Succession Tax And Valenciana

If you live or own property in the Valenciana region of Spain, it is important to understand how Spanish succession tax works and how it will impact your family and other heirs.

If you live or own property in Spain, it is important to understand how Spanish succession tax works and how it will impact your family and other heirs.

Succession tax is charged on gifts and inheritances. It applies if the assets are located in Spain (regardless of residence of beneficiary), or if the beneficiary is resident in Spain (in which case it applies to worldwide assets).

Succession tax is governed by both the State and Autonomous Communities. Each community has the right to amend the State rules to make them more beneficial. Several have done so, including Valenciana (Valencia, Alicante and Castellón provinces).

Your assets can only benefit from the local rules if you are “habitually resident” in the region, i.e. living here for the five years up to the chargeable event. Otherwise the pernicious State rules apply.

Spain has been referred to the European Commission for discriminatory treatment of residents and non-residents living in the EU, but the rules have not changed.

Valenciana rules

Under State rules, the personal tax free allowance for spouses and direct line relatives is just €15,957. In Valenciana, with effect from August 2013, the allowance is much higher at €100,000.

It is not all good news however. In 2007 the Valenciana government introduced a 99% reduction in the tax payable on inheritances received by spouses and direct line relatives – provided they are habitually resident in the region.

With effect from last August, this 99% reduction was lowered to 75%.

In the case of gifts, this reduction used to have a limit of €420,000 per estate, with gifts from the previous five years taken into account, but it has been reduced to €150,000.

The overall effect is that many people will pay more succession tax under the new rules.

This also applies to spouses inheriting from each other, since there is no exemption between spouses in Spain. So if you own a property equally in joint names, when you die and leave your 50% share to your husband or wife, they will have to pay succession tax on this 50%. Although the personal allowance has been increased, the lower 75% reduction could result in considerably more tax depending on the total amount being inherited.

In spite of the changes, the regional Valenciana rules remain more favourable than the State ones. This will only apply, however, if you have been continuously resident here for the five years before your death or the date you make a gift. You would need to be registered and paying tax here to be able to prove it.

Importantly, note that in the case of Valenciana, for the 75% reduction to apply, your beneficiaries also need to have been habitually resident here at the time (the only exception is for disabled relatives). If your children are not living here, they do not benefit.

If these tax changes will impact your beneficiaries, or if you are not resident in Valenciana and your heirs will be hit by the state succession tax rules, you should seek professional advice on how you may be able to improve your situation.

These changes underlined the ongoing financial pressures that continue to persist even today within national and local government, and which can result in higher taxes. They highlight the need for people to arrange their financial affairs today, to best position themselves for the future.

23 April 2014

The 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 should take personalised advice.