Ways on How to Avoid Inheritance Tax on Spanish Property

[Lawbird Lawyer]

Dear Mr Packham,

For IHT purposes, the taxman takes the highest of the following three:

1. Declared value of acquisition (on title deed)
2. Compared value on other taxes
3. Cadastral value

I'm aware the taxman of late is now looking with a magnifying glass at these values to apply the highest. Before this crisis, they use to have a more lenient attitude albeit now securing taxes has become a top priority for them.

Regarding strategies to minimise the IHT impact the most succesful ones are normally done prior to purchasing the property, not after. I would advise taking a whole life insurance cover having as cross beneficiary your wife. Ideally these should really be hired before you reach 50 so as to to reap the maximum benefits.

As per our replies above, we do not make tax assessments on a free basis, sorry, much less IHT.

Should your spouse die, you would hardly have to pay any IHT tax at all so long as you comply with what I quote below:

Inheritance Tax in AndalucÃ*a in which beneficiaries, resulting from a death occurred after the 7th of June 2008, may benefit from the following regional tax allowances:

•Reduction of 99.99% in the IHT taxable base on inheriting the family home (main residence) for deaths occurred after the 1st January 2003. This requires the beneficiaries being resident in AndalucÃ*a, such as yourselves. I trust you file taxes here annually to benefit of this regional tax allowance.

•Reduction of 99% in the IHT taxable base on those inheriting a business providing certain conditions are met.

•No IHT paid on the Estate itself on compliance with certain requirements (i.e. inheritance taxable base < €175,000, heirs are next of kin or spouse, heirs pre-existing wealth < €402,678.11).

•No IHT paid by physically handicapped (disability above 33%) with a taxable base < €250,000

The problem would be your only son, who is non-resident in Spain as he's domiciled in the UK for tax purposes. His IHT liability may be high on inheriting the full property. Any tax mitigation strategy should have him foremost in mind rather than yourselves (you and your spouse).

Notwithstanding the above, there's a silver lining regarding your only son (beneficiary):

EU Pulls the Stops and Vows to Put and End to Inheritance Taxation Discrimination on Non-Resident Beneficiaries Inheriting in Spain - 20th May 2010

Yours faithfully,
Raymundo LarraÃ*n Nesbitt