Ways on How to Avoid Inheritance Tax on Spanish Property

[Celia]

Dear Raymundo, thank you so much for your advise, I now have a clearer picture and know what to do. I will not be putting my property into a UK company, I believe, like you say, there will be no real gain for myself or my heirs. I final question, I came to Spain in 1986 and contracted the construction of my home, all paperwork was signed before December 1986 but the property was finished in 1988 and that is when i got the deeds. Does the fact that i contracted the property before december 1986 exempt me for capital gains or not?

[tiddleywinks]

Inheritance Tax: A Cynical Approach -13th January 2010. Very enlightening, i advise everyone who is considering putting their property into a UK based company to read this.

[Lawbird Lawyer]

Dear Celia,

You're welcome.

Please note that the above words are not mine, I just quoted an article written by the Costa Action Group, which is devoted to pursuing financial fraudsters that prey on fellow ex-pats in Spain.

You may want to read pages 5 and 6 of their latest magazine for the month of April 2010:

http://www.costa-action.co.uk/download/april2010mag.pdf

Additionally you also have on the same issue of CDSAG magazine of April on pages 35 and 36 an article, titled "Inheritance Tax", spelling out the myths of Spanish Inheritance Tax which bears striking similarities to one I wrote last summer and published on the 3rd September 2009 on exactly the same topic:

Spanish Inheritance Tax: Advantages of Making a Will in Spain - 3rd September 2009

But I digress. Back on topic, It's from 1988, when you got the deeds. You stand to pay very little CGT if you decide to sell.

You can read further on CGT on the following article (some figures are now outdated with new laws; namely CGT is now taxed at 19%):

Taxes when Selling Spanish Property - 2nd May 2002

Quoting an excerpt:

Capital Gains Tax (non-residents)

A non-resident seller is liable for payment of a 35% Capital Gains Tax on the profit of the sale of their property unless it was bought before January 1st 1.987. However, there are exemptions available for those who have owned their property since 1.994 and before. Also, the vendor can offset against the gain made on the sale other costs.

A vendor will be able to mitigate his tax exposure by three different ways:

Reductions on when the property was purchased

•Those who bought a property after the 31st of December of 1.994 will not be entitled to any reductions.

•Those who bought in 1.987 of after will enjoy of a reduction of 11.11% on the net gain for every year they have owned the property before the 31st of December 1996 after taking the first two years. This means that a seller starts benefiting from this reduction, his first 11.11%, if he bought in 1.994, 22.22% if he bought in 1.993 and so on.

•Those who bought before the 31st of December 1.986 will be pay not tax, as the cuttoff point is 1.996.



Reductions on the inflationary movements

This reduction is obtained by applying a percentage to the l purchase price, raising the original price to the level of the value of the peseta today. This inflationary correction factor is applied to the entire purchase price, as well as to all costs surrounding the purchase. Likewise, improvements and extensions on the property will have to be updated inflation-wise.

The correction factor to be applied will be the following:







Reductions on the inherent costs of the purchase, works done on the property and others.


•Costs of the purchase: these would include VAT or Transfer Tax, PlusvalÃ*a Tax (where paid by the buyer), Land registry and Notary fees, lawyer´s and real estate agent´s fees, where applicable.

•Extensions and improvements done on the property: These should not be confused with maintenance and conservation costs, as these are not deductible. In practice, there is no clear cut distinction between one and the other.


Examples of not deductible costs are repair or maintenance works, such as painting, repairs on heating systems, lifts, plumbing and so on.

Examples of deductible costs are the installation of iron bars, doors, double glazing windows and similar improvements on the property.

We've put together this Capital Gains Tax calculator so you can determine how much Cgt you will attract when you sell your spanish property.

Yours faithfully,
Raymundo LarraÃ*n Nesbitt

[tiddleywinks]

Thank you once again...very helpful.

[Lawbird Lawyer]

You are welcome.

[Brian Hope]

Hi Lawbird Lawyer,
You mention a 99% reduction on the taxable base for a resident beneficiary.
What is meant by taxable base?
Presumably that includes a resident spouse so does that, in effect, virtually wipe out IHT on first death?

[Lawbird Lawyer]

Dear Sir,

It means that if you comply with the requirements laid out above by AndalucÃ*as' regional gorvernment (Junta de AndalucÃ*a) you stand to pay almost no Inheritance Tax on inheriting the main residence (dwelling):

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 (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 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

Yours faithfully,

[Lotty]

My father recently died and has willed his property in Tenerife to my sister and I (all non-residents). It is valued around Euro260,000. Our pre-existing wealth is <Euro402,678.11. Am I right in thinking that our IHT liability each is 260,000 /2 = 130,000 less 15,956.87 = 114,043.13 x 16.15% ?
Many thanks, Lotty

[Lawbird Lawyer]

Dear Sir or Madam,

I'm sorry, we do not make tax assessments on a free basis, even more so in IHT's case.

You would need to hire us to give you an estimation of your tax liability.

Yours faithfully,

[Roy Packham]

I am 69, my wife is 60. May I ask if IHT is based on the possible sale price of my house, or the actual build value of the house (i.e a possible sale value of our house is 450,000, but the build value is around 150,000. (No mortgage) We both have Spanish wills, leaving everything to each spouse, and, in the event we both die, leaving the house to our son who lives and works in the UK. Between us we have a small pension and have a limited amount of savings. How can I calculate how much IHT either of us would pay in the event of one of us dying, or the amount that would have to be paid by our son should we both die. Would you recommend any particular method for us to try and reduce the amount of IHT to be paid. We live in Alhaurin El Grande, Malaga. May I say many thanks indeed for any help/advice you can offer.