Spanish Inheritance Tax: Advantages of Making a Will in Spain

[Malcroach]

Is it not that these exemptions are only for resident inheritors and do they carry time penalties if you sell the property soon after inheriting.
Also if I leave my property to say a UK company no tax is payable anyway.

[Lawbird Lawyer]

Dear Sir or Madam,

Can you please be more specific with your legal query.

As the article itself states, Spanish Inheritance tax is a very complex and technical matter with multiple laws ruling on the matter depending on where the estate is located.

Each region is empowered to pass it's own laws besides the national legal framework which doesn't always apply to all regions.

Concretely to which of the 17 regions are you referring to in your query?

As per the article, there's a trend to abolish inheritance tax in Spain which is very unpopular. Much like there was for wealth tax which was finally abolished in January 2008.

In those regions where it has been completely supressed it's normally not residency that triggers not being liable to be taxed as you point out mistakenly, it's kinship. It suffices you being next-of-kin to take advantage, regardless of whether the beneficiary is resident or not in the region (or in Spain for that matter).

And yet in those other regions where IHT has still not been abolished which are the majority, such as in the case of AndalucÃ*a, you must indeed be resident in the region to take advantage of the regional tax allowances as you correctly point out. That is already highlighted in our article above.

That is why you must be more concrete on asking us, one cannot generalise with sweeping statements as the laws on inheritance in each region are so diverse i.e. the same family can be taxed for IHT in one region and yet not be taxed in a neigbouring region. It's only the laws that change, the case is identical.

Regarding setting up a UK Ltd company to waive IHT liability we have given our opinion many times over. As an example you have this thread:

UK limited company/IHT/transfer tax
Hallega

In our opinion the risk-reward must be attractive enough to warrant following this option as it's not risk-free. I've seen cases of owners of properties worth 250,000€ in Costa Blanca being misold a UK Ltd company when this owner had 4 children. Even if IHT hadn't been abolished in Valencia region, which is the case, his beneficiaries would still pay nil for Spanish IHT. As per the article which starts off this thread, the more beneficiaries the least IHT liability as the estate is spread out and the tax base is reduced accordingly as each beneficiary will benefit from individual tax allowances, both national and regional.

For large estates (i.e. > 800,000€) this option can indeed be very attractive, yes, as it's pointed out in the above article. Every case must be studied individually on its own merits. This UK Ltd option being offered to everyone en masse, as if all cases were identical, is seldom a good idea in our opinion.

Because this option may entail serious legal risks which are explained in the link above. New laws are being continously passed regarding holding companies owning assets in Spain such as on the matter of utility consumption to detect non-declared lets. They are continously crossrefferencing data to detect such fraudulent cases.

One cannot seriously entertain the idea nowadays that on holding a villa through a UK Ltd company there will be no tax liability whatsoever arising in Spain of any kind. It may have worked well in the past, granted, albeit will it work well in the future now that the Tax Office is taking a special interest in them post credit crunch? I beg to differ.

I know for a fact they are bent on plugging this hole closing in. The Spanish Tax Office wants its taxes and it will have its way, one way or another. Which is why the risk-reward ratio must be worthwhile making it not a suitable option for everyone to stomach. The underlying problem here is that The Spanish government is serioulsy in debt and the public deficit is evergrowing. Over the last years money wasn't an issue as the Tax office was collecting effortlessly massive amounts of money from property-related taxes albeit this is no longer the case with the downfall of the property market. Hence the need of the Tax Office to secure alternative sources of revenue to offset the budget deficit tapping in on niches that had previously remained unexploited, that is until now.

I would advice you to shop around for different legal opinions on this matter from registered Spanish lawyers before you commit yourself to this option. The option itself is not necessarily bad, it's just that it may not be appropriate for everyone which is why professional advice from Spanish experts, such as as a registered lawyer or tax advisor, should be sought.

Yours faithfully,
Raymundo LarraÃ*n Nesbitt