# Inheritance tax



## Mouton (Mar 17, 2013)

Looking for some guidance on IHT. We have a property in Valencia region which probably sits under the radar of IHT if you take each spouse's 50% share valued at less than the 100000E threshold. But we have properties in the UK and a business in the UK which have a good bit of value. Most of the properties were likely to be sold with the proceeds remaining in a UK bank account, the business would probably be sold in the longer term, say 3-5 years. If we took residencia in Spain, would these other assets be taken into account for IHT calculations or would it only be the house in Spain. I am aware of the new law which requires nationals to declare all worldwide assets in excess of 50000E but can't seem to find any info on whether after declaring these, that these would or would not be frozen or liable to IHT, and am also aware of the recent changes to IHT in Valencia region. We will be taking some sort of advice from an Abogado and an accountant re. this but initial thoughts from others who know more would be most appreciated,


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## CapnBilly (Jun 7, 2011)

Mouton said:


> Looking for some guidance on IHT. We have a property in Valencia region which probably sits under the radar of IHT if you take each spouse's 50% share valued at less than the 100000E threshold. But we have properties in the UK and a business in the UK which have a good bit of value. Most of the properties were likely to be sold with the proceeds remaining in a UK bank account, the business would probably be sold in the longer term, say 3-5 years. If we took residencia in Spain, would these other assets be taken into account for IHT calculations or would it only be the house in Spain. I am aware of the new law which requires nationals to declare all worldwide assets in excess of 50000E but can't seem to find any info on whether after declaring these, that these would or would not be frozen or liable to IHT, and am also aware of the recent changes to IHT in Valencia region. We will be taking some sort of advice from an Abogado and an accountant re. this but initial thoughts from others who know more would be most appreciated,


It really depend who you leave them to. Spain has different rules to the UK, as I'm sure you know. In the UK, its the estate that pays the IHT, whereas in Spain, its the beneficiary, although, of course, your estate could also be liable to UK IHT.

So, if the beneficiary is resident in Spain (i.e your wife or children), then IHT will be due on any assets they inherit (both in Spain and the UK). If the beneficiary is resident in the UK, and the assets are in the UK, then no IHT is payable, but if the assets are in Spain, then IHT is payable in Spain. There could be a mix of assets and/or beneficaries, but the same rules would apply.


With regard to the Asset declaration, then the assets are not frozen, but they are all information, which can be used to confirm that they are subject to spanish taxation. This can be all sorts of things, such as income, rental income, capital gains whilst you are still alive, and inheritance tax when you pass them on. Of course, the declaration doesn't make them liable to these taxes, they are already liable, as soon as you become a tax resident, it just means you need to ensure you fully declare all your income, capital gains etc, 

With regard to allowances for IHT etc, this is my understanding of the current situation.

Note, this is a summary of my personal understanding of inheritance tax in general , and in Valencia in particular. You should seek professional advice for your own personal situation

Spanish beneficiaries of IHT are split into 4 groups
Group 1 is Children upto the age of 21
Group 2 is other children, spouses and parents i.e direct ascendants/descendants
Group 3 is close relatives such as brothers, sisters, aunts, uncles
Group 4 is the rest

There are national allowances and regional (i.e Valencia) allowances. National Allowances apply to non-residents, or if the region doesn't specify. Regional Allowances apply where the deceased and the beneficiary are both fiscally resident in the region. 

National allowances are 

Group 1 €15,996 plus €3990 per year under 21
Group 2 €15996
Group 3 €7996
Group 4 €0

So, if you leave assets in Spain to one of your children over 21 who is a UK resident, and they are worth €100,000, then they will pay IHT on €84,004. Conversely, if you receive an inheritance (worldwide) and you are a spanish fiscal resident, the above allowance apply, but also see the note below about increases based on your personal wealth.

The allowances in Valencia changed on the 6th August. Firstly the Allowances in Groups 1 and 2 increased from €40,000, and they are now €100,000. for each group plus €8,000 for every year under 21 upton a maximum of €156,000. There are no regional allowances for Groups 3 and 4.

So, excluding property, if your individual assets are worth €150,000, and you leave them to your spouse who lives with you, then prior to the 6th August the amount the amount taxable was €110,000. Prior to the change on the 6th August there was then relief of 99% on the taxable amount, so you paid IHT on €1100. However, this relief was reduced to 75% on the 6th August 2013 (but the allowance was increased from €40,000 to €100,000). So now, you would pay IHT on €12500. 

