What you need to know about   Inheritance   In SpainInheritance Tax Overview     www.myadvocatespain.com
Legal Note - It should be remembered that the application of Spanish law varies considerably according to region and the c...
•    tax exemptions                  •    tax rates                  •    the wealth of the beneficiary                  •...
Group DefinitionsFor the purposes of determining the proximity of a relationship to the deceased, the legislation dealingw...
Tax Exemptions – Regional LevelAs previously stated, additional deductions are available for those who are resident in the...
Valencia Region (Includes Alicante)                        Concept                            Reductions Permitted        ...
Canary Islands                        Concept                             Reductions Permitted                 Group I: de...
Tax RatesThe tax rate to apply increases as the amount inherited increases according to the scale published byeach autonom...
The wealth of the beneficiaryOnce the net amount of tax to be paid has been calculated it is multiplied by a coefficient w...
Process for payment of inheritance tax in SpainA time-limit is established for the payment of inheritance taxes in Spain, ...
•   List of costs of funeral and support through final illness of deceased                  •   If Life Insurance then Cer...
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Inheritance tax overview

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Inheritance tax overview

  1. 1. What you need to know about Inheritance In SpainInheritance Tax Overview www.myadvocatespain.com
  2. 2. Legal Note - It should be remembered that the application of Spanish law varies considerably according to region and the circumstancesof each individual and so this report can be treated as a general guide only and not as a substitute for qualified legal advice regarding anyparticular situation. Responsibility for acting on foot of this guide alone is entirely personal and no liability can be accepted bymyAdvocate Spain. To get advice on your specific situation from expert legal practitioners in Spain please see the end of the guide. Claiming an inheritance in Spain: An overview of Inheritance TaxIn Spain it is a standard practice to apply the law of a persons nationality to any wills made with regardto their Spanish assets. However, this does not mean that inheritance tax is also determined in this way.It has long been held that Spanish inheritance tax must be paid in Spain where Spanish assets areinvolved. It is therefore important to understand how these laws operate as they can have a seriouseconomic impact on a familys wealth. In fact, it is not until any inheritance tax liability has been paidthat it will be possible to sell or deal with the assets in any meaningful way. How is Spanish inheritance tax applied?Inheritance tax is payable on all bequests of assets including property, vehicles, cash, shares, bonds aswell as on any cash paid out by the maturity of a life insurance policy held by the deceased to thebenefit of the beneficiary.The amount payable is the net amount after deductible costs and charges. These would include anydebts owed by the deceased at the time of death including a mortgage or tax or social security debts(not included would be debts owed to any of the beneficiaries even though they chose to turn down thebequest); health care expenses (dealing with a serious or terminal illness before death for example);funeral costs. Factors that determine Spanish inheritance taxThe first major difference between Spanish inheritance tax and elsewhere is that in Spain the taxpayable is determined with reference to the heir or beneficiary rather than merely considering the sizeof the estate itself.Whereas in the UK inheritance tax is only payable where the threshold (currently £325,000) isexceeded and there is no need to consider any other factor if the estate is valued below this, in Spainthe following factors are important: 1
  3. 3. • tax exemptions • tax rates • the wealth of the beneficiary • the proximity of the relation between testator and beneficiaryIt should be pointed out that, at a state level, no exemption exists for spouses as is the case in othercountries. A couple would be considered to own half of a property each. Upon the death of one of thespouses the surviving spouse is considered to have inherited the other half (if this is provided for in thewill).Each of the relevant factors will now be considered in turn. Tax Exemptions – State LevelInheritance tax has been effectively delegated by the central government to the autonomouscommunities in Spain which has allowed the regional governments to set the exemptions that can beclaimed by beneficiaries. However, it is important to note that many of the Spanish regions haveenacted legislation which requires residency in the area to benefit form the exemptions.This obviously prejudicially affects those who are ordinarily non-resident such as foreign nationalswith property and their non-resident heirs. The legislation has caused a great deal of confusion and hasin fact been condemned by the European Commission who have informed the Spanish government thatthe legislation must be changed. The standard response to this has been that the rules discriminateequally against non-resident Spanish as well as other community nationals and so is not discriminatory– at least as between European community nationals. It remains to be seen how the Spanishgovernment will respond to the European Commission.Before looking at the regional exemptions we can look at the exemptions available from the centralgovernment and which apply regardless of whether resident or not. For transfer of assets viainheritance, the following exemptions apply Group Deduction €15,956.87, plus €3,990.72 for each year under the age of 21 years, Group I up to a max. deduction of €47,858.59. Group II €15,956.87 Group III €7,993.46 Group IV No deductions available 2
