Tag: inheritance tax

SPANISH INHERITANCE TAX 2021: 10 THINGS YOU NEED TO KNOW

Spanish Inheritance tax (succession tax) in Andalusia
Spanish Inheritance tax (succession tax) in Andalusia

Are you a resident or homeowner in Spain and did you ever wonder about Spanish Inheritance Tax? Whether you maybe own a house and other assets or are thinking about buying property in Spain as an investment, this information could be useful to you.

I’m going to try to clear up some common doubts and make several example calculations so that you understand how this tax works in Spain and its current rates in Andalusia.

As a law firm specializing in providing legal and fiscal advice to foreigners in Andalusia, we’ve encountered certain unpleasant situations in inheritance processes with clients. These cases had a large financial impact from inheritance tax (succession rights) and some of them could have been avoided with the right fiscal advice and preparation.

1. Be careful with Spain! Every region has a different Spanish inheritance tax

The big difference in terms of paying more or less inheritance tax in Spain depends on the autonomous community where you reside, as they each have different regulations, with very different tax rates.

If you’re worried about how much inheritance tax an heir will pay, you need to know the benefits available in the autonomous community where you have your assets or where you’re thinking of buying a home.

2. Yes, that’s right. Non-residents in Spain pay the same Inheritance Tax as residents

There is an obligation to pay Inheritance Tax in Spain when a person inherits any asset located within Spanish territory, irrespective of whether they are resident in Spain. Since the judgments rendered in Spain in 2018, residents and non-residents, whether they are EU citizens or not, are subject to the same regulations in terms of Inheritance Tax in Spain.

In other words, if you’re an expat or reside in your country of origin, this will make no difference in terms of the tax to be paid compared to what someone resident in Spain would pay.

Be careful! You should not confuse Inheritance Tax payable in Spain with the law governing the Spanish inheritance process and the law of obligatory heirs in the Spanish Succession Law. If you want to know what this means, please watch C&D Solicitors´ video:

3. Who collects the Spanish Inheritance Tax for non-residents?

The only difference between residents and non-residents is the administrative body in charge of collecting the tax. If you’re resident in Spain, the administrative authority to collect this tax will be the autonomous community where you reside but, if you’re a non-resident, this will be the non-resident department of the central administrative Tax Office in Madrid.

However, even if you’re non-resident and inherit a property in Malaga, for instance, and you declare this tax to the Treasury in Madrid, you can still benefit from Andalusian tax regulations, which is why non-resident heirs in Spain pay the same as residents.

4. What is the most expensive Inheritance Tax region in Spain?

Andalusia is currently one of the regions in Spain where the lowest inheritance and gift tax rates for direct relatives of the deceased are applied, due to the tax bonuses and exemptions introduced in the last few years. Cantabria and Galicia are two other communities with the lowest Inheritance Tax rates in Spain, along with Madrid, Extremadura and Murcia. However, communities such as Asturias, Castilla y Leon and Valencia have very high rates of Succession Tax.

Nevertheless, these changes haven’t affected all groups of heirs and it continues to be a very expensive tax for some distant relatives, as well as for heirs with no official family relationship to the deceased.

So, if you for example are thinking of investing your money in buying a house for a tourist rental in Spain, in terms of succession tax the Costa del Sol (Andalusia) is much more attractive than the Costa Blanca (Alicante).

5. How is the succession tax calculated for a Spanish estate?

The rate of this tax is progressive, according to the value of the estate, i.e. the higher the value of the assets, the higher Inheritance Tax becomes.

Rate in force for Inheritance and Gift Taxes in all Spanish territory
Rate in force for Inheritance and Gift Taxes in all Spanish territory

Likewise, to the result obtained when applying the scale for this tax, multiplication coefficients are applied, which may increase the amount due under this tax. According to the degree of relationship and the pre-existing assets of the heirs, this coefficient may be higher or lower.

The lower the degree of relationship to the deceased and the greater the assets of the heir, the higher Inheritance Tax becomes.

Multiplication coefficients for Inheritance Tax in Andalusia
Multiplication coefficients for Inheritance Tax in Andalusia

6. Which heirs pay the least tax?

Descendants or (adopted) children, as well as spouses and ascendants. This means that children, husbands/wives, grandchildren and parents pay the least inheritance tax in Spain. These are relatives classified into groups I and II under the Tax.

It should be noted that the tax benefits existing for direct relatives are very different depending on the autonomous community where the assets are located or where they live and reside, as each autonomous community has its own regulations. Differences in Inheritance Tax rates in Spain are enormous!

7. How much Spanish inheritance Tax is paid by close relatives in Andalusia?

This group of heirs is included in groups I and II and they can apply a reduction due to kinship of up to 1,000,000 euros per heir in Inheritance Tax. If each of them inherits less than that amount, no Inheritance Tax will be due.

For heirs to apply this reduction in Andalusia, their own assets prior to inheriting cannot exceed 1,000,000 euros either. Without a doubt, in Andalusia, widowed spouses and children pay much less Inheritance Tax than in other autonomous communities in Spain, which has resulted in an appreciable drop in tax collection from this tax in Andalusia.