With regard to property, if you live in the property with the deceased (and have done so for 2 years prior to death), and are a spouse, parent or child, or relative over 65, then you receive relief of 95% upto €150,000 per qualifying person living there, providing you remain in the property for 5 years. 

The actual tax rates are staggered based on the taxable amount, and can be found here

Malaga Law Solicitors | Spanish inheritance tax | Inheritance in Spain

It can get more complicated if you are personally worth more than €2m, or you are Group 3 beneficiary, as there are then additional costs. For example in Group 3, the tax rates are increased by 58%, if your net worth is less than €400k. These are the multipliers in the table linked to above.


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## snikpoh (Nov 19, 2007)

Isn't it even more complicated than that if the UK Government decide that you are actually UK domiciled?

That is, even though you might be resident in Spain, the UK may have a claim for (UK) IHT on your assets as well as the Spanish taking (Spanish) IHT - also known as Succession Tax.


So, what I'm saying is, you need to be very careful and be able to prove that you are no longer connected with UK to avoid (UK) IHT. If you have property their then, in all likelihood, you will be considered UK Domiciled.


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## Mouton (Mar 17, 2013)

*Iht*

Thank you Billy for the heads up, its not so much as to who I/wife leaves the assets to, it was really the exposure to IHT of assets in the UK if we became residencia and it looks like you have answered the question fully. I take it that "any bank account balances, properties and the like" ie, incl businesses, shares, etc are all taken into the equation by Hacienda if a residencia dies, incls these held in the UK. If that is the case, then it looks like we will only be staying in Spain for about 5.1/2 months of the year and in the UK for the rest of the time. Its not worth the risk in burdening the other half with the IHT liability, so Spain loses out once again, as we will be spending our cash in the UK for day-to-day living etc. By the time I get nearer pension age (55 now, wife 49) maybe a good deal of it might be spent anyway, so could look at things again, but by that time it will all have changed again probably lol...Comments and info very valuable and much appreciated as always Sir.


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## CapnBilly (Jun 7, 2011)

snikpoh said:


> Isn't it even more complicated than that if the UK Government decide that you are actually UK domiciled?
> 
> That is, even though you might be resident in Spain, the UK may have a claim for (UK) IHT on your assets as well as the Spanish taking (Spanish) IHT - also known as Succession Tax.
> So, what I'm saying is, you need to be very careful and be able to prove that you are no longer connected with UK to avoid (UK) IHT. If you have property their then, in all likelihood, you will be considered UK Domiciled.


I thought I said that in the first sentence.



Mouton said:


> . I take it that "any bank account balances, properties and the like" ie, incl businesses, shares, etc are all taken into the equation by Hacienda if a residencia dies, incls these held in the UK. .


Fraid so, its all worlwide assets, and as I intimate later on, its assets that you inherit from someone else in the UK, which not a lot of people think about. So for example, if you are worth les than €400k, and you inherit from an uncle, then you get an allowance of€7k, and the tax is at the rates you often see quoted plus 58%. Horrendous.


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## Mouton (Mar 17, 2013)

*Iht*

Well in my case it would be the same as if I were in the UK, all to the wife.


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## extranjero (Nov 16, 2012)

Seems Spain is shooting itself in the foot! ex pats are hardly likely to be attracted here, when, on top of all Spain's other troubles, they are subjected to punitive and draconian taxes and no legal method without flaws, of avoiding them.


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## mrypg9 (Apr 26, 2008)

extranjero said:


> Seems Spain is shooting itself in the foot! ex pats are hardly likely to be attracted here, when, on top of all Spain's other troubles, they are subjected to punitive and draconian taxes and no legal method without flaws, of avoiding them.


Our fund manager has set up a perfectly legal investment scheme whereby whichever one of us survives will not be liable for any inheritance tax.

But we're talking capital here not property.


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## CapnBilly (Jun 7, 2011)

mrypg9 said:


> Our fund manager has set up a perfectly legal investment scheme whereby whichever one of us survives will not be liable for any inheritance tax.
> 
> But we're talking capital here not property.


If you can, its always advisable to try and set up your investments (particularly if they are liquid) so that IHT is avoided.


I agree with Extranjero that the costs are potentially draconian, but to be fair, they apply to all residents (not just expats). The issue really arises mainly because the system is different, and the culture is to spread assets around the family (partly because of the succession law) , rather than leaving them through the survivor.

