Inheritance Tax Laws

I was wondering if people are aware of the tax situation in Spain - and particularly Andalusia, concerning inheritance tax. Early this summer, my elderly mother died, leaving her house and a relatively small amount of savings to my sister and I. She was already in the process of selling her house and since it was in  the commuter belt not far from London it eventually went for a quite eye watering price. After taxes were paid in UK and probate was approved my sister and I were in the fortunate position of recieving something over 200 thousand pounds each - approx 300,000 euros. Since I have no private pension fund I began to think about ways of using this money to secure an income for my wife and I as we get older and move towards retirement as well as securing a legacy for our children.  I've lived in Spain for about 25 years and my life is here so my first thought was to transfer the money here and buy perhaps two good quality flats for rental. However, on investigating a little more about transferring funds, I had something of a shock: there is no double tax agreement between the UK and Spain, and I would be liable for the appropriate amount of tax here. I spoke to various accountants and tax advisors and discovered that I would have to pay the  sum of almost 60,000 euros, despite having already paid tax on my mother's estate in England. This is because there is an inheritance tax threshold of 175,000 euros in Spain - or to be more exact - in Andalusia - every region has a different arrangement. Up to that point you pay nothing, but in the peculiar way of things which is  unfortunately so typical of the Spanish legal/tax system, from that point onwards you have to pay around 20% of everything. Pity the poor soul who inherits 175,100...they lose aproximately 35,000 euros, whereas the person who inherits 174,900 is able to keep it all.  Anyway - my reaction to this was to say that in that case I wouldn't move the money to Spain. No dice - as a Spanish resident you have to inform the tax authorities of any income you have abroad and pay taxes on it here in Spain. You can always turn a blind eye and hope for the best but if by any chance Hacienda discover that you've recieved the income and not declared it you are liable for a very hefty fine. Since the authorities are increasingly going after people who rent out properties etc. and banks are now cross referencing information to cut out loopholes this is far more likely than it would have been a few years ago.  

I'm posting this here because given the price of houses in the UK I'm sure I can't be the only person in this situation and I was wondering if anyone else had suffered the same problem.  Obviously I'm aware that most people would be very glad to recieve the sum I shall be left with, and I'm no exception, but it does seem extraordinary that Andalusia can levy such a huge tax on money which has already been taxed and has been generated abroad. To add insult to injury I have to do all the work to prove how much I've recieved and have all the relevant paperwork - will, probate, etc. - translated by a sworn translator. Then I just wander into Hacienda one day (must be within 6 months of the death of the person concerned by the way) with a metaphorical suitcase with 60,000 euros in it and say "here you are"!  Seems extraordinary - please post if you've had a similar experience...     

This message was last edited by ufotour on 03/10/2015.

This message was last edited by ufotour on 03/10/2015.

This message was last edited by ufotour on 03/10/2015.

This message was last edited by ufotour on 03/10/2015.

ufortour:       ......  there is no double tax agreement between the UK and Spain ..........   I've lived in Spain for about 25 years  ...... ...........  despite having already paid tax on my mother's estate in England.

There are double taxation agreement between Spain and UK, which generally mean one cannot pay the same tax twice.

However, a person resident in Spain,  is liable in Spain (not UK) to pay tax on worldwide income.  Generally, that is all income except Goverment employee pensions (mititray. police, civila servants etc) and rental income from a property in say UK, which is liable to tax in UK and maybe a top-up tax in Spain, when it is, as it must, be declared in Spain.

As a resident in Spain you were subject to tax.on the inheritance.

I would consult HMRC as I believe, if you erroneously paid tax in UK, that should be recoverable.çç

Good Luck.

Sorry for your loss. I agree, the situation in Andalucia regarding this tax threshold point is absolutely disgusting and needs to be replaced by something more mature and fair, such as a tax credit which applies to all (as is in the UK, and also I believe, other parts of Spain!). Thankfully it appears that this is finally starting to receive the media attention it deserves.

I have a question though. Were you able to deduct the inheritance taxes paid on the estate from the money that you paid to the Hacienda? The taxes vary slightly (the UK tax is applied on the estate and the Spanish one is applied to the beneficiaries), and I'm unclear as to whether you are able to claim tax credits on this, as although you should be able to claim tax credits on "identical" taxes, I'm not sure these would be interpreted as such.

Hello The Line...as far as my accountant can make out (he's Spanish and had to research the matter himself), you are taxed on the amount that remains after taxes have been paid in the UK. In that sense it's not so much double taxation as extra taxation. As you say, the worst aspect of it all is the lack of an overall tax credit, and the fact that if you recieve anything over 175,000 you pay on the total sum seems completely unfair, especially, as I mentioned in my post, if you recieve an amount which is just over the threshold.