8. Which heirs pay the most Succession Tax in Spain?

Persons related collaterally in the 2nd and 3rd-degree family, such as siblings, nephews, nieces and brothers– and sisters-in-law, as well as other more distant relatives such as cousins, great-uncles, great-aunts and strangers.

Without a doubt, these are the heirs that pay the highest Inheritance Tax rates in Spain and they’re classified under groups III and IV of the Tax. In Andalusia and other Autonomous Communities, this group of heirs aren’t the exception and pay a very high rate of inheritance tax.

9. How much tax is due for inheriting the usual property in Andalusia?

If you’re in groups I and II, unless the home is worth over 1,000,000 euros, you would pay nothing. But if the heir is in group III, such as a sibling, uncle, aunt, nephew, niece, or in-law, living with the deceased for at least the two years prior to the death occurring, a bonus worth 95% to 100% of the value of the home is applied. In the latter case, the home must be kept for 3 years following the death.

There are other discounts in Andalusia, such as heirs with disabilities, the acquisition of a sole proprietorship and farms.

10. What is the deadline to pay Inheritance Tax?

The deadline is 6 months after the date of death and, if it remains unpaid, the tax administration may initiate proceedings to claim payment of the tax, with the ability to impose penalties. However, if there are justifiable reasons, it is possible to request an extension of 6 additional months and this application must be filed within 5 months of the death.

After four and a half years from the date of death, the government cannot require payment of this tax. In this case, the tax would be zero due to it being time-barred.

EXAMPLES: Spanish Inheritance tax calculator in Andalusia

  1. Dutch siblings Frank and Mark inherit their father’s property in Almuñécar, appraised at 300,000 euros. In this case, the answer is clear, each of them would pay zero in Inheritance Tax.
  2. Now siblings Frank and Mark inherit their older brother Jan’s property in Fuengirola, appraised at 300,000 euros. In this case, each would inherit 50% of the property, appraised at 150,000 euros. The only bonus that they may apply is for the first 7,993.46 euros, for which reason each of them would pay the Treasury an amount of €31,393.56
  3. Lastly, siblings Frank and Mark inherit their friend Martin’s property in Marbella, appraised at 300,000 euros. In this case, each would inherit 50% of the property, appraised at 150,000 euros. No reduction can be applied in this case, for which reason they would pay taxes on the entire amount received, resulting in a payment of €42,523.07 from each.

Final note: How does the Spanish Inheritance and Gift Tax affect the property market?

If you’re thinking about buying a home in Spain and you’ve read everything we’ve explained above, you’ve probably realized that Inheritance and Gift Tax have a significant influence on the property market in Spain and the choice of the autonomous community to settle in.

Excessively high rates in some regions and extremely low rates in others condition the investment decisions of potential home buyers to these trends. Inheritance Tax (succession rights) in Spain has a direct impact on the financial behavior of buyers and the decision regarding where in Spain they wish to live or buy a property.

You can read interesting information about this subject on our webpage Inheritance Tax Andalusia. If you need a lawyer specializing in Inheritance and Gift Tax, just send us a message through the contact form below.

 

If you are interested in the subject of Spanish inheritances, you might also want to read our pages on:

 

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Torrox (Malaga)

 

TAX CONSEQUENCES OF BREXIT FOR BRITISH PROPERTY OWNERS IN SPAIN

TAX CONSEQUENCES OF BREXIT FOR BRITISH PEOPLE IN SPAIN
Due to the Brexit there are many tax consequences for British citizens in Spain

We are near the end of the transition period established within the BREXIT for British citizens resident in Spain, which ends on 31 December 2020. There are many tax consequences for British citizens in Spain but for now we are only going to focus on British citizens with assets in Spain. For example pensioners or owners of a second home. From the perspective of trade or the movement of British citizens in Spain for work reasons, the tax and bureaucratic consequences of Brexit are higher, even though we will not cover that in this article. However, we will also briefly address the process to obtain Spanish residency. This because during the past few months we have witnessed many police stations becoming overwhelmed and unable to meet the many requests for appointments for British citizens and their family members to obtain a residence permit in Spain. This procedure was approved as part of the transition period set to end on the 31st of December 2020.

Over the last few weeks of 2020, it has been impossible for many British citizens to make an appointment at the police station in the province where they live and this also applies to the province of Malaga in Andalusia. This has led many British citizens resident in Spain or about to move to Spain starting 2021 without a residence permit.

 

What will be the situation of British citizens resident in Spain after BREXIT?

Well, these British citizens will have to apply for a residence permit after the final Brexit on the 1st of January 2021, just like any other citizen from a third country outside the European Union. We recommend that first of all these citizens register with their city hall as soon as possible and also request a S1 form from the United Kingdom to prove that their healthcare costs in Spain will be covered by the United Kingdom. After this, the easiest thing to do is to contact a law firm or administration company that can advise you and help you with the process, as it will be complicated to do it on your own. It is very important not to delay and do this as soon as possible, even though it is true that there is currently a lot of uncertainty about the procedure in question, as the negotiations with the European Union remain open.

 

How will the status of British citizens change after 1 January?

British citizens will be able to travel to Spain and stay for up to 90 days within a 6-month period, consecutive or not, without having to obtain a visa. They could even be required to prove their financial capacity to cover their stay in Spain, as is the case with travellers from countries outside the European Union. If they wish to stay longer, it is very likely that they will have to apply for a visa or work permit, even though this has not been defined yet since the negotiations remain open.

