# inheritance tax



## hissyfits (May 5, 2013)

Am I correct in thinking (it sounds absurd) that if my husband and I buy a Spanish property as a holiday home and one of us should die, the surviving partner is hit with inheritance tax? Then when the remaining partner dies our children are then further hit with inheritance tax?


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## gus-lopez (Jan 4, 2010)

There are allowances in some regions that usually reduce it between couples to zero, although Murcia , where I live , has just removed this along with Valencia (?) . Yes the children will have to pay.& you can't 'gift' it to them either as the tax is the same. You couid buy in the childrens names from the outset though.


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## Aron (Apr 30, 2013)

hissyfits said:


> Am I correct in thinking (it sounds absurd) that if my husband and I buy a Spanish property as a holiday home and one of us should die, the surviving partner is hit with inheritance tax? Then when the remaining partner dies our children are then further hit with inheritance tax?


You could add the children on the deeds of the house and provided you live for longer than the required years, they would have no inheritance tax on their share of the property


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## CapnBilly (Jun 7, 2011)

gus-lopez said:


> There are allowances in some regions that usually reduce it between couples to zero, although Murcia , where I live , has just removed this along with Valencia (?) . Yes the children will have to pay.& you can't 'gift' it to them either as the tax is the same. You couid buy in the childrens names from the outset though.


Actually the alowances in Valencia were increased ( from €40k to €100k), altlhough the relief on the amount in excess over the allowance was reduced from 99% to 75 %. Unfortunately, all the regional allowances are only available to residents of the region. The EU have told Spain the regional allowances are discriminatory, against spanish as well as non-residents. So at some stage this may change. The national allowances are a joke.


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## gus-lopez (Jan 4, 2010)

CapnBilly said:


> Actually the alowances in Valencia were increased ( from €40k to €100k), altlhough the relief on the amount in excess over the allowance was reduced from 99% to 75 %. Unfortunately, all the regional allowances are only available to residents of the region. The EU have told Spain the regional allowances are discriminatory, against spanish as well as non-residents. So at some stage this may change. The national allowances are a joke.


You normally have to wait until the EU issues it's final warning & are on the point of issuing multi-million fines before anything happens though. 

Gus the cynical .


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## davexf (Jan 26, 2009)

hissyfits said:


> Am I correct in thinking (it sounds absurd) that if my husband and I buy a Spanish property as a holiday home and one of us should die, the surviving partner is hit with inheritance tax? Then when the remaining partner dies our children are then further hit with inheritance tax?


Hola

As has been said, buy in your children´s names, or add them into the deeds (escritura) to reduce the tax; in one extreme case I know over twenty people turned up to sell the house - they were all on the deeds !!! 

My children own my house, and I am on paper, a pauper; so when I die there should be no taxes due. But you have to trust your children are stable. There is also an usufructo - the right to live in a property until you die. 

Davexf


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## Lonely (Aug 11, 2012)

Best solution: create an offshore family trust, put the house in it and you pay zero tax.


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## Lonely (Aug 11, 2012)

It is important for anyone who owns property in Spain, or other Spanish assets, to familiarise themselves with Spanish succession tax on inheritances. It is different from UK inheritance tax and has a real top rate of nearly 82%! It is payable if the beneficiary resides in Spain or the asset being passed on is in Spain.



Inheritance tax in Spain
The most significant difference between UK inheritance tax and Spanish succession tax is that, unlike in the UK, in Spain there is no exemption between husband and wife. So, if you live in Spain with your spouse, on the first death the survivor can be liable for Spanish succession tax on worldwide assets.

In some of the seventeen Autonomous Regions in Spain there is a trend towards increasing the relief or abolishing succession tax between spouses and direct line relatives. The rules vary from region to region and will depend on certain conditions being met. Where the regional rules are not yet set or not met, the state rules will apply. The state rules also apply where the deceased is not resident in Spain – in other words, if you own property in Spain but do not live there, your heirs will be faced with the state rules regardless of what the rates and rules may be in the area your property is located.

There has been quite a bit of hype about the proposed changes to this tax but in fact it still has a long way to go and often amounts to less than expected. So far, only Andalucia and Murcia have introduced significant new reliefs and even then many people will not benefit because they do not meet all the requirements or because their taxable assets amount to more than the ceilings.

You therefore need to be familiar with the rules in the area where you are thinking of buying or have already bought. If there has been talk of new rules in the area but nothing concrete has happened yet, it may be wise not to assume too much, and to stick to estate planning with the existing rules in mind.

