Spanish Inheritance Tax: Advantages of Making a Will in Spain
Raymundo Larraín Nesbitt - Lawbird Legal Services
3rd of September 2009
In this article I’m going to focus mainly on why it is almost essential, for non-residents owning property in Spain, to make a will in Spain in lieu of drawing up a national one to dispose of their Spanish estate.Additionally, I’ll introduce the article shedding some light onto Spain’s Inheritance Taxation system so as to cast aside some increasingly widespread misconceptions.
Spanish Inheritance Tax Overview
The topic of Inheritance in Spain is a fairly complex and technical one, allowing for multiple articles on the matter. Besides a general legal framework which is applied nationwide (Law 29/87 and Ordinance 1629/1991), each of the 17 existing autonomous regions that make Spain are additionally empowered to rule on some aspects enacting their own laws i.e. on applying their own tax allowances.
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.
Other regional communities, in despite of not having suppressed IHT yet, apply their own tax allowances in addition to those set by the Government in the above laws. As an example, such would be the case of 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 theeEstate 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.
Is the Dread on Spanish IHT Justified? Not so
Spanish inheritance tax has been grossly overblown over the last years by a minority with a vested interest in peddling doubtful financial products or else complex holding structures to non-residents at large who, in most cases, are in no real need of them. These “creative” solutions often involve high setting up fees as well as high annual costs that can altogether negate the sought tax mitigation. Besides, you run the risk that if you decide to sell the property later on in life, for whatever reason (i.e. health issues), some purchasers’ lawyers may turn down deals when the property is locked up within a string of holding companies because of the associated legal risks. Naturally these companies can always be wound up, at a prohibitive expense, to sell on the underlying property although it may take some time. And last, albeit not least, is the point on who’s really in control of such corporate structures.
Worthwhile mentioning is the Spanish Tax Office’s clamp down on such structures as of late, eager to offset the shortfall in property tax revenue. The bottom line is that these solutions may prove unsuitable for most people, requiring a careful case-by-case approach.
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). It is in both of these cases, which are a minority really, in which the IHT liability can be high, too high, reaching even 81,6%, which is tantamount to expropriation in my opinion. Hence the need of tailored tax planning which may indeed justify setting up corporate structures, for tax mitigation purposes, on such cases.
The key to successfully mitigate Spain’s IHT is to plan ahead prior to the purchase of a property in Spain.
The Average Estate is not Taxed on Being Inherited by Offspring
Spanish Inheritance tax is a progressive tax which follows a sliding scale; the larger the estate bequeathed, the more tax heirs pay. The truth is that the average Spanish inheritance tax paid by non-resident heirs is not as high as claimed and it’s often nil on applying both national and regional tax allowances as well as offsetting associated expenses incurred.
Taking for example Andalucía, 97% of inheritances from parents to children went untaxed in 2008 (source: Andalucian Parliament query 8-08/POP-000270 from the 9th October 2008) and 90% of inheritances filed were below the €125,000 benchmark (source: El País daily newspaper). The reason is that children below 21 years of age , regardless if they are resident in Spain or not, qualify for an additional personal tax allowance that, in most cases, leaves the tax bill at nil. They are explained below.
So quotes such as “most Spanish estates will be hit with a 40-50% tax charge” or “your inheritors will be hit with a 40% plus inheritance tax bill” or “a forced sale of your Spanish property may be necessary (to pay IHT)” are grossly misleading if not downright false.
Example of Inheritance Taxation in Spain
Let’s take the case of a non-resident couple owning a property in joint names with a market value equal to €500,000. So when one of them passes on, the heirs only inherit the 50% share (€250,000). In most cases, heirs belong to either Group I or Group II (next of kin in first degree and spouse), so each inheritor (resident and non-resident alike) is entitled to a national personal allowance of almost €16,000 to which regional tax allowances are added on top (dependant on many cases in taking up Spanish residency). Heirs can additionally offset funeral expenses (typically circa 6,000€) and medical expenses incurred by the deceased albeit borne by the heirs, up to a limit, against the inheritance tax. All this brings the tax bill to a manageable level for the vast majority of families on inheriting in Spain.
Taking the above example for an average property worth €500,000 held under joint names by two married non-residents in which one of them passes away leaving the property to his appointed heirs (all non-resident). They have two children. We will consider these two children to have no pre-existing wealth of their own in Spain, other than the share of the property they are inheriting. We will also consider the property to be mortgage-free (which is frankly unrealistic). On this example I will only consider national tax allowances, leaving aside regional tax allowances to keep it simple, so this property could be located anywhere within Spain. I will consider three inheritance scenarios:
- Scenario 1: The deceased bequeaths his 50% share (€250,000) on the property to their two underage children, aged 13 and 18. The taxable base of each heir would amount to €125,000. In this case as both children are underage further national tax allowances are applicable as they belong to Group I. Besides a tax allowance of almost €16,000, descendants and adopted children under 21 have a further deduction of €3,991 for every year below 21 up to a maximum of €47,858.59 per child. In this example, after applying deductible expenses and personal tax allowances, the 13 year old would pay nil and the 18 year old would be liable for an IHT bill of only 1,419€.
- Scenario 2: The deceased bequeaths his 50% share (€250,000) on the property to their two children. Both are above 21 years old. In this case the tax base would amount to €125,000 each. They would both have a personal allowance of almost €16,000. They would both be liable, after applying deductible expenses and personal tax allowance, for €13,391.50 each. If this property were to be located say in Andalucía they would both pay nil as their taxable base is below €175,000€.
- Scenario 3: The deceased leaves his 50% share (€250,000) on the property to the surviving spouse, leaving the children as alternative heirs. In this case the heir has pre-existing net wealth sited in Spain valued at €250K (the pre-owned 50% on the property). The taxable base would be €250,000. The spouse would belong to Group II and would have a national personal allowance of almost 16,000€. In this case a multiplicand is applied to the taxable base as the heir has pre-existing net wealth of their own in Spain. The multiplicand applied would be 1 (thus leaving the taxable base unchanged) as the heir belongs to Group II (spouse) and the pre-existing wealth is below €402K. The resulting IHT liability would be €37,600. If this property had a typical non-resident mortgage on it for say 60% LTV the resulting inheritance tax bill would be approximately €9,000.
Depending on where the property is located in Spain, regional tax allowances may also be applicable which will again bring down further the IHT. Funeral and medical expenses can also be offset against the IHT tax base. If this property had a mortgage on it, as in most cases, IHT would only be payable on the un-mortgaged portion of the property thus reducing considerably the taxable base. As we can verify in the above options, I’ve only taken into account national tax allowances (leaving aside regional ones) and have considered the property to be mortgage-free, very unrealistically. Additionally a dwelling valued at €500K is well above the average for a foreign-owned property.
On reviewing the three inheritance scenarios, in the first case the IHT to be paid by both children would be nil or close. In the second case the tax base would be 13,391€ (if there was a mortgage against the property it would be nil). The third case is the most sensitive as the heir is liable for a considerable tax bill of 37,600€ (which amounts to 7,5% of the property’s value). It is in this last case in which a qualified expert, such as a lawyer or tax advisor, can add value bringing down significantly the taxable base by means of planning ahead fiscally to mitigate IHT exposure.
It is recommendable to take on a whole life insurance policy naming each spouse as cross beneficiary on planning ahead for this event. This will ensure that any IHT liability can be paid off comfortably from the life insurance. There’s a 100% tax allowance on life insurance with a maximum limit of 9,195.49€ (Groups I and II).
It is important to note that in Spain, unlike the UK, there is no exemption from inheritance tax between husband and wife.
Isn’t a Will Drawn up in the U.K. or in Ireland Valid?
A UK or Irish will are perfectly valid to bequeath assets located in Spain. Having said this, many practical problems stem from this that could easily be overcome by means of having made a Spanish will.
