The
most important statement in this article, and one commonly misunderstood is as
follows;
‘The beneficial exceptions from the various
Communities (AC), never apply to Spanish non-residents.’
This
complex issue is often ‘swept under the carpet’ but eventually everyone is
affected. In particular, the prospect of a widow(er) paying inheritance tax on
the death of their spouse can come as an enormous shock.
·
There are State (National) rules and variations by
the Autonomous Communities (AC)
·
State (National) rules always apply to non-residents
·
Autonomous Region rules will apply
ONLY to Spanish residents
·
There is no Double Taxation Agreement on inheritance
Tax between Spain and the UK
This
subject will continue to remain high on my Agenda, as the vast majority of
expats in Spain
are affected. Non-resident property owners may not think they are affected –
unfortunately they are! Please email me if you want
clarification of your own position
Impuesto sobre
Sucesiones y Donaciones (ISD) is also called Succession Tax or
Inheritance Tax and is a tax on inheritance and gifts, paid by the recipient of
the inheritance or gift. It is due only if the recipient is resident in Spain or the asset being inherited or gifted is
an asset located in Spain
such as real estate or moveable property situated in Spain. If the property is owned by
a UK
company ISD is not payable on the death of a shareholder of the company.
Allowances
are available depending on the relationship with the deceased or donor. In the
first instance the Spanish
State rules apply but
these can be varied by the different Autonomous Communities (ACs) providing
conditions set by the relevant AC are met. The State rules always apply to non-residents
owning assets in Spain.
There
is currently no blanket exemption between a husband and wife under the State
rules. Where a married couple are both residents in Spain and one spouse dies, the
surviving spouse can be fully liable on the worldwide assets inherited from the
deceased spouse, subject to the allowances and reliefs available.
The
worldwide estate of British expatriates who are UK
domiciles on death will also be liable to UK inheritance tax, as well as to
Spanish succession tax on chargeable Spanish assets. Any succession tax paid in
Spain can be deducted from
any UK
inheritance tax liability on the same asset. There is such a fundamental
difference between the inheritance tax in the two countries that no double taxation agreement exists on
this issue. Please email if
you need referral to a professional advisor.
State Rules
Beneficiaries
are divided into the following four groups depending on the closeness of
relationship to the donor or the deceased:
- Group 1:
Natural and adopted children and other descendants (such as grandchildren,
great-grandchildren) under 21
- Group 2:
Natural and adopted children and other descendants aged 21 and over;
parents and other ascendants (such as grandparents, great-grandparents),
and spouses
- Group 3:
In-laws and their ascendants/descendants, step-children, brothers and
sisters, cousins, nieces and nephews, aunts and uncles
- Group 4:
All others including friends or unmarried partners
State Allowances
There
are tax-free State allowances on inheritances (not life-time gifts) for members
of the different groups as follows:
- Groups 1 and 2: €15,957
- Group 3:
€7, 993
- Group 4:
nil
Group
1 inheritors under the age of 21 can have an additional deduction of about
€4,000 for each year they are under 21, restricted in total to €47,858 per
recipient.
There
are further reductions where the recipient is physically or mentally disabled
depending on the recognised degree of disability.
Relief for main home
There
is a 95% allowance against the inherited value of the main home of the deceased
up to €122,600 per inheritor, provided that the beneficiary belongs to Group 1
or 2 or is a remoter relative over the age of 65 who lived with the deceased
during the two years prior to their death. The property must be retained by the
beneficiary for 10 years following the death, but it does not need to be the
beneficiary's main home.
Succession
tax rates vary from 7.65% to 34%. The tax liability is subject to multipliers
based on the pre-existing wealth of the recipient, which can take the highest
effective rate of tax to about 80%.
Gifts
Gifts
made by the same donor to the same person within a period of three years, taken
from the date each gift is made and on the value at the time it was made, are
aggregated and treated as one transaction for gifts tax. To determine the tax
rate applicable, the value of all previous gifts made to the same person within
the last three years plus the current gift are added together. The average rate
of tax on the theoretical total is then calculated and applied to the latest
gift.
Autonomous Communities (AC)
The
Autonomous Communities (ACs) can vary the State rules in the taxpayer's favour.
The State allowances and reductions apply in the first instance provided that
the relevant conditions have been fulfilled. Any enhancement to the State
allowances and reductions granted by the AC will then replace the State
deductions, again providing any additional conditions imposed by the AC are
fulfilled.
Please note, however, In the case of real
estate in Spain
owned by a non-Spanish resident, the State rules will always apply on the death
of the non-resident owner. The beneficial exceptions from the various
Communities (AC), never apply to Spanish non-residents.
In
some ACs, spouses and children can receive a 99% reduction in the inheritance
tax payable on death. This reduction currently applies in the Canary Islands, Balearics, Murcia
Region, Madrid,
and Valencia Community.
In
Andalucía, spouses and children are exempt from inheritance tax where the taxable
value of the inheritance received is no more than €175,000, and the wealth of
the recipient does not exceed €402,678.
In
Cataluña, personal allowances increase significantly from 1 July 2011.
In
many ACs, unmarried couples registered as a pareja
de hecho are recognised as
spouses.
It is
important to look closely at the rules relating to a specific AC’s to obtain
full details of the range of allowances and exemptions available. I can put you
in contact with professional advisors in most regions, if you email
Succession
tax is paid under the AC's rules if the deceased was habitually resident there,
in the case of an inheritance; or, in the case of a gift of real estate, if the
real estate is located in that AC; or, in the case of a gift of any other
assets, in the AC where the recipient is habitually resident.
To be
habitually resident in a particular AC, you must have been resident there for
five continuous tax years. So, the deceased or donee (as the case may be) must
have been continuously resident in an AC for the past five years for that
particular AC's rules to apply, otherwise the State rules will apply.
Summary
These complex rules and arrangements
indicate that careful planning is required. You can get an indication of how
this affects you by clicking on the link on the right of the page ‘Check your
Spanish Inheritance Tax liability’. Seeking the information does not constitute
any commitment on your part.
You can feel free to email me on any of these issues.
This complex issue has been
researched using information available on web pages, consulting contacts and
the writers own knowledge. It cannot constitute advice and professional
guidance maybe required.