 

What will happen with the British driving licence?

From 1 January 2021, the general regulations will apply and British driving licence will be valid to drive in Spain for six months counted from the owner’s entry in Spain or from the date that legal residence is obtained. They will need to exchange their British driving licence for a Spanish one to continue driving in Spain after those six months.

 

How will Inheritance Tax change after Brexit on the 1st of January 2021?

As we explained in detail in an earlier article about inheritance tax, fortunately, from 1 January 2019, citizens not resident in the European Union are able to obtain the same tax benefits and bonuses for Inheritance Tax as European citizens. Therefore, the application of Inheritance Tax and its consequences would not change for British citizens.

 

Potential future Inheritance Tax when buying a home in Spain

When considering the purchase of a home in Spain, as the regulations applicable to this tax depend on the autonomous community where the property is located, a very important matter is to consider which autonomous communities have a higher and a lower inheritance tax, before making such investment(s). For instance, British nationals are the main buyers of homes in Spain. Alicante (Valencian Community) and Malaga (Andalusia) are the two main locations for foreigners to buy a home in Spain but. However, when it comes to Inheritance Tax, there are big differences between one community and the other. The Valencian Community has the third highest Inheritance Tax in Spain, while Andalusia has the third lowest, according to the General Economists Council of Spain, in their taxation study for 2020. This means that, when thinking about that tax, Malaga has a much cheaper rate of Inheritance Tax than Alicante.

 

What happens to taxes on profits obtained from renting out my home in Spain?

If you bought a home in Malaga as an investment, for instance, and you use it for holiday rentals as a citizen of the European Union, the profit obtained from such rental would be taxed at 19% through their IRNR income tax for non-fiscal residents with a house in Spain. Many expenses can be deducted: mortgage interest, repair and maintenance costs for the property, electricity, insurance, etc. However, once you are considered a citizen not resident in the European Union, it will be taxed at 24% and no deduction for property expenses may be applied.

 

Estate Tax or Wealth Tax on my properties located in Spain

Estate Tax or Wealth tax also apply to assets and rights that non-residents have in Spain. As this tax has a minimum personal exemption threshold of 700,000 euros over the minimal fiscal value, all non-residents -in the EU or outside it- with assets of a lower value would pay nothing. The main difference in terms of EU and non-EU citizens lies in the fact that EU citizens can apply the regulations of the autonomous community where most of their assets are located. However, non-EU citizens would have to follow national regulations instead of those of the autonomous community where the assets are located. If we compare the tax rates in Andalusia to the national ones in terms of estate tax, the national rate of estate tax is somewhat lower. Therefore, applying national regulations does not always entail a greater tax liability.

The actual impact of that tax is non-existent for most non-residents due to the minimum fiscal value of 700,000 euros applied per person. This is why it is recommended that, if you are thinking about luxurious purchasing a property in for example Marbella on the Costa del Sol, it might be interesting to put the property in more than one name to profit from this exemption. Still, estate tax could have a high impact for those with high-value assets in Spain or considering the purchase of luxury properties.

 

How will Brexit affect the sale of my home in Spain?

The tax rate on capital gains obtained from selling the property would go from 19% to 24%. The withholding (down payment) of the Capital Gain Tax that a buyer must apply to a non-resident seller to pay the amount at the Tax Agency in Spain will continue to be 3% of the purchase price. This percentage is the same for EU citizens and non-EU citizens.

 

Will Brexit affect the ITP transfer tax on the purchase of a home in Spain?

No, it will not. The property ITP transfer tax paid in Spain for the purchase of second-hand homes do not vary for EU citizens and non-EU citizens, for which reason, from 1 January 2021, it would not lead to greater expenses for British people. The same counts for the 21% VAT tax and documented legal acts (AJD tax) paid for new off-plan properties. The ITP tax depends on the autonomic region. For instance, in Andalucia a house buyer pays 8% ITP transfer tax over the purchase price up to € 400.000, until € 700.000 it´s 9% and after this the ITP will be 10%. To calculate the ITP tax on more expensive houses for a married couple it´s important to take into account if the couple is married in community or separation of goods.

 

Is the double-taxation agreement in force between Spain and the United Kingdom important?

Yes it is. The main purpose of this double-taxation agreement is for a British national living in Spain or a Spanish national living in the United Kingdom to be able to work and invest in those countries without having to pay twice for the same thing. This agreement will remain in force and is unaffected by the United Kingdom leaving the European Union. This agreement, which came into force on 12 June 2014, contains special clauses that exempt certain public pensions paid by the British government from taxation in Spain, as they can only be taxed in the United Kingdom. Likewise, this agreement protects residents national of either country from being taxed twice on income from capital gains and dividends. Income tax for non-residents, company tax, personal income tax and estate tax are covered by this agreement, for which reason these aspects should not be taxed twice in both countries.

 

Potential changes in the future for British house owners

Over the next few weeks, there will surely be changes affecting British nationals as it is very likely for the negotiations to change certain important aspects. However, on the date this article is posted (22 December 2020), little is known. We advise that, if you have any doubts, you contact and obtain legal or tax advice from a lawyer or company specialising in non-resident house owners.

