Spanish Inheritance Tax Don’ts
It comes as no surprise that 30% of the enquiries we receive during a month relate to inheritance tax (IHT): there is an almost absolute ignorance about how much it is, when and where is it payable and how does one go about not paying, if at all possible.
IHT tax in Spain can span from nothing, if you inherit under a certain sum and are a Spanish resident to a whopping 81,6% if you inherit loads of money, you are also very well-off and you have no family ties with the testator. This is why it is important to know more or less what would the tax liability be for our inheritors should we pop our clogs within say 12 months (it makes a difference if one dies tomorrow as opposed to dying in say 20 years, particulary if you have a 20 year mortgage which by then would have been repaid).
To calculate quickly how much tax would our inheritors have to pay we could do with an IHT calculator and hopefully this will soon be an application on our website but meanwhile see below some examples on the tax liability if we were to inherit different value net assets (after mortgages, debts etc.):
| 80.000 Euros Net Assets: | 10.000 Euros IHT (16% approx.) |
| 160.000 Euros Net Assets: | 23.000 Euros IHT (21% approx.) |
| 240.000 Euros Net Assets: | 40.000 Euros IHT (25% approx.) |
| 800.000 Euros Net Assets: | 200.000 Euros IHT (34% approx.)!!! |
(We are assuming, for the purposes of the above calculations, that the net values have already been reduced with the average legal allowance, approximately 15.000 Euros)
The following list is by no means complete, but mentios a few of the most common mistakes made by non-resident testators with regards to their Spanish property. I always recommend that people:
- If you have already bought, don’t just transfer the property to your children (or designated inheritors)!: This seems quite obvious but still today many property owners believe they can do it lawfully and don’t realize that logic and common sense are up against them: how can children buy when they don’t have money?
- Don’t panic and jump into equity realease programmes, foreign company incorporation scheme or other miraculous option. The reason for this is very simple: the suppliers of these products/services do this for a living which means that they will not wish that you opt for another IHT avoidance scheme, but only theirs. In short, they are not able to give you impartial advice. If you are not sure, try asking them…
- Over a certain value, don’t buy in your own name: How much will have to be paid will depend on the value, whether you have a mortgage, the number of designated inheritors and the relationship with them or if these are residents for tax purposes.
- Don’t reciprocally will the property between the spouses, if the ultimate heirs will be the children. This can raise the tax bill dramatically.
- Don’t pass away without a will or just a foreign will and think a Spanish will is not needed. Any asset proprietor in Spain should arrange his post-death affairs in a neat way, inasmuch as the heirs would otherwise be involved in consuming and expensive legal procedures which would attract different legal jurisdictions. An experience not recommended by those who have experienced it.
- Don’t use the services of the so called tax experts to draft a will.
- Don’t attempt tax-evading tricks, especially if you don’t know the risks!
In the following days I will elaborate more on each of these points.
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For those of you interested, on Tuesday September the 28th, I will be in the The Hannah Murray Show on Talk Radio Europe, discussing the inheritance issues that affect foreigners in Spain. You can tune in directly through their website (internet stream), or through the FM frequency assigned in your area.
My wife and I own property in Andalucia and the UK and are non-resident of Spain. If we were to take fiscal residency in Spain would the surviving partner be liable to Spanish Inheritance Tax on our UK property, as Worldwide assets? If so, would it be better to remain non-resident and to change our Spanish Will, leaving our separate halves to our two children?
Hello Terry,
In principle, you would be liable for IHT on your worldwide assets. That is, in theory. In practice very few people declare properties abroad, unless they are notorious personalities or very rich individuals that will, because of this, be investigated.
This means that if you both become residents for tax purposes, you will avail of the Andalusian regional allowances, if you were to inherit. If however your children are to inherit, as you propose, it is then them who would have to become residents because in Spain, application of IHT depends on the tax status of the inheritor, not the deceased.
Hi there,
Thank you for the useful information.