Then why is it that it’s “Essential” to Draw Up a Spanish Will?
Fairly often people just don’t realise they are adding unnecessary stress and expenses to their loved ones at a time of bereavement by not having drawn up a Spanish will. For all those owning property in Spain it is highly advisable you make a Spanish will which will be complementary to the will you’ve already made in your own home country. However I would just like to clarify that making a Spanish will doesn’t avoid you being liable for Spanish IHT in any way. Drawing up a Spanish will, to dispose exclusively of your Spanish estate, has a number of advantages for your beneficiaries, all having to do with saving them time, money and hassle. This recommendation can also be found on the UK's Foreign Office Department website for Spain.
Advantages of Making a Spanish Will
The most obvious advantages are the following:
- A Spanish will is exclusive to your assets located in Spain. It doesn’t preclude any will you may draw up in your home country whether before or after. This means that the Spanish will won’t overrule your national will and affects only your Spanish Estate providing your national will holds no provisions on the Spanish assets.
- Drawing up a Spanish will saves taxes to your heirs. There’s a deadline of 6 months as from the time of the testator’s demise to file and pay Spanish Inheritance Tax. You can request a deferral within the first five months of the death, but heirs may still have to pay the penalty and/or delay interests depending on how late they actually pay. You can also request to fraction the IHT paying in instalments up to five years. After the six months deadline has elapsed your beneficiaries will incur in penalties for late payment typically ranging from 5%, 10% and 15% if paid in the next 3, 6 and 12 months as from the said deadline. If payment is made after 12 months from the deadline a surcharge of 20% is applied besides the accrued delay interests. Bear in mind that deposit monies will be frozen upon death.
A Spanish will has the advantage that it can be executed almost immediately whereas a UK or Irish one will no doubt exceed the deadline attracting the penalties from the Spanish Tax Office for late payment. The reason is that a Grant of Probate must be followed in your home country which takes a long time and besides is fairly expensive. It is usual that foreign wills take in excess of a year or more to be executed in Spain which translates into higher expenses borne by your beneficiaries due to the surcharge for late payment explained above.
- Drawing up a Spanish will saves both money and hassle. On making only a national will your beneficiaries will have to translate all documents (death certificate, will) into Spanish by a sworn translator, notarise them and affix to each of them the Apostille seal of the Hague Convention of 5th October 1961. They will also have to obtain a Grant of Probate which requires as well to be translated into Spanish and apostilled. Additionally a Certificado de Ley (certificate of legal compliance) may be necessary explaining the inheritance procedure in a foreign country. All this greatly increases the expenses for your beneficiaries besides delaying significantly the whole transfer of estate procedure. Whereas if you had made a Spanish will the above would be unnecessary.
- Spanish wills are stored safely at no extra charge. On you making a Spanish will you will be given only a “copia simple” (simple copy) or “copia autorizada”. The original is stored by the Notary in his files for record. The Notary will send off to Madrid the details of this will to a registry known as “Registro General de Actos de Última Voluntad” (Central Registry of Last Wills) for safekeeping. Your beneficiaries can always request an authorised copy (“copia autorizada”) of the testator’s last will from the Notary who witnessed it. You can always know before which Notary it was made (if you happen not to know it) by means of requesting a “Certificado de Últimas Voluntades” from the aforementioned Central Registry of Last Wills. It’s just an A4 sized sheet of paper from the Ministry of Justice with the seal of the said registry which specifies which Spanish Notary witnessed the last will and the date on which it was made. The latest will always overrule any prior will unless specified otherwise.
Should you lose your copy, the notary office burn down or you simply don’t know before which Spanish Notary the will was made, don’t panic, it doesn’t matter really. All Spanish will’s details are stored safely in the said registry free of charge. One can always request a copy and they will let you know before which Notary it was witnessed if you believe you are a beneficiary. You will have to provide an original death certificate (translated into Spanish with the Apostille seal affixed if the death occurred abroad) and the original “Certificado de Últimas Voluntades” (Certificate of Last Will). The Spanish death certificate is obtained from the civil registry in the municipality in which the death took place.
Be wary of opportunistic companies that charge you an annual fee to store “safely” your Spanish will. As read above, this is unnecessary and they are just taking advantage of you.
- Spanish wills drawn up before a Notary public (Open wills) add security. Making a will is a personal act. It cannot be granted by means of a proxy. Normally these wills are set out in double column (Spanish and your native language) so you fully understand what you are signing. They are drafted by your appointed lawyer. If your command of Spanish is low it will be compulsory you draw up the will assisted by a translator (which can be an acquaintance with a good grasp of Spanish or typically your own lawyer) who will also sign it. The Notary will read out aloud the will in Spanish to make sure you fully understand and agree with its content. All this adds to the security on you granting a will in Spain.
- The content of a Spanish will is governed by your own national laws. This means that you are not constrained by Spain’s forced heirship rules. Additionally, If you are of British or Irish citizenship you have free testamentary disposition in Spain meaning you can make a will exactly the same as you would in the U.K. or in Ireland albeit with all the additional advantages I’ve highlighted above for your loved ones.
Once heirs have all three (original death certificate, will certificate and a notarised copy of the testator’s last will) they may now obtain 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.
Once IHT is paid and lodged, not before that, 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. Heirs cannot mortgage or sell the property to pay IHT as it still doesn’t belong to them.
It is important to plan ahead to mitigate Spanish Inheritance Tax, especially on large estates. A specialised lawyer can greatly reduce or even eliminate completely exposure to this tax. IHT rules vary widely from one region to another. There’s an ongoing trend to abolish IHT in Spain.
Ideally foreigners should make two wills; one in their home country ruling on their national assets and a second Spanish will drawn up in Spain which will rule only on their Spanish estate. A Spanish lawyer can assist you both making and executing one.
In this world nothing can be said to be certain, except death and taxes.
Benjamin Franklin 1789
Further articles on the matter:
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Lawbird Spanish Lawyers is a law firm with broad experience in Litigation, Corporate and Spanish Property Law.
Discuss this Article
Arnold Milligan Says:
Fri, Sep 4th 2009, 17:47
A wonderful article. Very reassuring for me (and my children) as I fit into scenario 2. Indeed, I have three children, which makes even more room for no IHT if prices one day rise again.
There are too many so called experts, normally working as tax advisors, posting unfounded or incorrect information on the many forums I visit.
Fri, Sep 4th 2009, 21:51
Dear Arnold. Thank you for your kind words. Unfortunately what you mention is true. There are a few expat forums on the web riddled with misleading "legal-gossip", which are nothing but perfect money making machines for their owners and the self-defined "experts" they recommend. You will not find in this site a single piece of advice which is not 100% in the best interest of the reader. We've been here for 10 years and we plan to stay for much longer.
You have correctly drawn your own conclusion, but for those still thinking of hiring one of these "specialised IHT Planning Advisors", I would recommend them to stay clear away.
Lawbird Lawyer Says:
Fri, Sep 18th 2009, 12:46
I've just received a legal query from a widow on Spanish IHT.
She had not registered herself in Spain despite having lived here for years. Thus her IHT liability will be higher, much higher.
I copy and paste this article here because of its interest to the Ex-Pat Community
Embassy encourages foreigners to register on local ‘padrón’
Benefits of registering include tax reductions, access to social care and discounts
The British Embassy is encouraging foreign residents to register on their municipal register by informing them of the numerous benefits this entails. While many British expatriates may not be aware of this, officially, all residents in Spain are required by law to register on the ‘padrón’. The embassy suspects that many people are reluctant to do so because they view it as a means of vigilance by the state. However, we are told that in reality, it is simply a way for local town halls to know how many people live in their area without entering into investigations as to a person’s official residence status or financial affairs. Residents do not have to own their own home to register on the census, they just have to have an address where they usually live. With regard to the actual registration process, this is straightforward and merely involves filling out a form. All information provided is confidential and protected by data protection laws. Citizens must take along identification such as a passport, NIE or residence card, and a recent utility bill in their name as well as the deeds to their house or a copy of their rental contract.
