Inheritance tax

Please can anyone explain as simply as possible the inheritance tax in Murcia for non residents. If a property is bought in my name will my partner have to pay on my death and how much (if the property is valued at 100,000 euros).

We are both getting on a bit so would it be better to buy it in our son's name? 

We would rather buy it in our names or one of our names as our son doesn't want the hassle, or is it a good idea to set up a company in order to buy - and what are the drawbacks?

We've tried reading up on Spanish inheritance tax but are none the wiser. So many Brits buy over here I'm wondering if I'm overthinking this and it's really quite straightforward and not as costly as it seems.

Would be very grateful for any advice.

Having unfortunately gone through the experience last year, I can give you some insight. As a non-resident in Murcia the tax free allowance of the estate is around 16K Euros only, The rest is taxable and depending on the relation to the deceased. So if married the tax rate is lower than if in a partnership (in which one is classed as friendly strangers). In our case there was a mortgage on the property and so the property value is net of the mortgage and then divided into two. The value of the property is not necessarily what one paid for it, but above the lower catastral value (in my case decided between notary and accountant. Here one has to be careful because the revised valuation of the share has an impact when coming to sell the property since too low a declaration may incur resultant capital gains tax.

Finally there is a small amount of "plus valua" tax which there is (was advised) potential to reclaim. In my case the biggest obstacle was that three months prior we had just bought a new car, and not being my name became part of the estate and hence deducted from the 16K allowance.

My final advice is go see a lawyer/accountant in advance. Always have a mortgage on the property to keep the net value low.

Kind regards

Juan

Thank you so much for replying and your advice, I'm sorry you have had to experience dealing with this.

i did hear of a gay couple   The property was inthe name of the much older one so he transferred the property to the younger partner   unfortunately  the younger man died first so there was not only the considerable cost of transferring the property into the younger partners name but also considerable  addition inheritance taxes 

With effect from Jan 1st 2018, the tax relief on inheritances between children and spouses in Murcia was raised to 99% in line with that in other regions.

All reductions are now available to non-residents as well as residents if they are EEA citizens. You will find many and varied comments on solicitors sites on the internet but many of them are now out of date. Murcia was 50% reduction, then 60% and these are often quoted but the rise to 99% is hard to find but there is this:

As of January 1st 2018, in Murcia, like in Andalucia, allowances up to 99% with regards to Inheritance Tax, if the one inheriting person is either parent, child or spouse of the deceased. (CAB Spain) and from Spanish solutions:

Very Im­port­ant News: With ef­fect from the 1st Janu­ary 2018, prop­erty own­ers in the Murcia re­gion are in a much bet­ter po­s­i­tion re­gard­ing in­her­it­ance and dona­tion tax.

In 2015 the re­gional gov­ern­ment ruled that there would be a dis­count of 50% to dona­tions and in­her­it­ance tax for spouses, chil­dren and par­ents ( tax­pay­ers in the group 2 cat­egory of tax­pay­ers ).

Sub­sequently, in Janu­ary 2017, they in­creased this to 60%. In the same law, a 99% dis­count was de­clared for be­ne­fi­ciar­ies who had large fam­il­ies (those with 5 or more chil­dren).

Last year the Re­gional As­sembly of the Murcian re­gion voted to agree a 99% discount on in­her­it­ance tax with ef­fect from 1st Janu­ary 2018 for spouses, chil­dren and par­ents. This is fant­astic news and was agreed due to the al­li­ance between the Pop­u­lar and Cit­izens polit­ical parties (PSOE and Po­demos voted against this).

And, due to EU rules, residents cannot be treated differently to non-residents so 

• When the deceased is non-resident in Spain, the heirs will be taxed by the inheritance rules of the Autonomous Community in which the properties representing the largest value of the estate are located.

The above is important because, prior to the EU ruling, only the national allowance of €16,000 was applied.

Thank you for that, Mariedav.

Just to be clear, if a holiday property in Murcia valued at 100,000 euros is in my name, when I die how much would my wife have to pay in inheritance tax. If we both die how much would our 2 sons have to pay?

None, or virtually none. 

House value is €100,000 and take off the national allowance of €16,000 so €84,000. The surviving spouse is taxed on half that so €42,000. Inheritance tax (call it 20% to make it easier) then €8,400 tax.

However, you now get a 99% reduction in that so €8316 leaving a tax bill of €84.  I doubt they'll even ask you for that.

The reason they don't scrap it is in case they want to change it later it's easier to change the rate rather than bring a new tax in again.

Same for your two children as the 99% reduction applies to children as well.

Note that each region levies a different rate. For example, it was 99% in Valencia but they have changed it to 75%. However, there is a much higher base rate than the €16,000 in the first place as in €100,000. So my house is valued at €200,000, hubby would pay on half that if I die and €100,000 which is the allowance so no tax to pay. 

