10th 2010, 19:31
Dear affores Thanks for your answer but the other share owner is not an inheritior as was his ex partner. I am not in a position to claim the property as I do not have any money and will also incur debts with the property. I also am not in a position to put my name on a mortgage in Spain. My sister and I do not want to get involved (she has no money either and is living in America). Can we just not claim the property also we would not mind the other person having my Dads share but to sell it to them would mean that I would have to claim it first. This would mean paying tax, legal fees, debts on the mortgage and being liable for half the mortgage. There does not seem to be anyway to sort this problem without paying out money that I do not have. Please help - how can you renounce your share if you have no money to claim it. I am happy for the spainish authority to have it as there does not appear to be anyway to solve this. Thanks
inge Says:

Mon, Sep 20th 2010, 19:05
I have been told that as a Spanish tax payer (from the UK) working in Spain but due to retire that if anything happened to myself or my husband we would not pay inheritance tax. We live in Barcelona and own a house in Tarragona and a business in Barcelona. Is this correct?
mr rossi Says:

Sun, Oct 24th 2010, 21:37
Hi there, thanks for the information, really helpful. My parents have a property in spain, Valencia, worth roughly 300,000E and 2 children. They have been told that we can lower our IHT if I register in spain with a residencia number. Is this true? From reading your posts it seems like IHT has been reduced by 99.99% but only if is passed onto someone resident in spain (both inheritors are living in UK). Do i need to do more to be resident in spain, or will this not help? Thx in advance
Jim Walters Says:

Tue, Oct 26th 2010, 14:17
My mother died a few years back and I believed I owned the property in Spain with her jointly. It terns out her name was the only name on the deed. She also left no will. What can be done. I am the only child and my father does not have any interest in the property
Dee W Says:

Wed, Dec 1st 2010, 22:58
Can you help. My parents moved to Spain approximately 10 years ago. My father died there about 6 years ago leaving my mother in situ. They both had residencia. Their intention was to leave the property to their 5 children, but two have subsequently passed away. Leaving my mother, my brother (living in Australia), one sister and myself. My mothers speak of advice she has had to put the property into my sisters name to avoid inheritance tax but reading the q & a above, this does not seem sensible. Can you advise. The property cost approximately 100,000euros and is now worth much the same.
Gaynor Currie Says:

Sun, Apr 3rd 2011, 21:10
What is the best thing to do if you wish to leave your property to a non-profit making organisation? (An animal society.) Charity's do not seem to exist in the same way as they do in England, and there seems to be no tax concessions. Also, if I bought another property, would there be any advantage to buying it in the name of the animal society, in order to remove the need for inheritence tax later?
Deb's Says:

Wed, Jul 6th 2011, 20:58
hi . My father recently passed away and has left an apartment in Palma worth 180k euro's. He made a Spanish will. Now his Spanish solicitor says both me and my brother have to pay 41 thousand euro's IHT ?
Deb's Says:

Wed, Jul 6th 2011, 21:02
sorry that amount is to be paid between us not paid by both of us. Seems too much ?
Patricia Says:

Thu, Jul 7th 2011, 18:17
Hello Deb, First of all, please accept my condolences. I have done some quick calculations and 41,000 € is a bit too high. Note that you will be inheriting €90,000 each. The allowance for children is of nearly €16,000 (if you are 21 and above). This means that €74,000 is the figure we must use as a base for the calculations. Using the table on the article Spanish Inheritance Tax: How much is it?, you will have to pay under €11,000 each. Let me know if you need further help. Kind regards,
Peter Says:

Sat, Aug 13th 2011, 18:26
Hello. My wife and I own a property in Tenerife. Could you please tell me if it is best for us to have a Spanish will, or a UK will. We both reside in the UK. Kind Regards Peter.
Paul Says:

Tue, Nov 1st 2011, 05:08
What has happened to the IHT calculator referred to in the article at the top of this thread? The link doesn't work.
Paul Says:

Thu, Nov 10th 2011, 17:26
Hello, I wonder what would be the best course of action for me to try to avoid paying excessive IHT should anything happen to me. I own 5 properties in the Canary Islands and am resident there for 12 years. My son who is my sole heir lives in the UK and is 21. He is not a resident of the Canary Islands. The total value of the properties is about 650-700 k and there is a small mortgage of 30k on one of them. I have done quite a bit of research on this and found your website to be most helpful. Can my son apply for residence here but live in the UK? as I understand that he will be exempt if he is a resident for 5 or more years. Thanks for any advise.
slimstan Says:

Wed, Nov 23rd 2011, 16:36
i am forming a uk ltd company and will be purchasing a spanish apartment in marbella what would the spanish costs of this
Tom J Says:

Mon, Dec 5th 2011, 01:47
My father lived in Almeria and died in 2010 but before he died he decided to take his home and deed it to my two younger brothers without his other 4 children knowledge. He must of done this to avoid the other 4 children inheriting the home. Was this legal since the transaction was between him and my two younger brothers? It is my understanding that Spanish law prevents parents from this. Thank you for any advice you can provide
Patricia Says:

Mon, Dec 5th 2011, 13:41
Hello Tom J, If your father transferred the ownership of the house to your younger brothers while alive through a donation process, there is nothing against Law regarding this fact. However, that donation can be considered as part of the inheritance that could belong to them. If the rest of the descendants understand this donation was done by fraud of Law, with the aim to avoid respecting their legitimate rights, it would have to be proved before the courts of Justice. Best Regards,

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