One of the advantages of registering on the local population census is that Central Government allocates money to the different municipalities according to how many people are on the ‘padrón’. Therefore, an area with more inhabitants is likely to have better public services with more money for the provision of health centres, police officers, fire fighters and schools.
Similarly, residents on the register are able to take advantage of certain income-related benefits and other aspects of social care available through town hall social services.
Administrative tasks such as registering for health care, enroling children at a school or registering a car with Spanish number plates is also much easier for people who are on the register. Also, depending on the town hall, registering on the ‘padrón’ could mean up to 50 per cent off Property Tax as well as reductions in certain community charges and inheritance tax. There are also discounts available on courses and leisure and cultural activities organised by the town hall. Registering on the census also enables residents to vote in both local and European elections.
For more information go to the British Embassy’s website: http://ukinspain.fco.gov.uk
Howard Red Says:
Mon, Oct 19th 2009, 23:00
This article should be printed and included in all English language newspapers in print in Spain at last once a year as it simplifies what almost nobody knows to the point that people who have no knowledge of Spanish laws can easily understand it.
Thank you for a fine article.
Lawbird Lawyer Says:
Tue, Oct 20th 2009, 09:10
You're welcome Mr Red.
Fri, Nov 6th 2009, 00:04
Is it not that these exemptions are only for resident inheritors and do they carry time penalties if you sell the property soon after inheriting.
Also if I leave my property to say a UK company no tax is payable anyway.
Lawbird Lawyer Says:
Fri, Nov 6th 2009, 11:00
Dear Sir or Madam,
Can you please be more specific with your legal query.
As the article itself states, Spanish Inheritance tax is a very complex and technical matter with multiple laws ruling on the matter depending on where the estate is located.
Each region is empowered to pass it's own laws besides the national legal framework which doesn't always apply to all regions.
Concretely to which of the 17 regions are you referring to in your query?
As per the article, there's a trend to abolish inheritance tax in Spain which is very unpopular. Much like there was for wealth tax which was finally abolished in January 2008.
In those regions where it has been completely supressed it's normally not residency that triggers not being liable to be taxed as you point out mistakenly, it's kinship. It suffices you being next-of-kin to take advantage, regardless of whether the beneficiary is resident or not in the region (or in Spain for that matter).
And yet in those other regions where IHT has still not been abolished which are the majority, such as in the case of Andalucía, you must indeed be resident in the region to take advantage of the regional tax allowances as you correctly point out. That is already highlighted in our article above.
That is why you must be more concrete on asking us, one cannot generalise with sweeping statements as the laws on inheritance in each region are so diverse i.e. the same family can be taxed for IHT in one region and yet not be taxed in a neigbouring region. It's only the laws that change, the case is identical.
Regarding setting up a UK Ltd company to waive IHT liability we have given our opinion many times over. As an example you have this thread:
UK limited company/IHT/transfer tax
In our opinion the risk-reward must be attractive enough to warrant following this option as it's not risk-free. I've seen cases of owners of properties worth 250,000€ in Costa Blanca being misold a UK Ltd company when this owner had 4 children. Even if IHT hadn't been abolished in Valencia region, which is the case, his beneficiaries would still pay nil for Spanish IHT. As per the article which starts off this thread, the more beneficiaries the least IHT liability as the estate is spread out and the tax base is reduced accordingly as each beneficiary will benefit from individual tax allowances, both national and regional.
For large estates (i.e. > 800,000€) this option can indeed be very attractive, yes, as it's pointed out in the above article. Every case must be studied individually on its own merits. This UK Ltd option being offered to everyone en masse, as if all cases were identical, is seldom a good idea in our opinion.
Because this option may entail serious legal risks which are explained in the link above. New laws are being continously passed regarding holding companies owning assets in Spain such as on the matter of utility consumption to detect non-declared lets. They are continously crossrefferencing data to detect such fraudulent cases.
One cannot seriously entertain the idea nowadays that on holding a villa through a UK Ltd company there will be no tax liability whatsoever arising in Spain of any kind. It may have worked well in the past, granted, albeit will it work well in the future now that the Tax Office is taking a special interest in them post credit crunch? I beg to differ.
I know for a fact they are bent on plugging this hole closing in. The Spanish Tax Office wants its taxes and it will have its way, one way or another. Which is why the risk-reward ratio must be worthwhile making it not a suitable option for everyone to stomach. The underlying problem here is that The Spanish government is serioulsy in debt and the public deficit is evergrowing. Over the last years money wasn't an issue as the Tax office was collecting effortlessly massive amounts of money from property-related taxes albeit this is no longer the case with the downfall of the property market. Hence the need of the Tax Office to secure alternative sources of revenue to offset the budget deficit tapping in on niches that had previously remained unexploited, that is until now.
I would advice you to shop around for different legal opinions on this matter from registered Spanish lawyers before you commit yourself to this option. The option itself is not necessarily bad, it's just that it may not be appropriate for everyone which is why professional advice from Spanish experts, such as as a registered lawyer or tax advisor, should be sought.
Raymundo Larraín Nesbitt
Mon, Nov 9th 2009, 23:33
Thank you for a long response, but I do detect a slight frustration to this question.and you have not answered the question ,I have taken advice from Snr David Ivars in Benissa a Abagado and Snr Jaime Vives a Econamister in Calpe . They both confirm that a UK registered company does not pay Spanish IHT I just wanted final clarification to this they also confirm that a Spanish Will is not required as long as you have a UK Will that deals with your movable and immovable assets in Spain. Please just tell me if this is correct or not and by the way my wife and myself have a property in Valencia region and we are not residents but if we do leave our property in a UK Company then no IHT is payable in any region is that correct? Thank you for your time and answers
Mon, Nov 9th 2009, 23:55
after rereading your response, I wonder how the Spanish government could tax a UK Company after signing the EU treaties that it has done especially if the company is registered ,operated and controlled from the UK and submitting to UK taxation. The Spanish government may wish to tax UK companies but I do not think they will break the treaties as this would have a reverse effect.The other benefit is that if you have 4 children they would all have to have NIE numbers and probate individually in Spain at a not insignificant cost.If the property is left to a Company they own then no Probate no NIE numbers and No Tax is that Correct? We also have the problem that a property in Spain is subject to UK IHT and added to the UK Estate as My Wife and I have assets in the UK at a value over £650,000 Then we would also pay 40% tax in the UK on the Spanish asset. I am told by my UK accountant that a UK Company may be able to shelter from some of this tax with careful planning.your respected reply will be gratefully received
Lawbird Lawyer Says:
Tue, Nov 10th 2009, 11:51
Dear Sir or Madam,
You’re welcome. You make some very interesting points.
Judging from your reply I think you are however missing my point.
You say you own property in Valencia region. You keep insisting on the matter of UK Ltd companies when I’ve written an article and replied in detail to your last query explaining that IHT has been abolished in Valencia region for your next-of-kin. Unless you are thinking of bequeathing your Spanish estate to non-relatives. Is this your case?
There’s no point in you incorporating any company, Spanish or other, because there is no advantage to be gained in your particular case if you are leaving your Spanish estate to your 4 children (I take it you have 4 children, please correct me if I’m wrong). You haven’t mentioned how much is your Spanish property worth, which is key. However if it makes you feel safe overpaying and spending your hard-earned money in corporate structures you are free to do so, I will not deter you. From a tax mitigation point of view, which I believe is what should really interest you, it makes no sense unless your Spanish estate is significant. As for you mentioning other regions in Spain, you are only going to be taxed for IHT in Valencia, don’t worry, where your property is located. Only the laws in Valencia region apply to your case besides national laws.
