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