  4. 4. Group DefinitionsFor the purposes of determining the proximity of a relationship to the deceased, the legislation dealingwith Gift and Inheritance Tax in Spain (Ley 29/1987) considers there to be four categories or groups:Group I – Children, including adopted children, under the age of 21Group II – All other children, spouses and parentsGroup III – close relatives such as brothers and sisters, grandparents, aunts and unclesGroup IV – more distant relativesExampleA 16 year old child who inherits from her parents falls into Group I and so may claim an exemption of€15,956.87 + (€3,990.72 * 5) = €19,953.60 to give a total exemption of €35,910.47.In addition to the above exemptions, should any beneficiary be disabled, further exemptions rangingbetween €47,858.59 and €150,253.03If the deceased took out a life insurance policy in favour of a beneficiary there is an exemption up tothe value of €9,159.49 where the beneficiary is a spouse, child or parentAn exemption also exists for tax payable on the permanent or habitual residence. This exemptionapplies equally to spouses, children and parents of the deceased at a rate of 95% of the value of theirinherited portion of the property up to a maximum value of €122,606.47 each. An important provisoexists in that the property may not be sold for a period of 10 years after the inheritance.Other relatives further removed, may also benefit from this exemption but must have been living withthe deceased in the property for a period of at least two years prior to the date of death.The state laws regarding succession normally apply to those who are non-resident but who inheritassets in Spain. Whether or not these laws apply depend upon the specific circumstances of eachindividual situation which would need to be examined by a lawyer expert in the application of regionaltax laws. 3
  5. 5. Tax Exemptions – Regional LevelAs previously stated, additional deductions are available for those who are resident in the relevantautonomous community. Normally the requirement is that the testator has been habitually resident inthe region for five years while the requirement regarding the beneficiary vary.We will look at some of the reductions available in the regions more popular with foreign residents:Andalucia Concept Reductions Permitted Group I: descendants A 100% exemption where the estate is valued at less than under age of 21 €175,000 and the pre-existing wealth of the beneficiary is including adopted less than €402,678.11 children Group II: descendants A 100% exemption where the estate is valued at less than over 21 years of age €175,000 and the pre-existing wealth of the beneficiary is spouse, parents less than €402,678.11 Group III relatives No exemptions specified Inheritance of the 99.99% exemption as long as rules established are primary residence followed An exemption of between €120,000 and €240,000 Disabled Beneficiaries depending on extent of disability. If over 75 years of age an exemption of €275,000 Life Insurance Policy in favour of spouse, No exemptions specified parents or descendants Exemption for 95% exemption where business is inherited by certain inheritance of the relatives family business 4
  6. 6. Valencia Region (Includes Alicante) Concept Reductions Permitted Group I: descendants Exemption of €40,000 + €8,000 per year for those under under age of 21 21 years of age with a further exemption of 99% of value including adopted of estate where resident in Valencia Community children Group II: descendants Exemption of €40,000 with a further exemption of 99% over 21 years of age of value of estate where resident in Valencia Community spouse, parents Group III relatives No exemptions specified Inheritance of the No exemptions specified primary residence An exemption of between €120,000 and €240,000 Disabled Beneficiaries depending on extent of disability. If over 75 years of age an exemption of €275,000 Life Insurance Policy in favour of spouse, No exemptions specified parents or descendants Exemption for 95% exemption where business is inherited by certain inheritance of the relatives family businessCataluña Concept Reductions Permitted Group I: descendants Exemption of €171,875 + €20,265 per year for those under age of 21 under 21 years of age with a maximum exemption of including adopted €336,875 children Group II: descendants Spouse has an exemption of €312,500; children €171,875; over 21 years of age other descendants €93,750; parents €62,500; cohabitants spouse, parents (as legally defined) €93,750 Group III relatives Exemption of €31,250 Inheritance of the An exemption of 95% up to €500,000 depending on primary residence proximity of relation with beneficiary A exemption of between €275,000 and €650,000 Disabled Beneficiaries depending on extent of disability. If over 75 years of age an exemption of €275,000 Life Insurance Policy in favour of spouse, A 100% exemption up to a value of €25,000 parents or descendants Exemption for 95% exemption where business is inherited by certain inheritance of the relatives esp. children of deceased family business 5
  7. 7. Canary Islands Concept Reductions Permitted Group I: descendants Exemption of €18,500 plus €4,600 per year under the age under age of 21 of 21. 100% exemption for children under the age of 18 including adopted up to a maximum of €1m. A further reduction of 99.9% children for this group if residents for 5 years. Group II: descendants Exemption of €18,500 and reduction of tax payable up to over 21 years of age 99.9% of the estate where resident. spouse, parents Group III relatives Exemption of €9,300 99% exemption without limit where beneficiary is Inheritance of the descendant under the age of 18 and property not sold for primary residence at least 5 years. An exemption of between €72,000 and €400,000 Disabled Beneficiaries depending on extent of disability. 100% exemption up to €9,195.49 for Group I & II Life Insurance Policy in relatives. 99% reduction of any tax payable on quantities favour of spouse, above this where beneficiary is descendant under 21 parents or descendants years of age 99% exemption where business is inherited by certain Exemption for relatives and according to various rules on value of inheritance of the business and time period during which business must be family business maintained. 6