 

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Málaga

saving for non-EU citizens in the spanish inheritance tax

INHERITANCE TAX NOW ALSO THE SAME FOR EU- AND NON-EU CITIZENS

saving for non-EU citizens in the spanish inheritance tax
Spanish inheritance tax now the same for EU- and non-EU members

As we stated in our post in February 2015, on 01/01/2015, the regulations governing Inheritance Tax were amended,  EU citizens began paying the same Inheritance Tax as citizens resident in Spain. From that time EU citizens were able to pay tax in accordance with the regulations of the Autonomous Community where the assets are located. Remember that these regulations are much more beneficial than national regulations on Inheritance Tax, which were applied to EU citizens until that date. This amendment left non-EU citizens out, which were required to continue paying tax according to national regulations.

Supreme Court rules in favour of Non-EU members

However, two judgments of the Supreme Court, in February and March 2018, referring to residents in non-EU countries such as Canada or Switzerland, determined that there would be discrimination contrary to the free movement of capital if non-EU citizens were not allowed to opt for regional regulations in the same manner as EU citizens. Therefore, these non-EU citizens should also be treated in the same manner as EU citizens in terms of Inheritance and Donations Tax, also being eligible to receive regional tax benefits.

We should add that the free movement of capital is enshrined in article 63 of the Treaty on the Functioning of the European Union, which prohibits all restrictions on the movement of capital between Member States and between Member States and third countries, making the limitations for non-EU citizens in terms of Inheritance Tax contrary to the regulations of the European Union.

Since September 2018, the Spanish Tax Agency decided to comply with these rulings and started accepting settlements of Inheritance Tax for non-EU citizens, applying the regulations of the relevant autonomous community to these.

Benefits of tax calculations by Autonomous Communities

This change in tax criteria represents significant savings in terms of inheritance for non-EU citizens, as it should be noted that, in most Autonomous Communities in Spain -including Andalusia-, a widowed spouse, children and descendants, such as grandchildren, barely pay any Inheritance Tax, as they are eligible for significant bonuses. These bonuses in Andalusia were explained in detail in our article from January 2018.

Possibility to reclaim tax until four years back

Suffice it to say that this tax change opens the door to claims from non-EU heirs who have paid Inheritance and Donations Tax over the last few years, if a comparison between national and regional regulations were to show that they paid much more than an EU citizen would have. This claim may be filed provided that the right to claim has not been time-barred, the deadline being established at four years after the payment was made.

Brexit and British citizens

As a last note, considering the consequences of Brexit for British citizens with properties and assets in Spain, fortunately, even if they remain outside the European Union and would be considered non-EU citizens, they would be able to continue to benefit from bonuses and discounts in Inheritance and Donations Tax in the same manner as before.

It should be noted that there are many British homeowners and buyers with properties in Spain and, at least, their heirs will not be harmed in terms of taxes payable in a future inheritance procedure.

 

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

Inheritance tax Andalusian

NON-MARRIED LONGEST LIVING PAYS HIGH INHERITANCE TAX

NON-MARRIED LONGEST LIVING
NON-MARRIED LONGEST LIVING

THE CURRENT SITUATION OF INHERITANCE TAX

On 1 January 2018, a new reform of Inheritance Tax entered into force in Andalusia, the main change of which was to raise the tax-exempt amount to one million euros. This new reform changes the reform introduced a year ago, which we explained in our post of November 2016.


Which heirs would be exempt from Inheritance Tax?

Heirs that meet each one of the following requirements would be exempt:

  • For the heir to be included in groups I and II as established in the regulation governing this tax, the heir needs to be the spouse, child, grandchild or parent of the deceased
  • For the value of the estate to be inherited per heir does not exceed one million euros
  • For the pre-existing assets of the heir to be less than one million euros
  • For the heir to be a citizen of a Member State of the European Union or, if they are citizen from outside the European Union, both the deceased and the heir must reside in Andalusia


What happens with other family members who inherit?

All other heirs, such as siblings, nephews, nieces, uncles, aunts and cousins of the deceased are included in groups III and IV of the Inheritance Tax and will continue to pay the same amounts.

In other words, these heirs will pay inheritance tax from the first euro they inherit except for heirs in group III, who are able to deduct an amount of 7,993.46 euros. This means, for example, that if John leaves his nephew his Nerja property valued at 240,000 euros as inheritance, his nephew will have to pay about 63,000 euros in Inheritance Tax.


What happens if you inherit from your best friend?

You would be included in group IV of this regulation. This means that if John, instead of leaving the 240,000-euro property to his nephew leaves it to his best friend, he or she will have to pay about 80,000 euros in Inheritance Tax.

 

How are property values calculated for Inheritance Tax for non-married longest living?

Every year, the Regional Government of Andalusia publishes a regulation that establishes certain coefficients to update the values of urban properties located in Andalusia. These coefficients are applied to the cadastral value of the property; this you can find in your Property Tax receipts. The result of applying these coefficients to the cadastral value is what we call the minimum taxable value.

The regulation explained above deals with the minimum taxable value of urban property but, in the case of rural property, this isn´t applicable. Therefore it is necessary to obtain a valuation from the technicians of the Regional Government of Andalusia to calculate the minimum taxable value. However, the Regional Government of Andalusia in the province of Malaga uses the coefficients published every year by the College of Architects of Malaga to calculate the value of rural properties.