The state rules

The tax rates differ depending on the value of the amount inherited. These range from 7.65% on the first €7,933, up to 34% on €797,555 and over. Beneficiaries are graded into four different groups and the more remote the beneficiary’s relationship is to the deceased the lower the tax allowance and the higher the tax rates.

The four groups are:

Group 1 - natural and adopted children under 21

Group 2 - natural and adopted children aged 21 and over; grandchildren; parents; grandparents; spouses; unmarried partners registered as a pareja de hecho (registered couple) in Andalucía or Cataluña

Group 3 – in-laws and their ascendants/descendants; stepchildren; cousins; nieces/nephews; uncles/aunts

Group 4 – all others including unmarried partners unless registered under pareja de hecho

There is an allowance available between husband and wife, or direct line descendants and ascendants, which is a little under €16,000 – very low if you own Spanish property!

If an inheritor is a direct line descendant under the age of 21, there is an additional deduction of €3,990 for each year they are under 21. The total deduction is restricted to €47,858 per child or grandchild.

For more distant relatives (e.g. those in Group 3) the exemption is €7,933. There is no exemption for beneficiaries who are not related, including unmarried couples unless they can be registered.

A main home in Spain may be virtually exempt from Spanish succession tax provided the beneficiaries are either your spouse, parents or children and they continue to own the property for ten years from the date of death. The exemption can also apply where the beneficiary is a more distant relative over the age of 65 and they have lived with you for at least two years before death.

Assuming that all the conditions are met, the value of the house can be reduced by 95% in calculating the tax base liable to succession tax, subject to a maximum reduction in value per inheritor of €122,606. This only applies to a principal private residence owned by a Spanish resident.

As mentioned there can be variations from the State rules in the different Regions.

UK inheritance tax

Even if you move to live in Spain you are still likely to be ‘UK domiciled’ and therefore liable to UK inheritance tax on your worldwide assets. Domicile is a longer term concept than residency and more akin to a person ‘belonging’ to a country. It is largely dependent on your father’s country of origin, but can be varied through life. To prove that you are not UK domiciled you need to have cut all ties with the UK and firmly put down roots in your new country of abode.

For anyone living in Spain who is UK domiciled, there is an inheritance tax liability in both countries. However, any tax paid in Spain can be offset against tax due in the UK and vice versa. If inheritance tax is paid in the UK and is higher than the Spanish succession tax liability, you will not receive a refund of the difference.

Spanish succession tax can be reduced if a ‘usufruct’ is created whereby a surviving spouse is left a ‘life interest’ in the property rather than the deceased’s half of the property outright.

To mitigate your succession tax further you might set up an offshore discretionary trust which can in the right circumstances protect your assets from inheritance tax both in Spain and the UK. Once you have lived in Spain for three years with the intention of staying there indefinitely and to shed your UK domicile status, a ‘Golden Trust’ can be set up where assets are outside of the estate for both Spanish and UK inheritance tax purposes, whilst you continue to benefit within your lifetime and your spouse’s. If eventually either of you return to the UK to live, the assets remain outside your estate indefinitely for the benefit of all your beneficiaries.

Inheritance tax can be a crushing tax wherever you live. It can have devastating effects on inheritors already in grief. To avoid your beneficiaries from having to suffer the consequences of bad planning or no planning at all, if and when you move to Spain, or you own property in Spain, forward planning is the answer.


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## CapnBilly (Jun 7, 2011)

There is some good information in here, but some of it is not quite right.


Lonely said:


> In some of the seventeen Autonomous Regions in Spain there is a trend towards increasing the relief or abolishing succession tax between spouses and direct line relatives. The rules vary from region to region and will depend on certain conditions being met. Where the regional rules are not yet set or not met, the state rules will apply. The state rules also apply where the deceased is not resident in Spain &#150; in other words, if you own property in Spain but do not live there, your heirs will be faced with the state rules regardless of what the rates and rules may be in the area your property is located. There has been quite a bit of hype about the proposed changes to this tax but in fact it still has a long way to go and often amounts to less than expected. So far, only Andalucia and Murcia have introduced significant new reliefs and even then many people will not benefit because they do not meet all the requirements or because their taxable assets amount to more than the ceilings.


 Valencia also introduced significant relief some years ago, that, as I posted above was changed again in August 2013. Murcia, as Gus posted abolished the reliefs mentioned above, I think in July 2013. There was talk of Andalucia doing the same.