Having said that, the system does need revising. There's too much invested with the regions. Murcia has just scrapped the 99% relief it gave on property, literally overnight, whilst Valencia has reduced the general relief from 99% to 75%, although they have increased the allowances as I posted earlier.


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## Mouton (Mar 17, 2013)

I have heard of these schemes but believe they are costly with regards to annual management fees and recording etc. The properties can be liquidated easily enough and probably the business too which just leaves the Spanish property, realistically valued at about 300000E. It looks like this needs further investigation. One of my friends did mention setting up a company as a vehicle to avoid similar IHT but I hear this isn't as easy or cost effective as its made out to be. Thank you once again for your post.


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## mrypg9 (Apr 26, 2008)

Mouton said:


> I have heard of these schemes but believe they are costly with regards to annual management fees and recording etc. The properties can be liquidated easily enough and probably the business too which just leaves the Spanish property, realistically valued at about 300000E. It looks like this needs further investigation. One of my friends did mention setting up a company as a vehicle to avoid similar IHT but I hear this isn't as easy or cost effective as its made out to be. Thank you once again for your post.


It's costing less than our previous fund manager who took a good £four figures for doing sod all and keeping too much on deposit!


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## Mouton (Mar 17, 2013)

Ah well, time to take stock I think, maybe some time in Spain, a bit less in Blighty and the rest round the world eh? Maybe UK not so bad after all, more trying to come here than leave now, not all of them EC either! Still young..ish at 55 and wife 49, things change all the time and if Spanish laws change as quick as they do nowadays, sometimes overnight lol, they might one time change for the better! I suppose I'm best to retire soon in UK and be a frequent visitor to Spain as can't afford to lose the Nil-rate IHT band between spouses, could cost me or my other half an arm (and may be a leg). What a shame! This will probably mean a sale of the property (in Spain) in a few years and a rental instead (of a smaller one) so no-one really wins here. And now they want you to prove that you have funds for medical care and other stuff to live in Spain? They should be rolling out the Red carpet to those that want to buy there! I love the country but can't afford to live there because of the tax implications to my wife (and vice versa) and others in my will.


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## extranjero (Nov 16, 2012)

Just to add insult to injury, I read today in the CBNews that if you try and be clever and remove large sums from your savings, before or after someone dies, The taxman will include those sums for IHT. You will also have to show bank balances for the last year so they can see what's been taken out;I think it's a case of take it out and hide it while you're in good health!


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## Mouton (Mar 17, 2013)

Oh my, it gets worse and worse, no residencia for us Mr Spain! We will be there well under the 183 days, summer mainly I suppose, until things settle down a bit then reassess our situation in a few years time. I can see why the airport was busier than usual last time, it was everyone fleeing the sinking ship...


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## gus-lopez (Jan 4, 2010)

extranjero said:


> Just to add insult to injury, I read today in the CBNews that if you try and be clever and remove large sums from your savings, before or after someone dies, The taxman will include those sums for IHT. You will also have to show bank balances for the last year so they can see what's been taken out;I think it's a case of take it out and hide it while you're in good health!


Just take it out & close the account.


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## gus-lopez (Jan 4, 2010)

Mouton said:


> They should be rolling out the Red carpet to those that want to buy there! I love the country but can't afford to live there because of the tax implications to my wife (and vice versa) and others in my will.


They are next door in Portugal. No tax for foreigners taking residency for 1st 5 years.


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## extranjero (Nov 16, 2012)

gus-lopez said:


> Just take it out & close the account.


What good will that do?
They will take into account all the money you have taken out, even if closed.
People who once thought they would spend the rest of their lives in Spain are now going back to the UK purely because of the IHT laws, and other tax laws, and those who were thinking of coming are put off, and who can blame them?


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## gus-lopez (Jan 4, 2010)

extranjero said:


> What good will that do?
> They will take into account all the money you have taken out, even if closed.
> People who once thought they would spend the rest of their lives in Spain are now going back to the UK purely because of the IHT laws, and other tax laws, and those who were thinking of coming are put off, and who can blame them?


I'm lost . Why would they know that you've closed the account. I've opened & closed accounts here & nothing has ever been said.
Many people are relinquishing their residents registration & carrying on exactly as before !


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## extranjero (Nov 16, 2012)

gus-lopez said:


> I'm lost . Why would they know that you've closed the account. I've opened & closed accounts here & nothing has ever been said.
> Many people are relinquishing their residents registration & carrying on exactly as before !


Then they are committing fraud!


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