What is the current IHT status for property in spain, especially valencia, when the named inheritors live in the UK?
Has EU law changed it to zero yet, or is it likely in the future?
Hello Ross, when the inheritors are non-resident for tax purposes, then a national law applies and no regional deductions can be invoked.
Thank you for providing an invaluable service.
Here is our situation.
My parents own a condo (value approx: 200,000 Euros) in Torremolinos, Malaga.
My father and mother – canadian citizens and non redident for tax purposes- recently passed away. In their Will (registered in Quebec) they leave the condo to their 3 sons.
The 3 sons are currently attaining full ownership of the Condo by means of an escritura de aceptación y adjudación de ´herencia´ and registration of it.
My questions are as follows:
1 – As per article 9.8 of the Spanish Civil Code, the succession upon death will be judged according to the nationality of the deceased. Therefore, it it correct to assume that Canadian laws apply to the disposition and distribution of the condo?
2 – Since the sons (all canadian citizens and non-resident for tax purposes) inherit the condo, are they still subject to any Spanish inheritence tax? You mention that “the National Law applies and no regional deductions can be invoked”. What is the “National Law” exactly and how would it apply to the three sons?
Thank you for your help.
Hello Jacques,
Canadian law will indeed apply, unless they stipulated something different in respect to property abroad (which happens with some countries) and one, or more, inheritors, challenged the distribution made according to it.
Secondly, if we assume that the inheritance amount to be received is of 200.000 Euros (assuming no mortgages here), or 66.000 Euros per inheritor approximately, after applying the national allowances (18.000 Euros per child), they would end up paying on 48.000 Euros, which puts them on the 12,37% tax band, or 4550 Euros per head, approximately. Not the end of the world, as some want to put it!
Hello Please can you help.
My mother recently passed away and has left a spanish will and the property in Almeria to my father.
They are both non residents.
Could dad become a resident before the tax is due is this allowed
How much tax would he pay if this was/was not allowed in other words if he was a resident/non resident.
The value catast is 80,002 but they have multiplied this by 2.2 for some reason so he is liable to half the 176,000
Please help it has been so terible to lose mum
Hi,
My mother was resident in Spain for 8 years and gifted her property to us 3 siblings when she had to return to the UK through ill health. The Spanish solicitor charged us £14.300 and this covered everything. The house was bought in 2002 for £62.000 and valued at 100.000 Euro for tax purposes when it was transferred as a gift in 2010. My mother has now died and we would like to sell the property the estate agent who charges 10% has just dropped the price from 100.000 Euro to 80.000 Euro. can you tell us what expenses and taxes we will incur so that we are prepared. as the cost of transferring my mothers gift to us worked out significantly higher that the solicitor first quoted. We were surprised that he charged 20euro for every phone call he made or received and also each email he received or sent and we don’t really want any more surprises.
thank you
Hi,
My girlfriends dad recently died while living in spain, her mother is still there but is not a spanish resident. My girlfriend was then tranfered onto the deeds as she was in the spanish will,so this was done in case anything happened to her mother.
When her mother then sells the property she will have to pay tax on the place, but because my girlfriend is also on the deeds she will have to pay tax also.
How would my girlfriends tax be calculated? would that then go on the assets she has i.e the house we own in the UK?
Her mother has already paid 7,000 euros in inheritance tax but when she sell the house will have to pay more?
Would removing my other half from the deeds make it alot cheaper/easier to pay the tax?
Hi Rob, as non-residents both your girl-friend and her mother will be taxed equally given their status as non-residents. It is therefore irrelevant who is on the deeds.
Hello Antonio,
My wife and I bought a house in Andulacia three years ago, we are resident in Spain and have no mortgage. We have made UK wills but not Spanish ones. What is our tax implications if one or both of us die? We are retired and have two grown up children. What if we transfer the house into an UK limited company as one web site advises?