The more beneficiaries you have the taxable base is reduced for each one as the estate is spread out.
I believe you are not asking me the write questions.
I would need to know the following to better advice you:
1. Who are the beneficiaries to your Spanish estate. Your 4 children? How old are they?
2. Do they have pre-existing wealth of their own in Spain?
3. Are they resident in Spain?
4. What’s the value of your Spanish estate?
5. Your estate is split 50/50 with your spouse I take it.
As for you mentioning Mr David Ivars, I have been forced to contact him on the past on the matter of exercising my Intellectual Property Rights. I’m sure he remembers me well. In any case what he’s advised you on a UK will is true and is exactly the same I write in my article above.
Moreover, I have a specific heading on the matter in my article:
Isn’t a Will Drawn up in the U.K. or in Ireland Valid?
A UK or Irish will are perfectly valid to bequeath assets located in Spain. Having said this, many practical problems stem from this that could easily be overcome by means of having made a Spanish will
Repeating again what I’ve written, and for clarity’s sake, a UK will is perfectly valid and legal to bequeath your Spanish estate. That, again, is not the point here. The point is being practical and saving your heirs money, hassle and time.
UK Probate will surely exceed one year attracting the surcharges (penalties) of the Spanish Tax Office besides being expensive. Every Spanish lawyer you ask will concur with me, it is advisable to draw two wills, one in your home country exclusive to your UK assets, and one in Spain exclusive to your Spanish assets. Both wills are compatible and do not exclude each other.
You also have the UK’s Foreign Office Department for Spain stating it’s fine to have two wills which is also in my article in case you missed the link:
That’s why I wrote the article to advice foreigners to make two wills because it’s in best interests of their beneficiaries to help them save money, time and hassle. I expanded this in six points. This is not a matter of opinion, this is plainly a fact.
If you have 4 children, all the 4 children do need a NIE number to inherit, correct. This can be organised in one week’s time through us, it’s no big deal. As for your comment on this being expensive, it’s only a couple of hundred euros at most.
If a property is held by a company of course there’s no need to do probate, it’s the company that owns the asset, not the individuals. Therefore there is no IHT to be paid in Spain, as it’s the company that owns directly the asset. Only the share ownerships needs re-arranging in the UK. This is also correct.
Regarding the HMRC taxing you on your Spanish estate, yes of course this can happen. One thing is what the Spanish Tax Office levies for IHT and a different matter is what you are liable to pay in the UK on inheriting a Spanish estate. It may well happen that you are not liable for IHT in Spain but you may be in the UK as the HMRC takes into account your UK estate besides the Spanish estate adding it all up.
That’s why careful planning is required and advice should be sought prior to buying property in Spain. As I write in the conclusion, it is very important to plan ahead to reduce IHT exposure where applicable, especially on large estates.
Regarding your comments on the Spanish Tax Office wanting to tax UK companies, it’s not like that. It’s that you cannot own a property through a UK Ltd company and seriously expect not to pay any Spanish taxes whatsoever waiving all fiscal liability. That is not serious.
Our laws state that if a holding company, such as a UK Ltd company, has as an only asset and activity a property located in Spain, taxes ought to be filed and paid here in Spain, regardless of where this holding company is registered and paying -or not paying- taxes. As it’s over understood its main base of operations is in Spain and not elsewhere (where the company is actually domiciled). Another matter is if the Spanish Authorities choose to pursue this loophole or not, that’s a different matter altogether. They certainly have the laws enabling them to press on the issue. It’s a very delicate matter bordering tax fraud which can give way to criminal action being taken against all those who conceived and planned the tax-avoiding structure. I really don’t feel comfortable discussing this issue in a public forum.
In any case many additional problems can arise which must also be considered. What happens if you want to sell the property later on? Many buyers will refuse buying a UK company (or any company for that matter); this reduces considerably your pool of prospective purchasers. What many buyers want to buy is the Spanish asset itself not some company shares. Winding it up may prove an onerous and lengthy procedure. What happens if you are in ill-health and need to raise the money urgently? What are the annual running costs of such a company? Do these running expenses offset in the long run the tax you are trying to waive? Who’s really in control of such a company?
The problem is that in most cases we will not know the replies until the person passes away which may be 20 or 30 years away from now.
Regarding UK laws I’m not qualified to give you advice. You ought to seek advice from UK experts such as lawyers or tax advisors. We only deal with Spanish laws.
Which is why I write again, that these companies are not necessarily bad, it’s just that it may not be appropriate for everyone. I believe it requires a careful case-by-case study and the risk-reward must warrant this option. That's why expert expert advice from a registered Spanish lawyer or Spanish tax advisor must be taken.
Wed, Nov 18th 2009, 23:23
our property on the costa blanca is in my wifes name only, in her spanish will it is left to me and then our two sons, it is worth around 80.000 euros do we need to take out an insurance to cover i h t
Lawbird Lawyer Says:
Thu, Nov 19th 2009, 10:42
I would advise you hire it in any case, yes.
If the property is worth 80k the national tax allowance will already offset your IHT liability on inheriting it regardless of Valencia's regional laws (regional tax allowances).
Even so you will still have to hire a lawyer to carry out the deed of acceptance of inheritance; calculate, file and lodge the IHT tax (which will be nil); and finalluy onece the IHT has been lodged, register the property under your name at the land registry as the new owner.
Which is why I recommend taking on a whole life insurance policy as they are cheap and it will pay for itself in the long run offsetting the associated transfer of estate expenses regardless if your IHT liability (and that of your children is nil). Because one thing is the IHT tax being zero in your case and a different matter is that you still have to hire a lawyer to act on your behalf to transfer the Spanish estate. It's two different things.
I hope the above clarifies. If not just ask me again.
Raymundo Larraín Nesbitt
Thu, Nov 19th 2009, 11:56
Are you saying that a Non resident husband and wife are exempt from IHT in the Valencia region ,My advisor tells me that only residents have this exemption as long as they have been submitting their tax returns for 5 years and if the exemption is taken then they have to stay in Valencia as resident for 10 year .if they leave earlier then the IHT is payable plus taxes. also my understanding is that the tax free sum for a non resident spouse is 15957€ and the tax on the balance of the 80,000€ stated would be 6585€ and approx 5000€ notary and other legal costs is that correct.
John Perry Says:
Tue, May 4th 2010, 11:03
Thank you for a very clear and comprehensive article. I am advised that inheritance tax liability lapses after 5 years if the inheritance is unclaimed. Is this true or more chatter? I am resident in Andalucia.
Lawbird Lawyer Says:
Tue, May 4th 2010, 12:03
Dear Mr Perry,
Thank you for your kind words.
You've heard correctly.
The nation wide statutory time limit to claim Spanish Inheritance Tax (Impuesto de Sucesiones y Donaciones, ISD for short) is actually 4 years and 6 months to be exact as from the demise of the testator. I simply did not include this information in my article as I did not want readers to mistakenly think we were advocating following this option in any way.
After said deadline has elapsed, you will no longer be held liable by the Spanish Tax Authorities to pay it. However, you or your appointed legal representative must still lodge it regardless for the transfer of ownership to operate at the Land Registry.
We cannot advocate following this option, as if you're caught by the Tax man within the timeframe you will have to pay on top legal delay interests and a fine or surcharge for late payment.
Raymundo Larraín Nesbitt
Jemma Fenton Says:
Tue, May 25th 2010, 09:18
Please Help! My husband & I have owned a property in Andalucia since 1987. We were so desparate to buy that for mortgage purposes it was put in my fathers name - he was a resident at the time. This has proved to be a costly mistake both for inheritance tax or for transfering into our name. My father is now in his 70,s & it,s still in his name. The property is mortgage free & worth about 400,000€. I,ve been looking for a solution that would make the property safe but as yet no luck. My father has made a Spanish will leaving the property to myself & my husband. My mother is still alive & I have siblings. Your article is the only one that I,ve found that doesn,t spell doom & gloom & a 80,000€ tax bill if my dad dies. Kind Regards Jemma
Lawbird Lawyer Says:
Tue, May 25th 2010, 15:20
You are welcome.