If there had been an overall credit I would probably have paid around 20 - 25,000, which is a fair bit but a lot easier to swallow.  60,000 just seems plain robbery on an inheritance from somebody who had nothing whatsoever to do with Spain.  

The other galling thing is that if I lived in Madrid for instance I wouldn't be paying a bean, since apparently the threshold there is 600,000! 

Andalusia, and I believe Galicia, have the highest levels of taxation for inheritance.

Ho hummm!

If you are Spanish tax resident and are also paying IHT tax in the UK:
You can deduct, from your Spanish IHT tax bill, the smaller of the following two amounts:

• a) The actual amount you have paid in the UK as IHT tax.
• b) The amount that those UK assets would pay for IHT in Spain.

Ufotour Quote  I agree, the situation in Andalucía regarding this tax threshold point is absolutely disgusting and needs to be replaced by something more mature and fair,

Sorry but I don’t see how one can say a law in any particular country is unfair because it is not the same as another country.   Example:-  In Spain I understand that any assets one has at the time getting married remain their assets and cannot be claimed by their spouse if they get divorced.  So that would make the law in UK unfair,  as there such assets can be divided.  

Sorry if one choose to live in a country then you are obliged to abide by the rules of that country .  If you don’t like it live somewhere else. 

I live in Spain, I cannot drive on the left because I am British and Irish, and they drive on the left in UK and Ireland.   

In UK I would get £10,000 tax allowance in Spain I get around 7,000 €.  It’s not unfair, it’s the way it is.

Hi johnx,

At what point did I say it was unfair because the law was not the same as in the UK?

The tax law in Andalucia is unfair for the following reasons:

1) It is inconsistent with the rest of Spain (compare this with the inheritance tax laws with pretty much any of the other autonomous communities and you'll see).

2) Most people (Spanish and us foreigners) do not "choose" to live in Andalucia per-se. They do so because they have things that tie them there work, family, home etc, and they cannot just "go back to where they came from".

3) The Andalucian government has chosen to slightly reduce income tax for the many, but heavily penalise the few (many of whom have lost far more than just a percentage of their inheritance). The reason for this is it is an election year, and sadly for most politicians, votes are more important than people.

In addition, to say "thats just the way it is" when something is blatently unfair doesn't help or improve anything in a society. In fact, if no ever complained and stood up for their rights, many of the rights and freedoms that we now take for granted in both British and Spanish societies would be impossible.

The line    At what point did I say it was unfair because the law was not the same as in the UK?

1) It is inconsistent with the rest of Spain (compare this with the inheritance tax laws with pretty much any of the other autonomous communities and you'll see).

I quoted Ufotour,  not you.  He/she said it was disgusting

Whilst  agree that from Region to Region the laws in Spain  are applied differently, that is because each Region is allowed to interpret some laws differently, but that is only permitted when the change is to the benefit of it’s citizens. Regions are not permitted make changes which disadvantage them.   Thus some regions get a better deal on some things than that laid down by central government.    That is why the IHT in some regions is more lenient than in others where the central law is applied.   That is why some regions have a more liberal interpretation of IHT than others.  So those who live say in Madrid Region are more fortunate with IHT  than those who live say in Andalucía.

 I did not say people who are dissatisfied should    'go back to where they came from.”   I said,  "Sorry if one choose to live in a country then you are obliged to abide by the rules of that country .  If you don’t like it live somewhere else." 

For example:   If want no IHT between spouses go to live in say the Madrid region or one of the other Regions which have made the rate nil or at least more favourable than central government  dictates as the maximum.  It not that in Andalucía we are worse off,  but that those living in some regions are belter off.

Spain has many variations in taxes ‘Vehicle circulation tax’ is one.  I pay much less I believe in Andalucía than I would if I lived in Madrid.

Hi Johnzx  I don't think I stated anywhere that it was disgusting;  that was in the comment by The Line.  I said it was unfair, largely because of the fact that as soon as you exceed the threshold, the threshold ceases to exist. Hence my comment: "Pity the poor soul who inherits 175,100...they lose aproximately 35,000 euros, whereas the person who inherits 174,900 is able to keep it all."

Say what you like - this seems to me to be completely illogical and grossly unfair. If the threshold was applied as in my opinion it should be, I would be paying something like 25,000 which is still a considerable sum, I'm sure you'd agree. 

As far as the rest of your comments are concerned, I don't think anyone decides on moving somewhere based on what the inheritance laws are - or perhaps some people do - but not me. When you're 30 years old and you move to Spain it's probably the last thing on your mind. 

