Some Relief from Succession Tax in Southern Spain

10.10.16

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If you’re a Spanish resident living in Andalucía or you have assets in the region, your heirs could benefit from recent changes to local succession law.

If you’re a Spanish resident living in Andalucía or you have assets in the region, your heirs could benefit from recent changes to local succession law.

From 2nd August 2016, succession and gift tax rules include a revised main home relief and a new allowance for agricultural business. Then, in January 2017 the tax-free allowance for inheritances is likely to increase.

This is good news for taxpayers here, as it is the first time the local authorities have reduced succession tax in 35 years. Once all these measures come into force, Andalucía will no longer be the most expensive Spanish region when it comes to succession tax.

Revised main home relief

Previously, state rules granted a 95% allowance against the inherited value of the main home of the deceased up to a maximum of €122,606 per inheritor, if certain conditions were met. In Andalucía, the allowance went up to 99.99% if the property was also the main home of the beneficiary at the time of death.

Now, the relief percentage is variable, depending on the ‘real net value’ of the property in the taxable base of each taxpayer:

  • Up to €123,000: 100%
  • Between €123,000 and €152,000: 99%
  • Between €152,000 and €182,000: 98%
  • Between €182,000 and €212,000: 97%
  • Between €212,000 and €242,000: 96%
  • More than €242,000: 95%

 As before, a reduction only applies if the following conditions are met:

  • The beneficiary inheriting the property is a spouse, ascendant, descendant, or another relative aged over 65 who lived with the donor for two years prior to the death.
  •  The property is kept for three years after the inheritance, although it does not have to be the main home. This is a reduction from the previous period of ten years.

However, the concept of ‘real net value’ of the property is not fully explained in the new rules. Generally, the current market value of the main home or the ‘valor catastral’ could apply for this purpose, but this should not be assumed without professional advice.

You can see the benefits of the new allowances in the following illustrative example of Mr and Mrs Jones, a married couple resident in Andalucía. They jointly own a property in the region, which is their main home, valued at €450,000. If Mr Jones dies first, Mrs Jones will receive her late husband’s share of the property worth €225,000. If she keeps the property for three years, she will get a 96% reduction – €216,000 – for the main home. That means she will only pay Spanish succession tax on €9,000 under the new rules.

New agricultural business relief

Now, agricultural businesses passed on to close relatives or employees will attract a 99% reduction for inheritors, so long as certain requirements are met.

Higher tax-free relief

Next year, the 100% allowance in Andalucía is likely to increase from €175,000 to €250,000 for spouses, direct descendants (children and grandchildren) and ascendants (parents and grandparents). Additionally, the current ‘all or nothing’ situation will disappear with the introduction of a new relief for inheritances between €250,000 and €350,000.
Although the details will be fine-tuned once the 2017 Andalusian budget is approved, it is likely that taxation on inheritances will work like this from January:

  • Up to €250,000: no succession tax payable.
  • Between €250,000 and €350,000: there will be a reduction of €200,000, with anything over this taxable at the progressive succession tax rates. For an inheritance of €270,000, for example, only €70,000 would be taxable.
  • Over €350,000: there will be no reduction or allowance, as currently. Although the whole amount would be subject to succession tax, existing reductions will continue to apply, for example, €15,956 for direct descendants, ascendants and spouses and €7,993 for most other family members.

These changes are set to have a significant impact for many Andalusian residents. For instance, if a parent passes on €500,000 to two children today, they will currently pay €38,875 each in succession tax. However, when the new rules are in place, they will pay no succession tax at all.

These relief changes apply to Andalucía only; other regions have different rules, so bear this in mind if you have assets elsewhere in Spain. Remember also that if you are a British expatriate you may still be UK domiciled and therefore liable to both UK inheritance and Spanish succession and gift tax.

It is important to understand how the Spanish tax rules apply to your situation and how they may affect your UK liability. This is a specialist area, so take professional, personalised advice to maximise your legacy and potentially save your heirs from paying more tax than necessary.

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.

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; individuals should seek personalised advice.

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