Dear John,
We can calculate your exposure to tax if you can provide us with an estimate value for it. Regarding setting up a company to avoid taxes, please note that this is a fradulent proposition, just as equity release was, and the Spanish Tax Office will crack down on it at any time.
B. regards
Antonio
My parents own a property in Spain and are retired from the united kingdom and are residents. I visit regularly from the united kingdom and wondered what the rules are about applying for residency for myself as an eu resident?
Inheriting money from abroad. My husband and I are both from the UK, but are Spanish residents living in Andalucia. My husband´s father (a UK citizen living in England) is quite elderly. When he dies, my husband will inherit a share of his property – but this not is likely to be enough to qualify for UK inheritance tax. Will he have to pay Spanish inheritance tax on the money he inherits from his father?
Hello Julia,
In principle, your husband’s status determines that he should be paying taxes in Spain on any income he obtains, whether “inter-vivos” or “mortis-causa”.
The Double Taxation Agreement between Spain and England (http://www.hmrc.gov.uk/taxtreaties/in-force/spain-uk-dtc.pdf) does not cover this tax and so, we need to apply the Spanish regulations on the matter that indicate that any person resident in Spain is liable to pay taxes here.
Fortunately, there is no tax on this in the Uk so you are going to be taxed only in Spain (IHT is not generally part of double taxation agremeents, as explained above).
A different matter is whether you choose to make a full declaration in Spain, or not..
Hi Antonio.
Following on from the post above about an inheritance in the UK, which technically is subject to Spanish IHT, I have two questions.
1. Presumably, if it takes you over the €50k, or if you already have €50k, then over €20k, then you now have no option but to declare, or you may face heavy penalties if discovered.
2. Can you clarify when it is considered that you receive the inheritance. Is it when the person dies, or is it when the executors pay you your share of the funds. For example, if it is a share of a property, and the property has to be sold, then until it is sold, and the proceeds realised, the exact value is unknown.
Hi Philip,
In response to your queries:
1. IHT in Spain is payable irrespective of the 50k threshold, which is to do with undeclared funds or assets abroad.
2. IHT only kicks in once one decides to “accept” the designation made in a will as an inheritor, expressly (going to a Notary and formalizing this action) or, tacitly (when the designated inheritor acts in a way consistent with that of being an owner).
Thank you Antonio, that´s very helpful
We are a married couple with a house in the Valencia region. We have made a “reciprocal” will as mentioned in item 4 of your “Don’ts” blog, leaving the house to each other. We have two sons who are the ultimate inheritors.
Can you explain why this will increase the tax bill and how we should amend our will to avoid this?
Chris,
The assumption that, statistically, older people die sooner than those who are younger means that if you transfer property vertically rather than horizontally, there is a less likelihood to have to pay taxes sooner but also, pay taxes twice.
Antonio
My friends mum passed away about 1year ago. She was joint owner of a property with my friend. The property is probably valued at around 80k euros. My friend has a mortgage on the property.
Will the amount outstanding on the mortgage be deducted from the inherited amount prior to any tax calculations being made?
Thanks
Dear Nigel,
Yes, the value of the mortgage will be deducted provided it is a loan invested in purchasing the property.
Dear Nigel,
Yes, the value of the mortgage will be deducted from the value of the estate provided it is a loan invested in purchasing the property.
Hi Antonio,
We are considering a move to Spain & have concerns about Spanish IHT. We will own a property in Spain of appx 550E – and wonder whether we should investigate options of owning under a limited company (think it would have to be a Spanish one as we will be resident & beneficiary – our child – will also be Spanish resident).
Also, we will at some point inherit money from a UK estate – £250k in trust & £150k in property. Is it possible for the discounted gift trust (set up to minimise UK IHT) to continue without touching it, or would is this not recognised in Spanish law?
So much to consider.
Kind regards
Hi Lulu,
IHT is a tricky tax because, in reality, there are very few ways to reduce it effective and legally too!
