If you live in Spain, then the chances are that your heirs, or perhaps even yourself, will be hit by Spanish succession and gift tax. Many British nationals also remain in the UK inheritance tax net – being non-UK resident alone is not enough to escape this tax.
If you live in Spain, then the chances are that your heirs, or perhaps even yourself, will be hit by Spanish succession and gift tax. Many British nationals also remain in the UK inheritance tax net – being non-UK resident is not enough to escape.
Whole they are both taxes on inheritances and gifts, there are significant differences between how the two taxes are applied, and the Spanish tax rules can come as a surprise to some.
Spanish succession and gift tax is due when –
- the assets being inherited/gifted are located in Spain (even if the recipient lives abroad), or
- if the recipient of a gift or inheritance is resident in Spain (even if the assets are outside Spain).
Here are the key considerations of Spanish succession tax.
- Tax is paid by each recipient, rather than by the estate.
- Spouses are not exempt.
- Allowances under the state rules are very low – just €15,957 for spouses, descendants over 21 and ascendants, €7,993 for other close relatives and nil for everyone else. There is a 95% allowance against the main home (maximum €122,606 per inheritor) when inherited by a spouse or descendant, but only if they keep it for 10 years.
- Under state rules, tax is applied at progressive rates from 7.65% (for assets under €7,993) to 34% (for assets over €797,555). However, multipliers depending on the relationship between the two parties and the recipient’s pre-existing net worth can take the tax much higher, up to 82% in some extreme cases.
- Currently, in Cataluña, Andalucía, Islas Baleares and Islas Canarias unmarried couples registered as ‘pareja de hecho’ benefit from the same reliefs as spouses; in other regions they are treated as not being related so tax can work out much higher.
- If you leave assets to your spouse, who then passes them on to your children when he/she dies, succession tax will be due again on the second death.
- Succession tax also applies to pension funds.
- Tax is paid at the time of the inheritance, even if the funds are not accessed at the time. There is a six-month period to pay the tax after the death, although it is possible to apply for an extension in certain cases.
- Succession tax is governed by both state and local autonomous community rules; each community has the right to amend the state rules.
- Whether the state or the local autonomous community rules apply for each case, depends on where the beneficiary and the donor are resident and where the assets inherited/gifted are located.
So, for example, unless exempted by local rules, if you own a property equally in joint names with your spouse, when you die and leave your 50% share to your husband or wife, they will have to pay succession tax on this 50%. If you leave them your pension fund, they will pay tax on it.
If you leave your Spanish property and/or Spanish bank accounts to UK resident children, they will pay tax on it.
If you are resident in Spain and receive an inheritance from parents in the UK you have to pay Spanish succession tax on it.
Many autonomous communities have amended the state rules to make them more beneficial.
In Comunidad Valenciana, spouses and children receive an allowance of €100,000 each. They can also benefit from a 75% reduction in the amount of succession tax payable.
In Murcia, the taxable inheritance for children under 21 is reduced by 99%, while older children and spouses get a 50% reduction.
According to the rules of Andalucía, spouses and children can benefit from a 100% exemption for inheritances up to €175,000, provided they are not worth more than €402,268.
Cataluña offers a 99% relief for inheritances for spouses. Other Group I and II relatives receive a relief depending on the amount of their inheritance. Personal reductions are €100,000 for spouses and children (more for those under 21), €50,000 for other descendants, €30,000 for ascendants and €8,000 for other relatives. The 95% main home relief is up to a property value of €500,000, with the amount pro-rated among the beneficiaries (minimum €180,000 limit each). The property need only be kept five years (it is 10 under state rules).
For Islas Baleares read our article Spanish Succession Tax In Islas Baleares In 2016
For Islas Canarias read our atricle New 99.9% Succession And Gift Tax Reduction For Canary Islands
UK inheritance tax
If you are a British expatriate living in Spain you could easily be liable to UK inheritance tax as well as Spanish succession tax. Inheritance tax applies to the worldwide assets of UK domiciled. There is no double tax treaty signed between the two countries on inheritances, however if inheritance tax is paid in the UK the amount is usually deductible against the Spanish liability as per the internal unilateral relief established in the Spanish tax law.
UK domiciled spouses living in Spain need to consider both the Spanish and UK inheritance tax liabilities. You need to consider what the best solutions are should the surviving spouse remain in Spain or return to the UK.
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.
Any questions? Ask our financial advisers for help.
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.