Regarding the means used by the administration to calculate the minimum taxable value of properties in Andalusia –as well as other Autonomous Communities–, there is much controversy in general and there is the possibility to challenge those values in the event that the person liable to pay the tax deems them excessive or not adjusted to reality. This topic is complex enough to be covered in a whole new article.


NON-MARRIED LONGEST LIVING OR UNREGISTERED COUPLES IN ANDALUSIA

Who are we talking about?

In the event that a couple is not married –either in their country of origin or in Spain–, if one of them dies and leaves the other member of the couple as an heir, for the purposes of Inheritance Tax this person would be considered to be in group IV. In other words, in this case the partner is considered to be just a friend putting the person in the group with the highest rate of Inheritance Tax.


What happens to common-law partners registerd in Andalucia?

In Andalusia, couples registered in the Registry of Common-Law Partners of Andalusia are equivalent to married couples for the purposes of Inheritance Tax, for which reason they would benefit from the deductions for spouses explained above.


What happens to common-law partners registered in another Member State of the European Union?

In this case, the Regional Government of Andalusia does not recognise such registration for the purpose of Inheritance Tax, for which reason those couples would pay tax as though they had received inheritance from a friend, leaving them in the group taxed at the highest rate.

If John leaves his partner Mark 50% of the property they both purchased in Almuñecar in 2005 and if the fiscal value of that 50% is 120,000 euros, Mark, the heir, would have to pay about 30,000 euros in Inheritance Tax for inheriting 50% of that property.

If John and Mark had been married or registered in the registry of common-law partners of Andalusia, Mark would not pay a single euro for inheriting 50% of the property from John.


What should be done in this case?

If you have property in Spain with your partner and you would like him or her to inherit your part and you are unmarried, we advise that you get married (either in Spain or in your country of origin) so that you can benefit from Inheritance Tax reductions. Those who don´t want to get married, can register themselves in the Registry of Common-Law Partners of Andalusia (Registro de Pareja de Hecho) and then the status would be equivalent to that of a married couple.

Property owners who are not citizens of a Member State of the European Union

In this case, heirs may not benefit from reductions for spouses, children, grandchildren and parents of the deceased, so they would pay Inheritance Tax in the event that they inherit. They can only avoid this if both the deceased and the heir are resident in Andalusia.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

ARVSSKATT I ANDALUSIEN: FÖRÄNDRINGAR I SIKTE

INHERITANCE TAX IN ANDALUSIA: CHANGES AHEAD

inheritance tax paid by the heirs
inheritance tax paid by the heirs

On 1 August, the Regional Government of Andalusia approved the first of two reforms of inheritance tax in Andalusia. This reform and the upcoming one aim to improve taxation for heirs.

The first reform affected the acquisition of a person’s usual residence by heirs and a series of reductions were approved, ranging from 100% to 95% when the value of the home exceeds €242,000. The reduction in inheritance tax in this sense is very significant.

However, it should be noted that only in estates inherited from parents by children (whether biological or adopted), spouses, relatives in the ascending line and persons related collaterally (siblings, cousins or grandparents) over the age of 65 can an heir in Andalusia opt for the reduction for the acquisition of the usual residence. Likewise, the following requirements must be met:

  1. Having lived with the deceased person in the usual residence during the two years preceding death.
  2. Maintaining ownership of this residence for 3 years.

Furthermore, the Regional Government of Andalusia has announced that it would complete a second reform of Inheritance Tax, which will enter into force on 1 January 2017.

In this case, the minimum exempt from Inheritance Tax in Andalusia will be of €250,000 per heir. I.e. heirs inheriting assets valued at an amount equal to or smaller than €250,000 will not have to pay Inheritance Tax in Andalusia.

As explained in a previous article, this exemption only applies to descendants or adopted children of the deceased person, as well as their relatives in the ascending line or adoptive parents and spouses, provided the pre-existing assets of the heir are equal to or less than €402,678.11.

Lastly, another substantial change should be noted as, for estates with a value of between €250,000 and €350,000, a minimum value of €200,000 is established. I.e. if the inheritance received by a child or widowed spouse is valued at more than €250,000, the first €200,000 would be exempt from inheritance tax and only the remaining amount would be paid, provided that the total value of the estate does not exceed €350,000. If this amount is exceeded, inheritance tax would be payable on the entire value of the estate, without the possibility to apply any exemption.

Lastly, I would like to remind you that the best way to plan your inheritance begins with your will, for which reason it is always best to go to an appropriate professional who can examine your situation and give you personal advice.

 

Author: Gustavo Calero Monereo, C&D Solicitors, Malaga, Andalusia.

 

 

DON'T FORGET YOUR WILL IN SPAIN WITH THE NEW EUROPEAN REGULATION

DON’T FORGET YOUR WILL IN SPAIN WITH THE NEW EUROPEAN REGULATION

Renewing Spanish will 2015
Renewing Spanish will 2015

We wouldn’t want to ruin your day by talking about the “other life”, which we hope is a long way away (fingers crossed). However, because of the European Succession Regulation approved on 27 July 2012 and its upcoming application for the succession of people who die after 17 August 2015, I think it convenient to dedicate a few words to foreigners with assets in Spain.

