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How does one normally make provision for paying inheritance tax in Spain (IHT)?

Inheritance Law

Antonio Flores Vila

25th of October 2004

Q. My partner and I (not married yet) are buying a home in Spain with both names on the title deeds. We live here and have applied for residency. We have no other ties with England. I have 3 grown up children,all married living in England. My partner has an 8 year old who lives with us. We both want the other person to inherit the property and to be able to dipsose of it as they think fit, i.e sell and down size may wish to return to the u.k and would need all the money from any sale. When the surviving partner dies then the estate would be divided up accordingly. We don't want to have to live in a house purely because one can't sell.

How does one normally make provision for paying inheritance tax in spain? I find it hard to believe that all spanish people have a stash of money laying around to pay this tax? Can you avoid paying it and if so how much does it cost for any scheme?

    A. In response to your queries I let you know the following:

    Spanish inheritance tax is certainly stiff is the inheritor is not a family member and a resident in Spain. In this case, and provided the estate is not worth more than 500.000 Euros, there will be no inheritance tax.

    You are able however to do the following:

    • If the property is owned by a Spanish limited company, due to certain exemptions on Transfer tax on shares (7%), it could be possible to establish a calendar to organize the transfer of shares from yourself to your children or partner, in a given period of time, at almost no cost. Alternatively, you could also split ownership of the shares and allocate your children the bare ownership of the shares, you retaining a life interest on them.

      The cost of this scheme would include legal fees for the incorporation of a Spanish limited company (1.500 Euros + VAT), 1% Stamp duty of the value given to the property when capitalising the company with the estate and approximately 700 Euros for Notary and Land Registry fees.

    • A second option, which would totally eliminate inheritance tax in Spain, would be to implement the above structure but including an offshore as the owner of 100% of the shares of the Spanish limited company. The costs would be higher, as the 1% Stamp Duty would not longer be such, but a 7% transfer tax, and the offshore company would cost in the region of 1800 Euros. This option is really only suitable for higher priced properties (700-800k Euros and above).

    If you wish we can set up a meeting, at no cost, and discuss the options further.

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