On 3rd September 2014 the European Court of Justice declared that the Spanish inheritance tax system is unlawful. It held that the system of treating residents differently to non-residents when it comes to inheritance tax is discriminatory and contrary to European law.
Most inheritance tax allowances and rates in Spain are regional. In Andalucia it works as follows:
From the amount inherited deduct the following exemptions/reductions according to the group a beneficiary falls into:
Group 1 & 2: €15,956 for spouse, children (including adopted, increased by €3,990 for each year under age 21 up to €47,858 max)
Group 3: €7,993 for step children, nephews and nieces, cousins, step parents, siblings
Group 4: €0 for other relatives or unrelated persons (this would include unmarried partners)
You will note that unlike the UK, only €15,956 passes between spouses tax free, the remainder is then taxable.
There is a vast difference between the State inheritance tax rules and the regional allowances. Several regions including Madrid, the Balearics, Valencia and Murcia have virtually no inheritance tax between spouses or between parents and children. Others, principally those with socialist administrations, have less generous allowances.
Lets first look at the different treatment of residents to non residents:
Andalucia allows a gift to a spouse, child or parent of up to €175,000 tax free. In addition a reduction from the local government is available on your main residence if you and your beneficiary are residents in Spain. 99.99% of the value of your house with a maximum of €122,606 per beneficiary and maximum pre-existing wealth per beneficiary of €402,678 and maximum received total inheritance of €175,000 (the reduction only applies to your main residence and you must have lived in it for at least 3 years. Also, the inheritors must be spouse, parent or children and undertake not to sell the property for 10 years or re-invest to buy their main residence). This is an all or nothing allowance so a gift of €176,000 would be taxable on the full amount.
As discussed above, to-date these allowances have only applied when both the deceased and the beneficiaries are officially resident in Spain. In the case of residents the tax rules of that particular region apply. If either the deceased or the beneficiary is non-resident then the State inheritance tax rules apply. This includes cases where Spanish residents receive an inheritance from outside of Spain.
This means that non-resident beneficiaries have often paid much more inheritance tax than residents would.
In an Official State Bulletin (BOE) on 28th November 2014 changes have been made to the existing inheritance tax law (Ley 29/1987, of 18th December 1987). As from 1st January 2015, the same allowances and deductions that apply to residents now apply to inheritances where either the deceased or beneficiaries are non-resident and also to the inheritance (by residents) of assets located outside of Spain. The allowance applied will be that of the autonomous region where the deceased had the majority of their assets.
This is very good news even for residents if one or more of their children or grandchildren who are beneficiaries in their Will is a non-resident of Spain. It means that in many cases Wills can be restructured to reduce or even eliminate Spanish succession tax. Non-resident children, grandchildren and parents can be added to Wills as beneficiaries and each will be entitled to the €175,000 allowance. Sadly it does not apply to residents of non-EU countries regardless of nationality.
What do you need to do?
We work closely with a UK solicitor who is a partner in a Spanish Law firm based in Malaga. In the first instance, I recommend that you take advantage of our free financial review service to ensure that your inheritance tax planning is meeting both the requirements of Spanish Law and ensuring that your beneficiaries are not left exposed to unnecessary tax on your death. With professional advice the reductions can be utilised so as to significantly lower or eliminate the inheritance tax burden completely.
Speed Financial Solutions are the highest qualified financial services company on the Costa del Sol. We pride ourselves in reducing the inheritance tax liability for both residents and non residents of Spain who have Spanish assets (usually a holiday home in the sun) subject of course to individual needs and objectives.
Please take a look at our website – www.speedfinancialsolutions.com for further information and contact us (Tel 951 315 271 or 951 318 529) – we are happy to discuss your own situation in more detail. One of our advisers will be happy to spend some time with you either in your home or at our office to explain and go through your options, so do call to make an appointment.
Andrea J Speed DipPFS (DM), M.A. Principal Speed Financial Solutions 3 June 2015