I take for granted you are fiscal resident in Andalucía region following what you write.
In that case, as explained in my article, you are entitled to the following regional tax exemption:
•Reduction of 99.99% in the IHT taxable base on inheriting the family home (deaths occurred as from the 1st January 2003). This requires the beneficiaries being resident in Andalucía.
You must have been living in the family home for the last three years (and be in a position to prove it) and your pre-existing wealth must be < €402,678.11
Additonally, if the estate bequeathed is below €175,000 no IHT is payable.
•No IHT paid on the estate itself on compliance with certain requirements:
i) inheritance taxable base < €175,000
ii) heirs are next-of-kin or surviving spouse
iii) heirs pre-existing wealth < €402,678.11
In your case both you and your husband would be inheriting 50% each. Threfore you stand to inherit an estate valued at €200,000 each or maybe even less (if you take cadastral values and nor declared or comparable values; although subject to be reviewed of course by the Tax office).
You may even qualify to be exempt from paying IHT in Andalucía as you're next-of-kin inheriting a taxable < €175,000. Your husband on the other hand is unrelated to your father and would be classified for tax purposes in Group IV.
Regrettably we do not make accurate tax assessments (more so on IHT due to its complexity) on a free basis; you would need to hire us.
Bottom line things aren't as bad as you thought, providing you are tax resident in the autonomous region of Andalucía of course.
Raymundo Larraín Nesbitt
Peleleo Davies Says:
Mon, Aug 16th 2010, 17:54
I am resident in Uk and already own a third of the property in the Canary Islands. My father died recently (we did have a spanish will thanks to your article) leaving the rest of the house to me. I was told that the law has changed and I would only have to pay a small amount 1% in IHT?
The house is in the Canary islands and I have been quoted by a lawyer that the IHT amount is 30K on a 200,000 value to inherit. which works out 15%.
has the law changed? how can I find out? many thanks
Lawbird Lawyer Says:
Wed, Aug 18th 2010, 10:50
Dear Mr Davies
I'm glad you found my article on the advantages of making a Spanish Will useful.
I wrote it with that specific purpose on mind as foreigners seemed to be oblivious to the many legal and financial advantages their appointed heirs would have (namely saving them money, time and hassle at a time of bereavement) on following my simple advice.
Regarding your query, there are very important tax allowances if you are resident in the Canary Islands and have been so at least for the prior 5 years of the death (to the point that no tax is payable).
However as you are resident in the UK you cannot take advantage of said lenient regional tax allowances specific to the Canary Islands. In your case the general inheritance law woudl be applied (State level) which few tax allowances are already detailed in my article which starts off this very thread.
I suggest you read our article on the matter which specifically deals with this:
Spanish Inheritance Tax: How much is it? - 1st February 2000
I cannot see you paying 1% on a €200,000 taxabale base being domiciled in the UK.
And to close, we do not provide free tax assessments. You would need to hire us to provide you this legal service.
Raymundo Larraín Nesbitt
Sny Berwiz Says:
Thu, Aug 26th 2010, 09:40
My wife and I jointly own a mortgage-free property in Andalucia with a value of around €200,000. We are non-resident. I have 3 children (all over 21) while my wife has none. She intends to leave her share in the property to me however I wish to leave my half of the property in trust to my 3 children in order that that my wife can retain full control of the property after my death (and to aviod any disputes which may arise through co-ownership) but upon her death or if the property is sold my children will receive their share. This is to ensure that if my wife, who is younger than me, were to eventually remarry, my share of the Spanish asset is still preserved for my children in the long term. I can set up such a trust as part of a UK will but don't know if this is possible with a Spanish will. Can you tell me if it is possible with a Spanish will and what the IHT situation would be in such a case.. If it cannot be done with a spanish will, would I be better to transfer the property to a UK limited company (jointly owned by my wife and I) when my shares in the company could be held in trust for my children on my death.
John Macpherson Says:
Fri, Aug 27th 2010, 21:03
I'm a bit confused. As a non-resident intending to buy a property in Andalucia I thought my inheritance tax problems were gone as I could bequeath my 50% share to my two children, who are both non resident and over 21 up to a total property value of 750,000 euros. However later discussion seems to indicate that only residents obtain the benefits of having a taxable base below 175000 euros. Can you please clarify this?
Yvonne Walker Says:
Sun, Sep 12th 2010, 12:47
My husband and I are resident in Murcia and have made a Spanish will bequeathing our resoective 50% to each other and then our 3 children who are over 21 and living in the UAE and UK. Do the same rules regarding IHT in Andalucia apply in Murcia?
kim anderson Says:
Sun, Sep 19th 2010, 12:12
My parents have been residents of Lanzererote for 20 years. They own a property worth 1 million euros with no mortgage they have a Spanish will and an English will for a small amount of savings. There are 3 children what is the best way to save IHT. We can transfer to the children now if it would help they are all living in the UK.
Mon, Sep 20th 2010, 22:09
Have a look at my blog post on the matter (I hate quoting myself :)) after which we can discuss this in detail. As you can see, inheriting 300.000 Euros can be rather expensive (over 50k Euros) so it is important that you put some mechanism in place to avoid this.
From the information you tell me I would probably opt for incorporating a Spanish limited company (1% Stamp Duty plus around 2k Euros company incorporation costs) and then, within 3 years, have the shares transferred from your parents to you.
This would also help you avoid non-resident property income tax as companies don't pay this tax.
Mon, Sep 20th 2010, 22:21
No, you have specific rules in Murcia which will be applicable between your husband and yourself, but not in respect of your children inheriting, as they are non-residents. Your inheritance tax will be 99% exempt in this case, without limitation.
james kendrick Says:
Sun, Oct 10th 2010, 21:39
my partner passed away recently and we only have an english will covering our spanish property. We are non;residents but are padron. Our property is in valencia region and worth £175000 euros. I am liable to pay IHT on my half?
Mon, Oct 11th 2010, 20:04
Please accept my condolences in respect of the death of your partner.
IHT wil be applicable in this case, as you are a non-resident for tax purposes. Do you have a mortgage on your property?
Roy Maddick Says:
Wed, Oct 13th 2010, 12:55
My daughter is a Spanish Resident living in Madrid.
She will inherit money when her Grandfather dies - will she need to declare this money and pay IHT?
Fri, Dec 3rd 2010, 10:29
Yes, if her grandparents are in Spain, she will. However, bear in mind that depending on the amount being transferred she may qualify for a tax exemption.
lyndsay mcroberts Says:
Sun, Dec 19th 2010, 20:07
Looking for advice, my in laws own a property near malaga no mortgage worth approx 170000 euros. My mother in law recently died they have no spanish will what would he be expected to pay in tax etc what is best way to proceed?
Wed, Dec 22nd 2010, 18:36
Subject to us reviewing the documentation and based only on the information provided, there will be no IHT applicable to your mother in law as there is an exemption that she could benefit from on this 50% share of the property that will be transferred to her under the inheritance proceeding.
The above is under the assumption that the property was the main residence of the deceased.
In any case, and should you instruct us, one of our solicitors will ensure that the estate is transferred in the most tax efficient manner possible.
In terms of procedure, there is an amount of paperwork that needs to be worked out, before the heirs can successfully acquire legal title to the property (specially when the inheritance proceeding has an international element, as I believe this is the case). In summary, and broadly speaking, these are some of the steps:
• Ascertaining the deceased last wishes, properties and debts he had in Spain. A thorough Due Diligence is required to ensure that the heirs are actually not accepting more liabilities than the assets themselves.