As a starting point, this regulation establishes which jurisdiction applies to the assets of a EU national in a country of the European Union. The law applicable to the succession of a EU national, according to this Regulation, would be that of the country of habitual residence, with the ability to choose to apply the Law of his or her nationality provided that the deceased has stated this clearly and unequivocally in his or her will.

When it comes to Spain, if you are a national of a different country in the European Union but you reside and own assets in Spain, you must know that, if you do not have a Spanish will that clearly and unequivocally states that you would like the law governing your succession to be that of your nationality at the time of death, Spanish law will apply to your inheritance. What does this mean?

In Spain, there is no liberty to leave your property as inheritance to whomever you want. In Spain, the assets of the deceased are divided into three parts. Two of these parts belong to forced heirs, as follows:

  • The first part goes to each of the children in equal parts or, in the absence of children, to parents or, in the absence of the latter, to siblings.
  • The second part goes to one of the children or, if nothing has been set out, it is divided among all children in equal parts as well, as explained above.
  • The third and last part of an inheritance is the freely disposable part and this is the part that the deceased can leave to whomever he or she wishes but, to do this, there must be a will establishing this because, in the absence of a will, it will also be divided among the children in equal parts.

In Spain, a spouse comes last among forced heirs and would only inherit in the absence of these. In other words, if you are a foreigner in Spain and you reside and hold assets in our country, be aware that, if you die without a will or your will doesn’t clearly state that you would like the law of your nationality to apply, your spouse will probably inherit nothing.

The best way to prevent problems of this type is for you to execute a will in Spain and clearly state the Law you would like to apply at the time of your death.

If you happen to have a will in Spain already, it is important for you to review it and verify that it complies with the provisions of the European Succession Regulation or, in other words, that the will you have signed clearly states that your will is for the law governing your succession to be your personal law, i.e. the law of your nationality at the time of your death.

In my opinion, wills that state that “this will is valid pursuant to the personal law of the testator and said law does not cover the concept of forced heirs…” or contain similar words may cause problems under the New Regulation and, in these cases, my recommendation is to execute a new one that clearly states that you would like your succession to be governed by the law of your nationality.

I would like to clarify something that is often confused in these matters. The law governing the succession of a person in Spain is one thing, which depends on what has been explained in this article, but the tax consequences of succession in Spain are an entirely different matter. In this case, we’re referring to Inheritance Tax, which is regulated as explained in our post from March , as payment of that Tax will be due from the fact of inheriting an asset located in Spain, regardless of the Law governing your succession.

Lastly, we wish that you live for many years and you don’t have to worry too much about such unpleasant matters.

Author: Gustavo Calero Monereo, C&D Solicitors (Lawyer)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

INHERITANCE TAX IN SPAIN: WE ARE ALREADY EUROPEAN!

INHERITANCE TAX IN SPAIN: WE ARE ALREADY EUROPEAN!

Inheritance tax in Spain
Inheritance tax in Spain

In our post of last March on Inheritance and Donation Tax, we discussed about the fact that European non-resident citizens in Spain were experiencing discrimination against resident citizens, because, under the same circumstances, they had to pay more taxes than resident taxpayers.

This unequal treatment happened when the deceased or beneficiaries were non-resident in Spain and they paid taxes in conformance with a State regulation which was more detrimental than the regional one, which was only applied to resident citizens.

This discrimination was confirmed by the European Court of Justice ruling dated 03rd of September 2014, which resolved this issue and established that Spain was infringing the free movement of capital within the EU, because of this separate treatment between resident and non-resident citizens.

On the 1st of January 2015, in order to comply with the aforementioned judgment, the amendment of the State Inheritance Tax regulation has entered into force in Spain. A special scheme has been introduced in regards of the Inheritance Tax, so that non-resident citizens in Spain who are European residents may apply the regional regulation as residents already do, equating their situation.

This new regulation establishes that in the event that the deceased is a European non-resident in Spain, the European non-resident beneficiaries may apply the regional regulation where the most valuable assets are located in Spain. If the beneficiaries are resident in Spain, the regional regulations where they reside shall be applicable.

If the deceased has been a resident in a Spanish region and the beneficiaries are non-resident in Spain, the non-resident beneficiaries shall pay inheritance tax in conformance with the regional regulations where the deceased resided.

At this point, it is worth mentioning that the collection of the Inheritance and Donation Tax in Spain is assigned to regional governments, so that they are free to set forth their own regulations.

The effect of this assignment is that the amount to be paid for this tax by Spanish residents may significantly vary depending on the region where they live. In fact, a fiscal “war” has arisen between regional governments as regards of this tax, because some people have decided to establish their residence in regions with a more favourable tax scheme in order to pay fewer taxes for inheritance and donations, particularly those with more valuable estates.

The most recent and famous case in Andalusia was that of the late Duchess of Alba, who was sentimentally related to Andalusia but not fiscally, because her residence for tax purposes was in Madrid. The main benefit of this fact is that her beneficiaries have had a tax saving of more than 90 million Euros in the Inheritance Tax.

Since non-resident citizens will also enjoy the same Inheritance Tax regulation than resident citizens and considering that the regulation to be applied is that of the region where the most valuable assets are located, this unequal treatment between regions will also affect them.