Lonely said:


> I For anyone living in Spain who is UK domiciled, there is an inheritance tax liability in both countries. However, any tax paid in Spain can be offset against tax due in the UK and vice versa. If inheritance tax is paid in the UK and is higher than the Spanish succession tax liability, you will not receive a refund of the difference.


 Although it is reported that you can offset inheritance tax paid in one country against tax due in another, it is not actually covered by the DTA between Spain and the UK. In addition, it is, of course, calculated in a completely different way.


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## extranjero (Nov 16, 2012)

IHT allowances varying wildly between autonomous states is a huge injustice.There should be one level set by the state at eg 300,000 euros ensuring only the wealthy pay.
This is a major reason why more ex pats are going back to the UK, to the detriment of Spain's economy-Can't they see they are shooting themselves in the foot?
If someone was widowed in Murcia, how on earth could she pay the huge sum?
It is also unfair that if you do have an allowance and are 1 cent over you have to pay IHT on the whole lot not just the excess.

Leaving the house to the children, or putting it in their names is not, for most people the answer as it takes away control and finances from the surviving spouse that they need to plan their life. 
Neither does putting the house into a UK company appeal to most.
What is needed is a fair system, not one which requires complicated means to avoid the tax.


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## hissyfits (May 5, 2013)

Thank you everyone for your contributions. It is definitely a negative when considering purchasing in Spain and confusing to those of us researching the implications of Inheritance Tax when it differs from area to area.


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## extranjero (Nov 16, 2012)

I read today that the inheritance and succession laws are discriminatory to both residents and non residents, and they are being challenged in the EU. courts Let's hope it's resolved soon. Can you imagine the horrendous tax bill for the survivor of someone who dies in Murcia, and has only the state allowance of just under 16,000 euros to offset against an ITH bill of eg 250,000 euros, the sum of half the house and lifetime savings of the deceased. For most it would be impossible to pay.


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## CapnBilly (Jun 7, 2011)

Thats always been the case, it should just be a matter of time before Spain has to do something about it.


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## Lonely (Aug 11, 2012)

extranjero said:


> I read today that the inheritance and succession laws are discriminatory to both residents and non residents, and they are being challenged in the EU. courts Let's hope it's resolved soon. Can you imagine the horrendous tax bill for the survivor of someone who dies in Murcia, and has only the state allowance of just under 16,000 euros to offset against an ITH bill of eg 250,000 euros, the sum of half the house and lifetime savings of the deceased. For most it would be impossible to pay.


again?

YOU NEED AN OFFSHORE FAMILY TRUST!


:deadhorse:


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## extranjero (Nov 16, 2012)

Lonely said:


> again?
> 
> YOU NEED AN OFFSHORE FAMILY TRUST!
> 
> ...


If this is the answer, why isn't everybody doing it?Why are other alternatives, which all have drawbacks, always suggested?
Perhaps you would inform us about it, pros and cons etc
Is it true that Spain does not recognise family trusts?


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## mrypg9 (Apr 26, 2008)

extranjero said:


> *If this is the answer, why isn't everybody doing it?*Why are other alternatives, which all have drawbacks, always suggested?
> Perhaps you would inform us about it, pros and cons etc
> Is it true that Spain does not recognise family trusts?


Well, quite.

Frankly, I think the idea of setting up an offshore trust to avoid inheritance tax on a piso or adosado or even a house is ridiculous, unless the property is worth millions of euros. Even then I'd grit my teeth and bow to the inevitable....it's part of the price you pay for lliving in Spain. I owned property in Canada and paid what I thought was an extortionate amount of tax on the profit I made when I sold ...but it's the rules.

Our accountant has managed our assets in a legal and straightforward way so the surviving one of us will not be hit by taxes...but we no longer own property so maybe it's easier when property as such isn't involved..

Incidentally, of all the people I know who are returning or have returned to the UK, none of them is doing so because of IHT. The reason for nearly all is that they simply didn't do their sums when they left the UK and find their resources no longer give them the 'dream' lifestyle they aspired to.


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## Lonely (Aug 11, 2012)

extranjero said:


> If this is the answer, why isn't everybody doing it?Why are other alternatives, which all have drawbacks, always suggested?
> Perhaps you would inform us about it, pros and cons etc
> Is it true that Spain does not recognise family trusts?


Because most people don't plan ahead.

If you plan ahead, there are legal ways to reduce taxes.


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## Lonely (Aug 11, 2012)

Reduce IHT - Spanish Inheritance tax | Spanish Solicitors Spanish Lawyers


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## CapnBilly (Jun 7, 2011)

So, just to be clear, the "offshore family trust" you recommend is based on this site.