• Obtain Death Certificate and apostille
• Obtaining Probate
• Requesting Certificate from the Spanish Last Will Registry
• Inheritance Acceptance before a Spanish Public Notary
• Distribution of the inheritance in accordance with the last wishes, the law and the desires of the heirs
• Registration of the heir’s legal title at the Spanish Land Registry.
• Arrangement and payment of the applicable Inheritance Tax.
For all of the above it is strongly recommended that you instruct a Lawyer to represent your mother in law during the process to ensure the property is transferred smoothly.
If you are interested in obtaining a quote for our service, please do not hesitate to contact us via the following contact form:
HEATHER EWEN Says:
Tue, Jan 4th 2011, 15:49
Our son owns 50% of a property worth aprox 150,000 Euros and my husband and I own the other 50% Can we transfer the 50% we own to him now and at what cost. The property is in Andalucia
Lisa HT Says:
Sun, Jan 9th 2011, 19:43
My father passed away in September 2007. He had made a spanish will and I inherited 80% of the proeperty, situated in Andalucia, with the other 20% share between my 3 children and my niece. I have not yet paid any inheritance tax as I have had legal problems with the property as it is illegal in so much as it is on unsegregated, on urban land, etc. and estate agents could not put a value on it for this I do now have a valuation of around 65, 000 euros. in its current state. am i still liable for IHT and will i have to pay interest due to all the problems I have had. My father brought his property a thought everything was legal but just got ripped off by the estate agent and lawyer. The original estate agent was taken to court and found guilty as he had sold many properties that weren't his to sell and just pocketed the money. He has since passed away. The lawyer involved in my fathers sale was the estate agents brother who also took money from my father and many others. This has turned into a nightmare but i am not going to let it beat me. Can you advise as I am getting confused with all the information on the web. Thank you.
Mon, Jan 31st 2011, 07:58
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Tue, Mar 1st 2011, 20:40
For purposes of exemption from the inheritance tax -what constitutes proof of disability in Spain if an heir who is disabled from birth lives abroad? Do I need a notarized translation of a letter from my doctor? Can I send a copy of the Govenment form used here in Canada for disability tax credits? My dad died in his hometown of Leon just a few days ago and has a will there because he and my mum own a flat in Leon, but all of his chidren live abroad - in Canada, the UK and US.
Sat, Mar 19th 2011, 21:05
If a uk born parent moves to Spain and dies and the other parent does not notify all children in Uk, how do I find out about:
A) if there was a will
B) whose name property was in
C) if children in uk can claim an interest
Tue, Mar 22nd 2011, 13:45
In answer to your questions:
To find out if a Spanish will was drawn, you must request in writing a will certificate form the Central Will Registry (Registro Ultimas Voluntades) in Madrid, together with a death certificate of the deceased.
In the land registry you will be able to find out whether this person owns any property in Spain, or alternatively, if the property is now in the name of another person.
In principle, according to the current legislation, UK Law applies, and the children can claim an interest on a property only if the will appoints them as heirs. However, there are special circumstances in which Spanish inheritance law applies, by which the children are considered forcible inheritors.
Should you wish to obtain a will certificate and find out in whose name the property you mention is registered, please let me know, and I will provide you with a quotation for our services.
Francisco Zori Perez
Tue, Mar 22nd 2011, 16:35
I think the importance needs to be stressed to ex-pats that a Will should be written for both assets in England and those in their new constituent country. We have queries on a daily basis asking whether our online Wills cover assets in foreign countries (outside England and Wales). They do not. It is imperative that you start making a Will for all assets in all countries they are held within.
John Richards Says:
Fri, Apr 8th 2011, 09:48
I am in need of some urgent advice. An old friend of mine is currently in intensive care in Granada and may not survive.
He cannot speak and is heavily sedated.
He is 69 and has lived in Spain for many years. I do not think he has ever registered with the Spanish tax authorities. He may well be registered on the padron of the local authority in Orgiva, Andalucia.
His only income is his old age pension from the UK government and he has no savings.
He is legally separated from his wife and has two children in their 30's, both of whom own morgtaged property in Spain.
His daughter lives and works in the UK, paying UK tax through the PAYE system. She has no UK assets.
His son lives and works in Spain and I believe currently pays tax as a self-employed person.
Although the son's property is in his sole name it is occupied by his extranged partner and mother of his two children. They were never married.
There is an order for maintenance in force and he is in arrears.
My friend and his wife jointly owned a house and land during their marriage.
After separation they formally divided the property and each has a separate escritura for their share. They never formally divorced.
My friend's wife owns the original house. He owns a building used as a carpenter's workshop which has living accommodation.
Although the workshop has its own escritura I do not know whether it has ever been formally registered or indeed what its legal status is. I suspect it will be regarded as an almacen or nave by the local authority. Mains electricity was connected in recent years.
I am pretty sure my friend has no Spanish will. He may or may not have a UK will. At the moment it is impossible to ask him!
His workshop, tools and contents together with and associated small parcel of land is his only asset, either in Spain or UK. Under current market conditions it might be valued at 80k euros.
I think he has debts of 4-5k on an UK credit card.
My concern at the moment is:
1. What happens if he dies intestate.
2. What happens if he does not recover sufficiently to sign a Spanish will should one be drafted quickly.
3. Is there a legal mechanism for allowing somebody else to act on his behalf should he end up on a life support machine for some time ?
4. It would be his intention to leave his entire estate divided equally between his two grown-up children. He may have considered including his two grandchildren in any will.
5. Is there a template for a simple Spanish will available anywhere on line that might be used to draft something for him to sign?
I look forward to you reply. Time is, as you will appreciate, somewhat of the essence.
I am registered with the forum. Perhaps you might direct me to the appropriate thread in any reply
Thanks in advance,
Wed, Apr 20th 2011, 11:58
My partner and myself are about to purchase a property in Lanzarote for 156,000 euros. After reading your very informative article we have decided to buy it in my name only to avoid incurring excessive IHT should I die before my partner. He is 63 and I am 61. The sole beneficiary would be my son aged 30.
Can you tell me if it would be better to include my son as joint owner now (at the time of purchase) rather than to leave the property to him in a Spanish will.
Also if my son and I were joint owners would he have to declare it on his UK tax return and pay tax on it?
My partner and I are not intending to live permanently in Spain (at least not at the present).
Thank you, Linda
Mon, May 9th 2011, 17:30
Welcome to the belegal forum.
If your son is title holder in the property, the IHT will be less when the parents pass away, so we advise that this is done. As owner of a percentage of the property, he will be inheriting less and therefore paying less IHT. Once he is co-owner of the property, he will be subject to pay the IRNR, that is, the Non Resident Property Income Tax and one other local (council) tax, the IBI. Additionally and finally, the waste collection levy is also payable although this is a negligible amount.
Spain has a double taxation agreement with UK where taxes on Spanish property are always paid in Spain.
Wed, Jun 15th 2011, 15:21
my father is a third share owner of a villa privatly owned in cancelada one owner has now died two weeks ago they all made spanish wills but the owner that died didn't make a uk will what is the proceedure now there was an agreement between the owners and it was written in the wills that if one owner died the share automatically goes to the remaining owners the info i have been reading it seems it doen't matter what the will said so does it mean that his son will now inherit his share automatically regardlessof twhat his spanish will said the proprty is currentlu up for sale what now happens when it is sold
Wed, Jun 29th 2011, 17:46
Welcome to the belegal forum.
The Spanish will that your father did needs to be respected in this case, unless any legitimate heir in UK may want to contest it, as in Spain the legitimate rights of the offspring always prevail. In that case, if the house was sold, and in the event that this third share had been trasnferred to the son of the deseased, he would need to agree with the sale and obviously receive his share of the profit on the sale ( if any ).