However, imagine that you are a non-resident in Spain, do not have any property, but you have some money in a bank entity in Spain. In this case, which regulation shall be applicable for your beneficiaries? It seems that the applicable regulation shall be that of the region where the bank registered office is located. Thus, it is not the same a bank entity with registered office in Madrid, Barcelona or Seville, for instance. It has been said “it seems” above, because a definitive answer has not been obtained when contacting the Tax Administration Office in respect of this issue.

In short, these are good news for European foreign citizens and their beneficiaries, and welcome to the regional regulatory “chaos” in respect of Inheritance and Donation Tax.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyer)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

SPANISH INHERITANCE TAX: POSSIBLE CONDEMNATION AND CHANGES

SPANISH INHERITANCE TAX: POSSIBLE CONDEMNATION AND CHANGES

Did you pay too much Spanish inheritance tax?
Have you paid too much Spanish inheritance tax?

Last 27th of March 2012, the European Commission pursued an action against Spain for the breach of the Treaty on the Functioning of the European Union and the Agreement on the European Economic Area, as a result of the discrimination in respect of the Spanish inheritance and gift tax, since non-residents pay more taxes than residents under the same personal conditions.

Spanish inheritance tax is managed by Spanish autonomous regions, so there are significant differences from one region to another in respect of this taxation. Each regional administration has regulated this tax in a different way. However, if the taxpayer is a non-resident, the Central State Tax Administration Office is the competent body to collect this tax payment instead of the regional government tax office. Regional government regulations are much more favourable for taxpayers than central government tax rules, since regional administrations have established tax exemptions and reductions for the inheritance and gift tax.

However, these discriminatory situations between residents and non-residents in Spain also arise between residents of the different autonomous region. In fact, last 8th of May 2013, a court order from the Spanish Supreme Court established the illegality of the inheritance regulations of the Valencian autonomous region, because these regulations allow heirs residing in this region to benefit from tax reductions against those residing in other Spanish regions who do not enjoy from this benefit.

It is expected that in the future the Spanish Constitutional Court itself rules in this respect. Furthermore, upon consideration of this inequality legal situation, it is likely that the inheritance tax may be reformed in the medium and long term in order to balance differences among the different Spanish autonomous regions.

Regarding the action against Spain, last 8th of January the hearing for this proceedings was held before the Court of Justice of the European Union. It is very likely that a judgment may be pronounced in a few months in regards of this case. If this court order condemns Spain because of this discrimination, it may give rise to a right for reimbursement of undue taxes paid to all those non-residents in Spain who paid in the last 4 years the Spanish inheritance and gift tax, provided that this payment had been higher than the tax payment corresponding to residents belonging to this Spanish region under the same circumstances.

Taxpayers may claim within 4 years. This period starts to run from the date of tax payment. For this reason, in the event of a possible ruling condemning Spain in this regard in the following months, it is very important that all those non-residents in Spain, who paid inheritance and gift tax in the last 4 years,  check if their payment was higher than the one made by a resident in the same Spanish region. If that were the case, they should claim for the refunding before the end of this 4 years period. Once this period expires, they will not be entitled to it. The submission of this tax refund claim shall stop the 4 years expiry date while it is decided if Spain is condemned for this issue.

Our law firm is at your disposal to assist you in this matter. We would offer you our service on the basis of a “no win-no fee agreement” for the submission of the aforementioned tax refund claim before the Tax Authorities, that is, you would pay nothing to us if the public administration declines this first claim.

 

Author: Gustavo Calero Monereo, C&D Solicitors (Lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

INHERITANCE TAX IN SPAIN AND NON RESIDENT TAXPAYERS: problems and prospects for the future

INHERITANCE TAX IN SPAIN AND NON RESIDENT TAXPAYERS: problems and prospects for the future

Discrimination non-residents inheritance tax
Discrimination non-residents inheritance tax

Currently, non-resident taxpayers face two major problems in respect to the payment of Inheritance Tax in Spain:

1. Discrimination: non-residents pay much more taxes than residents.

2. Double taxation: this tax is payable in two different countries for the same inherited property.

Discrimination

In Spain, taxes are paid for inheritance between non-residents—even though they are immediate family members, spouses, parents, children…, upon application of the government regulations, that is, a progressive scale of taxes based on the transferred property value.

However, regarding inheritance between residents—immediate family members—taxes are much lower or even not paid, as a result of the application of regional government regulations which provide very important tax exemptions.

In respect to inheritance between family members who are not immediate (siblings, uncles, nephews, etc…) and between non-family members, very high taxes shall be paid by both residents and non-residents. In this respect, there is no discrimination.

Upon consideration of this discriminatory unfair condition, it is necessary to inform that the European Commission is putting pressure on Spain to avoid this discrimination, as it is contrary to the free movement of persons and capital, one of the basic principles of the EU single market. This fact may provide a significant reduction of the inheritance tax for non-residents, at least for EU residents, because, otherwise, periodic penalty payments may be imposed to Spain.

There are some examples which can guide you to understand this issue over the figures.

Double taxation

Significant cases of double taxation are also occurring. For example, non-resident heirs are bound to pay a high inheritance tax in Spain for inherited property in Spain (money or real estate) and they shall also pay inheritance tax on the same inherited property in the country where they reside, without deduction of the taxes paid in Spain.