All that I was remarking on is that it was a considerable shock to discover that Andalusia could levy such a huge amount of tax on an income that has nothing to do with the region at all and I was asking if anyone else had had a similar experience. 

I wouldn't be at all surprised if the majority of people knew nothing about it at all and simply didn't declare assets they've recieved from a foreign will because they didn't know they had to.

Petty bickering aside, this is an interesting issue for anyone (already tax resident, or thinking of becoming so in Spain) with elderly parents "back home", so good that it's being discussed.

As theline has said, "the UK tax is applied on the estate and the Spanish one is applied to the beneficiaries". Much as I dislike it, this says to me that there is technically no issue of double or extra taxation here. In the UK the deceased (or their estate anyway) has paid tax. The Spanish resident who happens to be a beneficiary of that net estate has NOT paid any tax yet. Under Spanish IHT, they're gonna have to. Sh1t happens.

Just another reason (along with tax thresholds, 720's etc. etc.) for new retirees to seriously consider whether moving to Spain lock stock is a good idea - and another example of how Spain is gradually killing the proverbial Golden Goose

As ufotour states, very few people do, or have the luxury of, moving to regions of lower tax regions as and when they want.

johnx, your example of the Vehicle circulation tax being lower in Andalucia than in Madrid might be right. But wouldn't it be fairer for all drivers in Andalucia to pay 20 euros more a year, than for thousands of people to have to reject inheritances (including family homes) because they cannot afford the associated taxes?

Marie, in your example, I believe the amount you could deduct from the Spanish IHT would amount to 0 euros, as the person hasn't paid the taxes themselves, rather the estate has...but I hope I'm wrong...

Hi Roberto - it is indeed an interesting issue and as you suggest, along with the 720,  it's probably something the vast majority of people know nothing or very little about...

The 720 rule could potentially affect huge numbers of people since it kicks when you own assets worth 50,000 euros as I understand it.

On the other hand - being devil's advocate - how exactly do the Spanish tax authorities know what the Brits are up to in the UK since their assets/bank accounts are not linked to any ID number?

When I opened my account a few years back in the UK I needed to provide my passport as ID. Not sure if they recorded the number on it though. Can't remember if I had to provide my NI number either, which could technically also be used to track people down.

Yeah - but passport numbers change every time you get a new one - my accounts are all at least 2 or 3 passports old...and as far as NI numbers are concerned - doubt if the spanish authorities even know what they are - I've certainly never been asked for mine in the 25 years I've been living here. 

ufo      On the other hand - being devil's advocate - how exactly do the Spanish tax authorities know what the Brits are up to in the UK since their assets/bank accounts are not linked to any ID number?

HMRC and Hacienda communicate,    passing info back and forth.  Big Brother is very much alive and well.

 Hi,

My 95 year old Nan has a property in Spain and a property in the UK. She has never been a Spainish resident, nor has she ever rented in the property out (we use it as a family holiday home). I am the sole heir to her estate.The property in Spain is probably worth 130k Euros (that's just a guess on my part). I am aware that I will be liable for Inhertiance Tax in the the UK over anything over £350k (which means I wont be laible for any). What will I be liable for, for her Spainish assets? Will they also take into account any of the UK assets bearing in mind she has never been resident.

Thanks for any advice.

clg1972:

If you will be liable of no IHT in the UK ( including the Spain asset), your Spain tax bill for the Spain property will make no benefit to you.

Taxes on Spain asset vary depending on where property is located

Hi clg 1972, sorry to say, if you are a Spanish resident, as far as I can see you will be potentially liable to pay tax in Spain on  both properties. The fact that your Nan has never been a resident  in Spain is irrelevant. My mother never lived here but I am paying tax here on the proceeds of her will in the UK. The amount you pay depends on where you live. If it's Andalusia you have to pay approx 20% of the value of her Uk propery if it's worth over 175k euros. The figures might be completely different if you live in Murcia or Alicante for example...

Hi clg 1972, sorry to say, if you are a Spanish resident, as far as I can see you will be potentially liable to pay tax in Spain on  both properties. The fact that your Nan has never been a resident  in Spain is irrelevant. My mother never lived here but I am paying tax here on the proceeds of her will in the UK. The amount you pay depends on where you live. If it's Andalusia you have to pay approx 20% of the value of her Uk propery if it's worth over 175k euros. The figures might be completely different if you live in Murcia or Alicante for example...

If you are a Spanish resident ( case in which you will be paying IHT tax by personal obligation against the real estate obligation which binds UK tax residents owning property in Spain),  as you will be paying noIHT for the UK property, you will have to pay for that here in Spain.