Besides considering your personal tax planning, you may also wish to consider the impact of Spanish succession tax on your heirs and how you can reduce this liability for them.
Besides considering your personal tax planning, you may also wish to consider the impact of Spanish succession tax on your heirs and how you can reduce this liability for them.
Spanish succession tax is charged on inheritances and gifts. This article covers inheritances, and the tax becomes due in the following situations –
- The assets being inherited are in Spain – this applies whether or not the beneficiary lives in Spain.
- The person receiving an inheritance is resident in Spain, regardless of where the inheritance is coming from.
Each beneficiary pays tax on the amount they receive and there is no blanket exemption between spouses. There are both State and Regional rules, and reliefs, rates and allowances can vary across regions.
State rules
The progressive rates for succession tax range from 7.65% for inheritances under €7,993 to 34% for inheritances over €797,555.
The amount of tax payable is then subject to multipliers, depending on the relationship between the deceased and the inheritor and their net wealth. This makes for a top rate of almost 82%.
Personal allowances are low. For spouses and descendants the allowance is just €15,957. Siblings, cousins, nephews/nieces, uncle/aunts and in laws receive €7,993. No allowances are available to anyone else, not even to unmarried partners registered as a pareja de hecho (unless eligible for a disability allowance).
There is a 95% deduction against the main home, provided the inheritor is a spouse or child (or someone over 65 who has lived with you for the last two years), and they do not sell the property for at least 10 years. The maximum deduction per inheritor is €122,606.
Andalucía rules
The Autonomous Communities can vary the State rules to lessen the impact and in Andalucía the rules are particularly beneficial.
The personal allowances are the same as the State rules but unmarried couples registered as a pareja de hecho are treated the same as spouses. The main home relief and maximum deduction is the same as under state rules, but with the additional provision that it must be the main home of both the deceased and recipient at the time of death.
It gets even better, as since June 2008 no tax is payable at all, provided the recipient is a spouse or direct line descendant and the taxable value of the inheritance received is no more than €175,000 per beneficiary and the wealth of the recipient is no more than €402,678.
State or regional rules?
You can only benefit from the Andalucía rules if you are “habitually resident” here, i.e. have been living in Andalucía for five years up until the chargeable event. If not, or your autonomous community cannot be determined, the State rules apply.
So if you own assets such as property and bank accounts here in Andalucía, but remain tax resident elsewhere, your family will suffer the more pernicious State rules. The same applies if you have been living here but not submitting a tax return locally.
Spain has been referred to the European Commission for discriminatory treatment of residents and non-residents living in the EU. The Commission has asked Spain to end this discrimination but so far does not seem to have been any progress.
UK inheritance tax
If you are a British expatriate you could easily be liable to UK inheritance tax as well as Spanish succession tax. Inheritance tax applies to the worldwide assets of British domiciles. There is no double tax treaty between the two countries on inheritances, but if tax is paid in the UK the amount is usually deductible against the Spanish liability. However, if the UK bill is higher than the Spanish one, you will not receive a refund.
Succession law
Succession law is different from succession tax. It relates to how Spanish property can be distributed on your death. Foreigners living in Spain can choose for the law of their country of nationality to apply instead of Spanish law. A new EU regulation coming into effect in August 2015 also allows this election. This does not apply to tax, however, so you cannot choose for UK inheritance tax to apply instead of Spanish succession tax.
It is important to understand the various succession tax rules and how they apply to your situation, as well as how they affect any UK liability. You need specialist advice to understand the intricacies of the two tax regimes, and how to lower both tax liabilities and potentially save your heirs a considerable amount of tax. You can often combine your estate planning with your personal tax planning.
16 April 2014
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