Sat, Jul 2nd 2011, 10:11
Hello My partner and I are not married. We have a mirrored spanish will. We are residents. We have padron. Our property in Murcia is worth €300,000. Should we marry, we are residents (should we be fiscal residents). Do we hve to complete a tax return. Our pensions and saving are held in the UK. Regards Linda
Mon, Jul 4th 2011, 17:34
If you spend more than 183 days per year in Spain, this will automatically make you a fiscal resident in this country. This means that you will to present your income tax return and declare your worldwide income in Spain. There is however a double taxation treaty between the UK and Spain, and this will avoid you paying taxes tyce.
Note that being registerd at the town hall does not make you a resident in this country. In order to enjoy the benefits this staus might bring you, you you will need to register at your local 'Comisaria de Policia Nacional' and request your 'certificado de registro de ciudadano de la Union Europea'.
Mon, Jul 4th 2011, 21:14
Advise please. Me and my husband bought a Casa in the Valencia region just over 10 years ago. We own it in joint names with a small mortgage. We have a Spanish and UK will but need to change both and want to leave each other our half share and on the death of the last to survive we want to leave the Casa jointly between our child and 3 grandchildren. Is this the most sensible thing to do? The Casa is only worth 150,000 euros now. Also should we sell the Casa prior to any death how much would we have to pay in tax? We are non resident in Spain. Many thanks
Barry J Says:
Wed, Jul 13th 2011, 10:52
Well done with this forum, most infomative.
I have clients who own property in Alecantea,and have assets in the UK in excess of the UK Nil rate bands.
Without wishing to get bogged down with numbers, and in consideration of UK IHT and world wide assets,if any Spanish Iht had been settled, do you know what the position would be in the UK regarding the inclusion or otherwise of the Spanish property for Uk estate Totals?
Thu, Jul 14th 2011, 17:44
Hello Barry J.
Thank you for your comments. Note that Spanish IHT is paid on Spanish property exclusively. It has no interference with UK IHT.
Wed, Nov 9th 2011, 14:04
We understand that your only asset is set in Spain, and therefore, even if you have written a will in UK, the Law that is to be applied at the time is the Spanish Law, that protects the rights of the legitiamte heirs, that are the children. You do not mention if you have chidren but please be aware that if this was the case, they would have a right to inherit your share over your wife´s if they contested the will.
The inheritance tax amount has to be paid by the inheritor/s. Your spouse can have a certain reduction due to the Family relationship and also the corresponding deductions depending on the province where the property is located, or province where you have been residing before death.
If you hold usual residence in the property object of inheritance and your wife will also use the dwelling as a usual home after your death, that is what we understand from your message; she will be exempt of the IHT. In the rest of the cases this tax is compulsory. The amount of the tax will depend on the value of the property and number of heirs.
Please feel free to read the following article written by one of the lawyers at the Lawbird team about the Spanish tax system, there are various examples and scenarios so you can have a clear picture on how the process is and the taxes you may expect to pay.
I hope this information has been of help.
Mon, Nov 28th 2011, 22:14
My husband recently inherited 50% of a property in La Nucia, alicante, the other 50% belongs to his wife who remains in the property having the use of it until she passes. We have paid the inheritance tax at great finincial difficulty as we are not able to recoup until the propert is sold but now we are being told we also have to pay capital gains tax. Please advise as we are very concerned that we will have to go into more debt to do this.
Kind regards Zanna
John C Says:
Wed, Nov 30th 2011, 13:27
I jointly own a property near Torrevieja with my cousin.We have both made out Spanish wills.We are both married,although the property is in mine and my cousins name only.Should I die first I understand my share automatically goes to my wife. When my wife dies I have willed my share equally to my 3 children (all over 21). My cousin has mirrored my will leaving his share equally to his 2 children(both over 21).
Could you please advise on I H T. liabilities for this situation.
We are both non residents. the property was bought in 2007 for 225,000 euros and is now worth lower than 200,000euros.
Charlie N, Says:
Thu, Jan 26th 2012, 09:07
My Father passed awaty recently and left half the house he owns to his grandchildren, the other is owned by a woman he lived with.
He left a car worth about 19000 euro.
The lady has transfered this to her name after his death!
Is this legal as all assets were left to the grandchildren,
And would half the contents of the house be shared between the beneficiarys and the woman who has life interest in the property?
Tue, Jan 31st 2012, 11:41
I would need to have further details to answer your question; did you father make a will? Did he live in Spain on a permanent basis? Did he have other assets in Spain and Abroad?
In the event that your father only had estate in Spain and that he had made a will leaving all his assets to his grandchildren, they would be able to claim half of the house, half the value of the car, as well as half the contents of the house. If you provide with further details I will be able to provide with a more accurate answer. Also, please feel free to send an email to Patricia at Lawbird.com and explain the situation in detail if you wish a specific answer.
Tue, Jan 31st 2012, 17:16
both my parents are uk citizens resident in spain. my father died on Saturday and I´m not sure what paperwork needs to be done, if any, regarding spanish inheritance tax. They have no will either in spain or the uk. the amount in the spanish bank account is under 6000 euros and they only own a mobile home.I an a uk spanish resident as well and my sister lives in the uk. Im led to believe that English law rules over the Spanish one and that my mum will automatically inherit from my dad the money they have in the uk bank. I don´t want to end up will a bill (with interest) in a couple of years time. thanks for your help
Thu, Feb 2nd 2012, 18:19
First of all, please accept my condolences for the loss.
If your father had not made a Spanish will, the ruling Law in relation to inheritance matters will depend on his nationality and circumstances. If your father had also assets in the UK ( other than only bank accounts ), a UK probate process will have to be started so his properties worldwide are put in your mother´s name. If his only assets, that is, his usual and only dwelling was located in Spain and he was a Spanish fiscal resident, the Spanish law will apply and that means that you and your sister will inherit your father´s assets as children are legitimate heirs according to Spanish Law. A Estate transfer to heirs process will be started and you will require legal assistance to make all the proceedings. In relation to taxes, these will depend on who inherits, family relationship, age, use of the dwelling, province, etc.
You might find this post of interest: Free Testamentary Disposition for UK Citizens: Only if You Own Property in the UK.
Please feel free to e-mail me on Patricia at Lawbird.com if you wish to receive more specific information on your particular case.
Jamie J Says:
Tue, Mar 20th 2012, 17:26
How is the value of a property assessed for IHT purposes?
Is it the Catastral Value multiplied with a factor, or is it the "actual market value" which is used?
I am getting conflicting information and would like to know what the Law states
Thu, Mar 29th 2012, 16:57
The law states that it will be the fiscal value ( up to date catrastral value) or the actual market value, the highest of the two.
Jacqui Smith Says:
Sun, Apr 29th 2012, 22:53
My husband and I are pensioners, our only house is in Spain, Andalucia - it's approximate value is 120k euros. We have a spanish will passing the property to one another (mirror will)- if I die it goes to my husband and vice versa. We live on basic uk pension and have no savings, the house does not have a mortgage on it. Do we have to pay IHT? We are residents - but I believe not fiscal residents (not sure of the difference). Any help would be appreciated. I am 65 and my husband 70.
Wed, May 16th 2012, 13:21
If you want to take advantage of the IHT exemption, you need to be registered fiscal residents ( registered at the tax office, as tax payers in Spain ). In the event you fail to prove this via the corresponding residence certificate, the tax office would request you to prove the residency through valid legal means; for instance, by providing with invoices, tax payments in Spain, etc, as well as documents that proved you spend more than 183 days per year in Spain to confirm your residency status.
S. Miller Says:
Mon, Jun 4th 2012, 10:48
My husband is infirm and will never travel again. I have Power of Attorney. We are both Pensioners. Can I transfer our apartment into my sole name. He wishes me to do this to make things easier for me in the future. Also, can I add my daughter's and son's names to the Escritura (they both hold N.I.E. Numbers), or should I give them my Power of Attorney for any future eventuality?