The problem is that Spain only has a convention for the avoidance of double taxation with France, Greece and Sweden for inheritance purposes. Double taxation conventions with United Kingdom, Germany, etc… only refer to income tax and property tax, so that double taxation conditions may occur in relation to inheritance tax.

Accordingly, the UE presented last year a global package regarding inheritance tax system just to avoid these two problems of discrimination and double taxation mentioned above.

 

At this stage and regarding that these serious problems seem to be at least in the process of being resolved in the medium term, C&D Solicitors would like to make the following recommendations:

1. If anybody loses a relative before regulations are modified and is bound to the payment of a high and discriminatory inheritance tax, a procedure could be initiated requesting the refund of the excessive tax which has been paid.

2. It is not appropriate at this moment to hurry and carry out certain actions in order to avoid or reduce inheritance tax in the future—gift inter vivos, contribution to companies, etc. These transactions may involve significant tax consequences to be analysed and as result of them you may pay now higher taxes than taxes to be saved in the future.

C&D Solicitors would rather advise you to make a will for your properties in Spain. This would be an early solution to the above mentioned problems.

“It is an unfortunate fact of life that eventually we all die. It is also unfortunate that no one can predict when that will be. It is because of these two certainties that you are never too young to make a Spanish Will.”

 

 

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

HAVE YOU ALREADY PLANNED YOUR INHERITANCE TAX?

HAVE YOU ALREADY PLANNED YOUR INHERITANCE TAX?

Residency avoids Andalucian inheritance tax
Residency avoids Andalucian inheritance tax

The Inheritance tax imposes taxes on an inheritance received because of death. This tax is paid after a person’s decease and the heir is the taxpayer legally bound to pay it. It shall be paid within the following 6 months since the person deceases. Here below we present an example in order to obtain a better understanding on this tax:

Mr. Smith deceased last January 2012; once he retired and sold his home in England in 2003, he moved together with his wife to Andalusia. Then, they bought a small semi-detached house with very nice views to the sea, which they enjoyed together for all these years.

After Mr. Smith’s decease, his wife initiated the testamentary procedures and she was surprised when she found out that she had to pay 15,490.82€ for the Inheritance tax when inheriting her husband’s estate.

Why did she have to pay such an amount?

Assessed value of the 50% of Mr. Smith’s property__125,000.00 €

Money in Mr. Smith’s current account____________10,000.00 €

Total amount of Mr. Smith’s estate______________135,000.00€

Mrs. Smith’s Inheritance tax payment total account: 135,000.00€ minus 15,956.87 € (reduction allowed because of the beneficiary’s relationship), equals 119,043.13€ (taxable income). According to the current assessment scale, the result is a total tax due of 15,490.82€. That is to say, the widow had to pay 13.01% of the estate total value awarded.

How could this payment have been reduced? First of all, Mr. and Mrs. Smith should have been registered as residents in the municipality of the Town Hall, called in Spain Padrón Municipal, when they bought their home because heirs are allowed to benefit from some tax reductions for Inheritance tax purposes when proving their residence in Andalusia for at least two years and a half during the last five years. A certificate of registration as a resident in the municipality is required to prove this fact.

If Mr. and Mrs. Smith had been registered as residents in the municipality, the widow would not have had to pay any Inheritance tax, because the heirs-residents in Andalusia next of kin of spouse are tax exempt from paying Inheritance tax when the value of the awarded estate does not exceed 175,000.00€, and the heirs pre-existing wealth is less than 402,678.11 €uros.

Apart from this tax exemption, other tax exemptions are applied, as for example, 99.99% reduction when the transferred home has constituted the habitual residence of the deceased. The certificate of registration as a resident in the municipality is required one more time to prove it.

In Spain, Inheritance tax is administrated and collected by regional governments, so that they establish their own regulations to be applied within their own region. In this case, the above mentioned tax exemptions are applicable in Andalusia.

Mr. Smith’s example has been presented above, because many of the foreign citizens who are resident in Spain declare in their Last Will that the survivor spouse inherits the whole of the deceased’s estate. Then, we wanted to provide a simple and practical example related to Inheritance Tax, taking into account that it is essential to make one’s will in Spain only for the estate placed in Spain in order to make the legal procedures easier.

In addition, the Inheritance Tax in Spain is considered a progressive tax; therefore, the higher the value of the inherited estate, the bigger the tax burden for the heir. Furthermore, the heirs’ degree of kinship may be also penalized, so that the deceased’s cousins or friends may pay more than his wife or children for the same awarded estate. For example, if the total value of the inheritance is 400,000.00€, the deceased’s wife or child non resident may pay 27%-28%  approximately of this amount for Inheritance Tax, that is, 112,000.00€; on the other hand, the deceased’s cousin or friend, resident or not resident in Andalusia, may pay the double—about 224,000.00€.

Some financial products, as Life Insurances, are very interesting in order to reduce the tax effect for heirs—pursuant to legal provisions, this type of products are firstly planned to pay the heir’s Inheritance tax and any residuary estate may become part of the heir’s estate.

A good tax planning is important to minimize the fiscal effects of the Inheritance tax. Most of the times, it is a question of looking at the figures and analyzing what is the most interesting decision depending on each particular case.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

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