If the house was 300,000 he would pay on 150,000 minus the 100,000 and then an allowance of 75% on the remaining 50,000 so 50,000 x 20% = €10,000 minus the 75% allowance would mean a tax bill of €7.500 but only if the property is worth over 200,000.

Of course, all these figures for Valencia could have changed and the ones for Murcia may (will) change in the future. But for now, and since Jan 1st this year, those are the figures.

Thank you so much for explaining that. 

The way we understood it was that we had to pay inheritance tax on 100,000 euros minus the 16,000 euros allowance which would have been quite a lot. So, it seems like I can buy the property in my name and not have to worry about a big inheritance tax bill .

Many thanks.

Sorry, I was assuming (wrongly) you'd be buying it in joint names. 

If your partner is not your spouse then he/she won't get that 99% allowance. Your children will but not a partner if you buy it in one name only.

If you buy it in your name only and gift it to your partner on your death, they will only get the national allowance and pay inheritance tax on the rest. Leave it to your children and they will get the full allowances.

Leave it to all three and they will pay one third of the tax due, in your childrens case nothing but in your partners case then 20% of 28,000 euro (one third of the value after the allowance) or 5600 euro.

Sorry for any confusion. .

Yes, we are married and we can put it in both our names if it's better?

In which case the surviving spouse would only be liable for tax on half the value as they already own half of it. And the tax relief is applicable to spouses, children and parents.

I should have made it clearer that we are married. Thank you for all the advice.

"due to EU rules, residents cannot be treated differently to non-residents"

And once UK citizens are no longer EU citizens? EU rules will no longer apply, so should we not be discussing what the rules for non-resident, non-EU members are? (Assuming the OP is British, that is)

Yes, we are British.

“And once UK citizens are no longer EU citizens? EU rules will no longer apply .......”

good point Roberto

The amount of inheritance tax paid by beneficiaries of a Spanish estate up to now has been the same for Spanish nationals and for non resident of Spain as long as the non-resident was indeed a resident in a country member of the European Union.

This was thanks to a sentence of the European Court of Justice that made it illegal for Spain to charge residents in any European country more than Spanish nationals. The sentence does not stop Spain from charging more inheritance tax to non European Union citizens.

When Brexit take place non-residents of Spain that are residents in Britain that inherit a property in Spain will not be entitled to claim any of the exemptions that are offered by each autonomous region of Spain which represent the major part of the exemptions and have a huge effect on inheritance tax. Presently these exemptions allow many close family members (spouse and descendants to not pay any inheritance tax in Spain)

Mariedav, what do you think the implications of the uk leaving the EU will be on inheritance tax?

Hello Eddie

No one knows for sure. But to be on the safe side when trying to make your calculations just strip out all the current exemptions.

I have no idea. My crystal ball appears to be a bit hazy on this one.

We could get "acquired" rights and keep to the EU rules even when we've left but, then again, we might not. 

The annoying thing, to me, is the way the UK government seems to be handling it all. More infighting among members of the same government than trying to get the best deal for the UK and its citizens. One month we get one story (the rights of EU and UK citizens living in another EU country will be protected) and then the next month the story changes (rights of UK and EU citizens could be at risk if no deal). Those vigorously fighting for a no deal and hard Brexit appear to be those millionaires (Gove, Bojo, JRM) for whom a no deal wouldn't matter a jot.

However, back to non-EU. There are thousands of non-EU citizens living in Spain, Russians, Americans and we have just had an Australian couple move into our community. They have to prove a higher income than EU citizens and have health insurance although, talking to a Russian guy who lives two doors away from me, his mother is a pensioner and she gets treatment through the Spanish NHS without insurance. Go figure.

The ruling on residents and non-residents was equalized by the ECJ a while back so both can claim the tax breaks. The ruling, though, did not mention how to treat non-EU citizens so they were not getting the tax breaks. This has been the subject of a Spanish supreme court debate for a couple of years and, in February this year, they came out with the ruling (from an official site)

the Judge­ment by the Span­ish Su­preme Court de­clares now that non-EEA and EEA cit­izens should be taxed the same, so the­or­et­ic­ally from now, non-EU res­id­ents re­ceiv­ing an in­her­it­ance or gift in Spain, should also get the tax breaks.

That looks rather promising and, when UK does leave the EU, we should still be able to get the inheritance tax allowances. 

Watch this space

I should have included a couple of links to confirm the inheritance tax for non-EU citizens.

Cuatrecasas

Osborne-Clarke

And there are loads on that ruling including other solicitors, CAB, property agencies etc. And all recent postings, not ones relating to the rules from 5 or 10 years ago.