Having the property in a company name will reduce the exposure of the asset to the tax but the shares, in turn, will be subject to the Tax. So these things considered, I would opt for one, or more, of the following:
– Have the property put in your inheritors names: this could trigger the obligation to pay gift tax in your country, but not in Spain. Please have this checked by an advisor in your country.
– Have the property ownership split into bare ownership, to be acquired acquired by the future inheritors, and the usufruct taken by you directly. This means that you have the life interest in the property, allowing you to live in it, or rent it, but not sell it and the inheritors, who would have a limited ownership, would only be eligible for “possession” upon your death, or if you relinquish your rights prior to that. From a tax point of view, as above.
– Have the inheritors take up residency for tax purposes, in Spain, as interesting allowances are applicable (depending on the región).
– Purchase the property in your name and then gift it to your children. Depending on the region, there is a 99% allowance if who receives the property does not sell within a period of time. The property also needs to be your family home.
I trust the above information is useful although, do not take it as specific advice as it may not take into consideration certain particular circumstances.
Hi, I am a Spanish national and a UK resident. My parents are Spanish nationals resident in Austria and own two properties in Madrid and one in Malaga. I am wondering what my IHT situation would be in a situation of inheritance and the best way to minimize the bill. I don’t think they have taken advice on the subject and currently their Spanish wills reflect me and the other spouse. Many thanks for your help Maria
Maria Jose,
There are few “legitimate” options to reduce the IHT bill but most of them require you to become a resident for tax purposes (note that the residency status of your parents is not relevant in Spain).
Some ideas you may wish to consider:
– Gifting the property to you will be more expensive.
– On death of your parents, recording the lowest possible value for those assets will bring your bill substantially down.
– Using companies to conceal identities can be deemed tax fraud.
– A family-owned company to attain 95% tax break is not possible under the above circumstances as the members need to be working in it.
Hi,
I’m a Canadian resident but hold a Spanish passport too. I will be getting an inheritance from an uncle in Spain, and was wondering if for taxation purpose, it’s better for me to have the amount taxed in Spain as a resident and then transfer it to Canada, or process the transfer of money to Canada first and then declare it for taxation in Canada ?
Thanks in advance for your advise.
John
John,
The level of IHT in Spain will depend, if you are a resident for tax purposes, where the deceased was based. If not, your IHT will follow the standard non-EU resident calculation methodology. This is the first consideration to keep in mind as Madrid has a different taxation than say Andalucia.
Secondly, you need to keep in mind that for Canada you will be deemed a resident and consequently, quite possibly a non-resident in Spain for the Canadian authorities. This aspect of the taxation can mean that you are unable to choose.
Finally, if you declare yourself as a resident in Spain and this is not true, this may be open to scrutiny at a later date by either tax office.
Some food for thought!
Hello,my husband has been left some money by an aunt in uk – hes resident in Andalusia and autonomo – will he have to pay tax on this ? Any advice would be very welcome. Thankyou Persephone
Persephone,
As a resident of Andalusia he needs to file his tax return here. However, as the funds are in the UK the HMRC will want to tax it too. So how it works is that the UK will tax and so will Spain, but whatever you pay in the first country will be offset in the second.
Hello Antonio
My brother and I have inherited our parents’ house in Carvajal, valued at 80,000 euros. Everything has at last been finalised and all taxes/fees paid.
However, my brother has now decided that he does not want his share of the property and wishes to give it to me.
I understand that this would be possible either by:
‘Gifting’ (according to an EU Resolution of 2015 – for both residents and non-residents)
or ‘Dissolution of Joint Property Ownership at a cost of payment of 1% stamp duty ie. 800 euros.
Could you confirm which would be the most efficient and economical way to do this please?
Many thanks,
Linda Walden
Linda,
In the case you have described, the dissolution of ownership is the most efficient way as gift tax would set you back circa 9,000 Euros, plus legals, whereas the dissolution of ownership is 1.5% of the value of the property, plus legals. All of which are rough calculations but nevertheless, pretty close to the final cost.