Thu, Jun 28th 2012, 17:16
You can certainly transfer the property in your sole name by a dissolution of the joint ownership, that a solicitor can do in our behalf via a Power of Attorney. However, if you also want to get your children´s names on the deeds, it will have to appear as a sale of shares from your husband to the three of you and the process will be regarded as an ordinary sale. You will have to set a price and show proof of payment to avoid paying high Capital Gains and plusvalia Taxes. I recommend you to process the dissolution that I have mentioned on the beginning and then make a will so your children inherit your property in the future. The IHT it will attract will be based on their family relationship, and they may not be as high as they would be in a sale case.
Please feel free to contact me by clicking on my profile if you wish to discuss your situation further.
Tue, Sep 18th 2012, 17:49
My parents together with my 2 sisters and myself jointly bought a property near Vera-Andalucía, on the deeds the ownership is split 26+26+16+16+16%, my parent’s having the majority.
None of us are resident in Spain only using the property as a holiday home. We are discussing Spanish wills and how to avoid IHT. Am I right in understanding that there is no free transfer of assets between a spouse when a partner dies? And if the intention is to bequeath to children is it best to do this from the outset? If the property is worth say 300K (having depreciated!) and that is the only asset in Spain what is the likely tax to pay on the first parental death applying scenario 1 & 2.
And finally what is best for siblings with 16% ownership who are married with children, how should their wills be structured?
Wed, Sep 19th 2012, 10:31
Welcome to the belegal forums.
In answer to your questions, please note that Spanish law makes no provisions for IHT exemptions when it comes to non-residents. These exemptions do exist, but only if you were legally residing in one of the regions which make provisions in respect of IHT.
Having said this, your case is the typical scenario in which inheritance tax can be almost negligible if the will is structured properly.
For our calculations, we will be using the figures that appear on the article:
Spanish Inheritance Tax: How much is it?
The article is 12 years old, but everything mentioned there is still in force.
The calculations are the following:
Value of Assets 300,000.00 € (including 'ajuar')
Scenario 1: Spouse and Children Inherit on First Transfer. Children on Second
Percentage to be transfered 26% 78,000.00 €
Heir Share Allowance Taxable Amount Tax Percentage Total Tax
Spouse 19,500.00 € 15,956.87 € 3,543.13 € 7.95% 271.05 €
Children 1 19,500.00 € 15,956.87 € 3,543.13 € 7.95% 271.05 €
Children 2 19,500.00 € 15,956.87 € 3,543.13 € 7.95% 271.05 €
Children 3 19,500.00 € 15,956.87 € 3,543.13 € 7.95% 271.05 €
Percentage to be transfered 32.50% 97,500.00 €
Heir Share Allowance Taxable Amount Tax Percentage Total Tax
Children 1 32,500.00 € 15,956.87 € 16,543.13 € 9.35% 1,343.00 €
Children 2 32,500.00 € 15,956.87 € 16,543.13 € 9.35% 1,343.00 €
Children 3 32,500.00 € 15,956.87 € 16,543.13 € 9.35% 1,343.00 €
Total 5,113.20 €
Scenario 2: Spouse Inherits on First Transfer. Children on Second
Percentage to be transfered 26% 78,000.00 €
Heir Share Allowance Taxable Amount Tax Percentage Total Tax
Spouse 78,000.00 € 15,956.87 € 62,043.13 € 13.60% 6,536.49 €
Percentage to be transfered 52% 156,000.00 €
Heir Share Allowance Taxable Amount Tax Percentage Total Tax
Children 1 52,000.00 € 15,956.87 € 36,043.13 € 11.05% 3,303.63 €
Children 2 52,000.00 € 15,956.87 € 36,043.13 € 11.05% 3,303.63 €
Children 3 52,000.00 € 15,956.87 € 36,043.13 € 11.05% 3,303.63 €
Total 16,447.38 €
Scenario 1 is clearly more favourable. On the first transfer, heirs would pay less than €300 each.
If the childrent are under 21, further allowances are applicable.
The above calculations don't consider the declared pre-existing wealth of the heirs, which, in case of Group I and 2 descendants, could attract an extra 0% to 20% depending on how wealthy each heir is.
Taking a look at the above calculations, it is clear that structuring correctly a will is the best way of mitigating IHT over exisiting assets.
I'd like to take the opportunity to recommend staying away from services such as the ones described here:
Inheritance Tax: A Cynical Approach
liz hagerty Says:
Wed, Oct 3rd 2012, 11:14
Oct 2012. Does this all hold true? It is very reassuring. But I think our Spanish will leaves half of deceased's estate (house value) to non resident spouse and remaining half divided between three non resident children over 18. No mortgage. House cost 400,000 now worth 250,000. Andalucia.
What would inheriting spouse pay? Should we change will?
Mon, Oct 15th 2012, 11:25
Sorry for the late reply.
In your case, for a property worth €400,000, your tax liability would be:
Percentage to be transfered 50% 200,000.00 €
Heir Share Allowance Taxable Amount Tax Percentage Total Tax
Spouse 100,000.00 € 15,956.87 € 84,043.13 € 16.15% 7,758.22 €
Children 1 33,000.00 € 15,956.87 € 17,043.13 € 9.35% 122.21 €
Children 2 33,000.00 € 15,956.87 € 17,043.13 € 9.35% 122.21 €
Children 3 33,000.00 € 15,956.87 € 17,043.13 € 9.35% 122.21 €
If you chose to change the will and divide in equal shares the bequeathed assets (50% of €400.000) then the resulting tax would be:
Percentage to be transfered 50.00% 200,000.00 €
Heir Share Allowance Taxable Amount Tax Percentage Total Tax
Spouse 50,000.00 € 15,956.87 € 34,043.13 € 11.05% 1,582.77 €
Children 1 50,000.00 € 15,956.87 € 34,043.13 € 11.05% 1,582.77 €
Children 2 50,000.00 € 15,956.87 € 34,043.13 € 11.05% 1,582.77 €
Children 3 50,000.00 € 15,956.87 € 34,043.13 € 11.05% 1,582.77 €
Total 4,748.31 €
It's roughly €3,300 more, but note that when the other spouse passes away, heirs will attract a larger IHT percentage. The rule of thumb is to divide as much as possible, avoiding alocating large sums to a single heir.
Tony Pride Says:
Tue, Oct 23rd 2012, 17:26
Thank you for your informative article.
My wife and I jointly own an apartment in Andalucia (valor catastral 317,000 euros). We have made Spanish wills but are not Spanish residents, our main home being in the UK.
We want our two children (both over 21) ultimately to inherit.
We expect there to be a Spanish IHT issue.
Both our wills currently leave the deceased's half share split equally three ways between the surviving spouse and the two children.
Is this the most tax efficient way? or should we simply both leave our share equally between the two children?
Will there be a UK IHT tax issue on the childrens inheritance in addition?
Barry G Says:
Thu, Mar 7th 2013, 11:34
Hi, My Father is a non resident spanish home owner and he wishes to start making arrangements in his will to leave his spanish property to his wife (not my mother) and eventually to me.
I have a sibling that is not to inherit this property and my father wants to make everything as clear and easy for everyone as he can.
What is the best way to safeguard the property for his wife, and then myself?
And what inheritance tax burden are we likely to be liable for. The property is 3-400k Euros. The property is located in Andalucia.
Peter j k Says:
Sat, Apr 6th 2013, 17:25
We bought an apartment in javea alicante in 2004. We are non residents living in the UK. We have two sons over 21 years of age! The apartment is worth approximately 300,000 euros. Could you tell me what inheritance tax would we have to pay if either my wife or myself died. Also if we both die what tax would our two sons have to pay? Also as my wife and myself are retired and considering moving to Spain would that alter the inheritance tax situation. Thank you