In the example given, the cost of setting this up is around €39k, plus €6k a year ongoing costs. 
The inheritance tax and costs payable is about the same as the setting up costs, so I can't see the benefits in that at all. Even if you planned ahead, and put the property in the sons name originally, it starts to cost money after 6 years. I would guess if the property is a much higher value, it might make sense.


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## mrypg9 (Apr 26, 2008)

CapnBilly said:


> So, just to be clear, the "offshore family trust" you recommend is based on this site.
> 
> In the example given, the cost of setting this up is around €39k, plus €6k a year ongoing costs.
> The inheritance tax and costs payable is about the same as the setting up costs, so I can't see the benefits in that at all. Even if you planned ahead, and put the property in the sons name originally, it starts to cost money after 6 years. I would guess if the property is a much higher value, it might make sense.


That's how I see it. The average British immigrant in Spain isn't in the £millions league and I'm guessing most own property under €500k. In some areas you can buy a substantial property for around€200k or less.

But people with real wealth usually pay tax lawyers or expensive accountants to handle their assets. No DIY jobs via internet sites.


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## mrypg9 (Apr 26, 2008)

CapnBilly said:


> So, just to be clear, the "offshore family trust" you recommend is based on this site.
> 
> In the example given, the cost of setting this up is around €39k, plus €6k a year ongoing costs.
> The inheritance tax and costs payable is about the same as the setting up costs, so I can't see the benefits in that at all. Even if you planned ahead, and put the property in the sons name originally, it starts to cost money after 6 years. I would guess if the property is a much higher value, it might make sense.


That's how I see it. The average British immigrant in Spain isn't in the £millions league and I'm guessing most own property under €500k. In some areas you can buy a substantial property for around€200k or less.

But people with real wealth usually pay tax lawyers or expensive accountants to handle their assets. No DIY jobs via internet sites.


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## extranjero (Nov 16, 2012)

Lonely said:


> again?
> 
> YOU NEED AN OFFSHORE FAMILY TRUST!
> 
> ...


obviously not, if the other posts are anything to go by!


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## Lonely (Aug 11, 2012)

CapnBilly said:


> So, just to be clear, the "offshore family trust" you recommend is based on this site.
> 
> In the example given, the cost of setting this up is around €39k, plus €6k a year ongoing costs.
> The inheritance tax and costs payable is about the same as the setting up costs, so I can't see the benefits in that at all. Even if you planned ahead, and put the property in the sons name originally, it starts to cost money after 6 years. I would guess if the property is a much higher value, it might make sense.


That's correct.


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## extranjero (Nov 16, 2012)

Lonely said:


> That's correct.


So a trust is not appropriate for the majority of folks, I would guess, so why suggest it?
Is there an answer to avoiding IHT, that doesn't have significant advantages?
Until this horrible tax is reviewed it will always be a nightmare, especially if regions continue to abolish the allowances.
People may not give it as a reason for moving back to the UK, because I bet many of them do not know or understand the implications of it;Is anyone really happy to lose years of savings by giving them to the Spanish tax office in IHT, for the pleasure of living in Spain?


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## mrypg9 (Apr 26, 2008)

extranjero said:


> So a trust is not appropriate for the majority of folks, I would guess, so why suggest it?
> Is there an answer to avoiding IHT, that doesn't have significant advantages?
> Until this horrible tax is reviewed it will always be a nightmare, especially if regions continue to abolish the allowances.
> People may not give it as a reason for moving back to the UK, because I bet many of them do not know or understand the implications of it;Is anyone really happy to lose years of savings by giving them to the Spanish tax office in IHT, for the pleasure of living in Spain?



The answer to your last question is: it depends.
Between us, OH and I have lived and worked in several very different countries over our lifetimes. In each there was a price to be paid of one kind or another, sometimes involving fairly large amounts of money, sometimes small sums.

In our case, had we purchased property here we would have accepted IHT as a price worth paying. My son in no way needs any inheritance from us and we have no intention of returning to the UK as we are able to live comfortably but unostentatiously here. 

Others in different circumstances might feel differently, of course. Tbh, we were so keen to leave the rat race and get out o the UK that we were prepared to take the first offer for our properties...again, losing many £tens of thousands we'd have probavly got had we left them on the market longer. My OH put a house she inherited on the market at 09.00 with an estate agent...on the way to Gibraltar at around 11.00 the agent called, said an offer had been made..OH said 'It's a deal!'
She just wanted shot of it with no hassle.

Horses for courses....

But it does seem simpler to avoid IHT on investments in stocks and shares rather than with property.


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