  8. 8. Tax RatesThe tax rate to apply increases as the amount inherited increases according to the scale published byeach autonomous community in Spain or, if such a scale is not published, then according to the scalepublished by the central government. Obviously regard must be had to where the assets are located todetermine which scale is applicable but the following table of the scale published by the centralgovernment serves as an example as to how the tax rates function. Taxable Tax Payable Deductible Applicable Amount Euros Euros euros Percentage 0 7993.46 7.65 7,993.46 611.5 7987.45 8.5 15,980.91 1290.43 7987.45 9.35 23,96.36 2,037.26 7,987.45 10.2 31.955,81 2,851.98 7,987.45 11.05 39,943.26 3734.59 7,987.45 11.9 47,930.72 4,685.10 7,987.45 12.75 55,918.17 5,703.50 7,987.45 13.6 63,905.62 6,789.79 7,987.45 14.45 71,893.07 7,943.98 7,987.45 15.3 79,880.52 9,166.06 39,877.15 16.15 119,757.67 15,606.22 39,877.15 18.7 159,634.83 23,063.25 79,754.30 21.25 239,389.13 40,011.04 159,388.41 25.5 398,777.54 80,655.08 398,777.54 29.75 797,555.08 199,291.40 maximum 34.00ExampleWhere three children each inherit, after deductions and charges, an inheritance valued at €45,000 froma parent, to determine the amount of tax payable by each we would calculate as follows: Up to €39,943.26 the tax payable is €3734.59 The portion above €39,943.26 (€45,000 – €39,943.26 = €5,056.74) is taxable at 11.9% =€601.75 So, total tax payable by each child is €3734.59 + €601.75 = €4,336.34 7
  9. 9. The wealth of the beneficiaryOnce the net amount of tax to be paid has been calculated it is multiplied by a coefficient which isdetermined by a combination of the pre-existing wealth of the inheritor and the proximity of theirrelation with the deceased as can be seen in the following table:Pre-existing wealth in euros Groups as defined in Article 20 I y II III IVFrom 0 to €402,678.11 1,0000 1.5882 2.000Between €402,678.11 and €2,007,380.43 1.0500 1.6676 2.100Between €2,007,380.43 and €4,020,770.98 1.1000 1.7471 2.200Above €4,020,770.98 1.2000 1.9059 2.400Group DefinitionsFor the purposes of determining the proximity of a relationship to the deceased, the legislation dealingwith Gift and Inheritance Tax in Spain (Ley 29/1987) considers there to be four categories or groups:Group I – Children, including adopted children, under the age of 21Group II – All other children, spouses and parentsGroup III – close relatives such as brothers and sisters, grandparents, aunts and unclesGroup IV – more distant relativesExampleA brother of the deceased inherits a net estate generating a tax liability of €6,000 (after tax exemptionsand all other charges), and he has a pre-existing wealth of €450,000 then the total tax payable increasesto 6,000 x 1.6676 = €10,002 8
  10. 10. Process for payment of inheritance tax in SpainA time-limit is established for the payment of inheritance taxes in Spain, being six-months from thedate of death. An application may be made during the first five months to have the deadline extendedby a further 6 months. Once granted the extended period of six months begins when the first six monthshas ended.** Interest will be charged at an annual rate of 5% until the date the tax is paid.The process for applying for the extension may vary slightly in each region, however typically you willneed to present original and copy of the following documents: • Death Certificate • Identification (Passports/NIE) • Brief inventory of assets and values • Reason for requesting the extensionShould the application be denied for any reason, the original deadline will be extended by the period oftime between application for the extension and notification of the refusal.DocumentationIt is necessary to complete official form 650 or 652 (simple version) when paying inheritance taxes.These can normally be found in any office of Hacienda (Consejería de Economia, Hacienda y Empleo).Along with the official form it is necessary to include all relevant information regarding the deceased,the beneficiaries and the assets that are the subject of the inheritance. So some or all of the followingdocuments will be necessary: • Form 650/652 • Original and copy Passport Deceased • Original and copy passport Beneficiaries • List of assets with valuations • Original and copy of death certificate • Original and copy of RGAUV certificate • Original and copy of will • If no will, original and copy of Decalaración de Herederos 9
  11. 11. • List of costs of funeral and support through final illness of deceased • If Life Insurance then Certificate of Life Insurance • Original and copy of property IBI receipt • Original and copy of Vehicle documentation if any • Original and copy of Bank Certificate regarding bank accounts, shares etc • Original and copy of proof of relation with deceased (Birth Certificate) Plusvalía TaxA further tax that may need to be paid at this time is what used to be known as the plusvalía tax whichis similar to what is known elsewhere as a Capital Gains tax payable on the increase in value of anasset. In this case the asset referred to is the property or land that is the subject of the inheritance.When a property owner dies and the property passes to their heirs then those heirs may be liable to paythe local town hall for any increase in the value of the property since the time it was purchased by thedeceased. A maximum of twenty years applies. An exemption is normally available for this tax, almostto 100% is available where the beneficiaries are the spouse or descendants of the deceased.In any case your lawyer will assist you with determining the exact documents you will need for yourparticular circumstances and where they need to be presented locally so as to ensure compliance withthe law.In the next report, we shall look at what can be done to reduce the amount of inheritance taxpayable in Spain. _____________________For information on contacting legal experts in the field of inheritance tax law in Spain please go to:www.myadvocatespain.com 10

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