93% of Tax Returns Exempt from Payment: Has Inheritance Tax Almost Disappeared in Andalucía?

February 19th, 2015

Until recently, Spanish lawyers cautioned their clients that the level of Inheritance Tax (`IHT´) in Spain, for non-resident heirs, could mean the difference between being able to inherit or not. The worry is still there but, ever since the European Court of Justice (ECJ 3/9/2014) ruled that Spain’s IHT tax rules were discriminatory – different rates for residents and non-residents-, the latter are able to enjoy the same allowances residents can apply on their tax returns.

So now, for instance, an EU-resident who inherits in Andalucía an estate worth less than €175.000 from parents, children or spouse is totally exempt from paying IHT. This is no small matter for this allowance has made possible that in 2014, according to the statistical information provided by Junta de Andalucia, 93% of all IHT tax declarations filed anywhere in Andalucía were without associated payment (nil tax returns).

If we take for instance the average family with a property and two children, on the basis that in Andalucia the average price per square meter of property -as recorded in December 2014- was of €1,500, with an average size according to the Ministry of Housing of just over 105 m2 (and 187 m2 for town houses and villas), it is easy to understand why only 7% of IHT tax declarations filed by residents of Andalucía included a sum of due tax.

This is great news, for more than one reason. Firstly, a logical one: it reduces the IHT tax bill on the estate of holiday property owners, automatically, as from the 28/11/2014 (date of effective implementation of the ECJ ruling). Secondly, it takes the fear of God away from thousands of owners who’ve been incessantly bombarded -over the last years- with unreal horror stories that depict the Spanish taxman slicing into the estate of a deceased Briton, only to offer an illegal tax-dodging scheme to avoid it (mostly foreign based companies and equity release loans).

Of course, IHT will still be an issue for the wealthier whose inheritors could be hit with as much as 34% (on estates above 800k Euros). For owners not included in the above 93% contingent, we suggest some degree of planning to minimize -legally that is- exposure to IHT.