Spanish Inheritance Tax

Inheritance  Tax. I have trying to find best way to address spanish inheritance tax as a non resident owner.

So far I have discovered that if house is in joint names with spouse,a surviving spouse will pay IHT on the 50% value of house he or she inherits,less an allowance of about 16000euros.If children exist they will pay IHT on the whole property value when second spouse expires!!

I have read that one way of addressing this is to make spanish will,and put future inheritors on deed ie children,but don't understand benefit of this. another suggestion is to 'Gift' the property to future inheritors before death but this will incur a capital gain tax.

This is a tax on inheritors unlike English IHT which is on 'the estate' and  my understanding is that in Spain inheritors cannot sell the inheritance to pay the tax bill. but have to find the means to pay.Any body have more information to help?

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HI Bob can I suggest you send a PM to Spanish Inquisition. The reason for putting children on the Deed (if they are over the age of 18) is that you are diluting the asset. There are taxes that will be incurred as in transfer tax of 7% on the value of the asset transferred. Whether that would open up a liability to any gift tax you need to confirm with a specialist such as Spanish Inquisition or your own lawyer. You are correct that there is no system of probate in Spain and succession tax is payable prior to sale of the asset. Maintaining the status quo, on first death and assuming the Deed is still jointly held with your wife you are correct that there is a liability on 50% of the asset (unlike the UK where there is spousal exemption). However assuming that one has left their 50% of the asset to children and succession tax has been paid and the property is still owned by the family then it is only the second 50% of the asset that is liable to succession tax because the first half has already been passed on.

Hope this helps

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There are many redutions of inheroitance tax for small patrimonies constitued basically by a house and some other goods. Inheritance Tax become almost inexistent under those circumnstances according to the regulations of many Autonomous Communities.

 

Maria L. de Castro

www.costaluzlawyers.es

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This message was last edited by JeansSis on 5/16/2007.

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Hi Janice what he is talking about is complex and I think he is making a sales pitch to do work that wont necessarily benefit said enquirer in the long term. Tax legislation is on the change here and Hacienda are gradually tightening the screws to limit ways of avoiding IHT. I will try and work something out during daylight hours to try to clarify. In yours and Chris' situation you each own 50% of the equity in your property (no such thing as joint tenancy here - you are tenants in common). Therefore on first death there is a potential IHT liability on 50% of any equity in the property. It is on a slidig scale subject to how large the asset. Massive difference here to the UK is that spousal exemption does not exist. In theory the liability cannot be met from the sale of the property - in practice I believe there is a way round this whereby the tax office can be satisfied simultaneously at the Notary at point of sale if it were to be necessary.

I am led to believe that if you dont tell Hacienda about the first death for 4 years then you escape the liability but if I recall previous threads you were happy with the lawyer you ultimately used so you might want to talk to them for clarity.

I will try and put a paper together on this but it will take some time I am no laywer and I will want to get my guy to check it out before I post it.

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This message was last edited by JeansSis on 5/16/2007.

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I do love your ankles you know

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According to the Andalusian Inheritance Tax Rules you would have:

1.-  A reduction of 15956,87 ove the payable  amount because of just being a spouse ( or similar, assimilated)
2.-  A reduction of the 95% of the payable amounts if the house was the habitual domicile of the originator
3.- A reduction of the 99´99 % of the payable amounts if  the house was the habitual domicile of originator and habitual domicile of the adquirer ( heir).

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Can anyone advise the rate of IHT currently payable on first death for a holiday home in joint names? Have heard various (horrendous) figures. As there is no inter spouse exemptions, I assume that IHT is due on 50% of the value of the property - is this right? We have no mortgage on the property to offset any liability.

Thank you.

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This message was last edited by JeansSis on 5/16/2007.

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Anniee it depends on the value of the estate. You are correct there is NO spousal exemption between husband and wife in Spain. You are deemed tenants in common. Thus you own 50% and husband or partner owns 50% of the equity in the property. The tax payable depends on the relationship to the deceased and is encumbent not on the estate but the recipient of the estate. There are regional differences but the first 15,956.87 as stated by Maria below is exempt from IHT. Yours is a holiday home not the prime residence and thus will not benefit from the exemptions below. In order to give more definite figures either talk with your lawyer or give more precise figures as the tax is calculated on a sliding scale and it depends where your holiday home is located.

Rgds

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Smiley - have pm'd you. Really appreciate your advice .  Many thanks.

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This message was last edited by JeansSis on 5/16/2007.

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Hi Janice

It's a bit of a minefield isn't it  - not a very upbeat subject either but one that for my kids sake have to tackle. Have just been studying the previous posts on this thread & have ended up more confused than ever!  Am tempted to ask "Where can I move to in Spain that will avoid IHT?" - but that seems a bit drastic! You would think that the rules would be the same throughout Spain, but obviously not .

One post mentioned transferring the property into the kids (or in your case your nieces) names before we 'pop our clogs'  - way in the future hopefully! - & as I trust my little 'cherubs'  this might be a way forward. Would this be a cheaper way of sorting things out do you think? Presumably there would be taxes to pay doing it this way as well & they would have to be over 18.

Tell you what, I much prefer your jokes thread to this one   - will have another attempt at getting pictures in the right places - was pretty chuffed I got one on at all being computer illiterate!

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Hi Annie it is always ground we cover with a client if they have kids over the age of 18 and good relationship. Whether the children should be incorporated on the Title Deed at time of purchase (assuming the timing is right). There would certainly be a transfer tax liability of 7% on the value of asset transferred - I think if checked with our legal bods if they look at this it needs to be effected in the way that it is a sale of the property. To be honest there is nothing to stipulate (I think) that the money cannot change hands in the UK. Obviously this would be difficult if resident but last year I had a client who purchased a property for 350k - 150k was paid under separate contract in the UK in £. Obviously rates had to be agreed etc - it did cause a couple of minor problems but nothing that couldnt be resolved. I guess forewarned is forearmed - borrow on the Spanish property - take the money back to the UK and invest it - at first death there is only the liability on the equity - reduce the IHT burden - use the dough invested in the UK to pay the tax. Then again there is all that mortgage interest to pay during the time of the mortgage debt - youre damned if you do and damned if you dont.

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This message was last edited by JeansSis on 5/16/2007.

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 It might be too big a leap of faith then Janice for you!! You don't want to return to Spain & find a 'se vende' sign up that you hadn't been consulted about!!!!!!!!

Smiley - think we will definitely have a look at putting the kids names on the deeds when they both are 'of age'. Thanks for your advice.

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Spanish IHT is Spanish IHT leave it to who you want - it's still liable. Leave it to me if you wish - I will pay the tax!

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This message was last edited by JeansSis on 5/16/2007.

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OOOOOOOOOOOOOOOOOOOHHHh Janice - consider it done! I will make it purr with contentment!! Mind you your pussy like you might not like a smoker!!

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