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Viewing posts categorised under: Wealth Tax

Wealth Tax in Catalonia

By Chris Burke - Topics: Catalonia, Spain, Tax in Spain, Wealth Tax
This article is published on: 7th April 2022

07.04.22

How to reduce it and know how it works

Catalonia is a great place to live for so many reasons. However, like the majority of places in the world, there are taxes to pay too. Although nobody likes to pay taxes, there is a societal need for them. They help fund the public health system, providing care for our families and for ourselves in later life, schools, so our children can receive a formal education and roads, so we can safely and effectively travel. However, in spite of this there are ways in which we can organise our taxes in an efficient manner to ensure that we are paying no more than the amount that we need to pay.

The Wealth Tax (known as ‘El Impuesto de Patrimonio’ in Spanish) is an example of a tax which is an additional tax in Catalonia that many people deem to perhaps be unfair. I mean, why should you pay tax just because you have done well in life, or your parents have and passed this wealth onto you? In summary, it is a tax that you pay on your net wealth (assets owned minus liabilities). The tax is paid on the assets that you hold which fall over a certain threshold. The threshold in Catalonia is €500,000 whilst the threshold throughout the rest of Spain is €700,000. There is a €300,000 exemption for your main residence, meaning that you will not pay tax on your main residence if it is valued under this amount. If your main residence is worth more, you can deduct €300,000 from the valuation and you will only be liable to wealth tax on the excess amount.

Here is a list of the assets that are and aren’t liable to Wealth Tax in Catalonia:

Assets that Wealth Tax
is applicable to
Assets that Wealth Tax
is not applicable to
Real estate Household contents (except for Art)
Savings Shareholdings in family companies
Shares Commercial Assets
Cars Intellectual Property and Pension Rights
Boats
Jewellery
Art

The rate of wealth tax depends on the amount by which you are over the threshold. The general rule is that it ranges from 0.20% to 2.50% in Spain. However, in Catalonia the rate is slightly higher, ranging from 0.21% to 2.75%. You are required to declare your wealth as part of your annual declaration (in Spanish, ‘Declaración de la Renta’) on form 714 at the end of the calendar year, making any payment by 30th June the following year. The below tables display the Wealth Tax rates for Spain as a whole and the variation of the wealth tax to pay depending on the autonomous community (Communidad Autonomo) in which you reside. However, this is an overview to what is a complex calculation, so if you require personalised information, please get in contact with Chris.

Settlement basis up to (euros) Fee (Euros) Other net base up to (euros) Applicable Rate %
0.00 0.00 167,129.45 0.20%
167,129.45 334.26 167,123.43 0.30%
334,252.88 835.63 334,246.87 0.50%
668,499.75 2,506.86 668,499.76 0.90%
1,336,999.51 8,523.36 1,336,999.50 1.30%
2,673,999.01 25,904.35 2,673,999.02 1.70%
5,347,998.03 71,362.33 5,347,998.03 2.10%
10,695,996.06 183,670.29 Thereafter 2.50%
Autonomous Community Wealth Tax % Variation
Catalonia Between 0.21% and 2.75%
Asturias Between 0.22% and 3%
Region of Murcia Between 0.24% and 3%
Adalusia Between 0.24% and 3.03%
Community of Valencia Between 0.25% and 3.12%
Balearics Between 0.28% and 3.45%
Extremadura Between 0.30% and 3.75%

There are ways in which you can mitigate the wealth tax you are required to pay, as noted in the above table, some assets are exempt. Therefore, if you transfer your wealth into these assets then they will not be included as part of your wealth tax calculation. For example, you may not be liable to wealth tax on assets that you transfer to shareholdings in family businesses or certain household or commercial assets.

However, this is not a straightforward process and certain criteria must be met. For example, if you transfer your capital to a ‘family business’, then there are strict regulations on what constitutes a family business, which assets qualify and how you do this. And if you were to utilise your capital to purchase household contents, certain items such as art are not exempt.

Another way to mitigate wealth tax is by relocating. There are a few countries in Europe in which you would not have to pay the wealth tax such as Sweden, Luxembourg, Denmark, Germany and Austria or France. In the UK, they are considering implementing a wealth tax. If you prefer to stay in Spain, then residents of Madrid are exempt from wealth tax so it may be beneficial relocating there.

Wealth Tax in Catalonia

Finally, you can effectively double your wealth tax exemption threshold by getting married! The wealth tax exemption threshold will then be increased as everyone person is entitled to it. This also counts for the main residence allowance; therefore you may not be liable on wealth tax on your main residence up to €600,000.

Being efficient with your monies/assets from a tax perspective is almost as important as making your money grow. If you would like to seek specialist advice, Chris Burke is able to review your pensions, investments and other assets and evaluate your current tax liabilities, with the potential to make them more tax effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or make a direct virtual appointment here.

Disclaimer: Spectrum IFA do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

French Tax declarations in June – Trusts & Wealth Tax

By Katriona Murray-Platon - Topics: France, tax advice, Tax Declarations, Tax in France, Wealth Tax
This article is published on: 1st June 2021

01.06.21

Oh what a month of May! So despite the old adage of being able to do as we please, the weather clearly didn’t get the memo! May has been a whirlwind of enquiries and questions on taxes with lots of people requesting the Spectrum Tax Guide. Hopefully, by now most of you have filed your tax returns, but those living in department numbers 55 to 976 as at 1st January, still have a few more days, until 8th June to file theirs. Also, if you have appointed an accountant to do your tax return, they have a special extended deadline until the end of June to file all remaining returns.

If you had a go at your own tax return, but would prefer to hand it over to a professional either for future returns or to check that what you filed this year was correct, it would be best to try to contact them after the end of June. If you think you made a mistake on your tax return, you have until the end of the year to correct it. You will soon know if there is something not quite right with what you have declared when you receive your statement at the end of August/beginning of September. At that point, if you are quick you can submit an amended return before the payment deadline; otherwise you may have to pay the tax payable on the original statement whilst awaiting the amended return to be processed and a new tax statement to be issued, with any tax reductions if applicable.

French Tax declarations

This month, my family and I set off for our first mini-break since the lockdown in March last year. I have to say we were a bit nervous venturing out of our house, preparing the suitcases and worrying that we hadn’t forgotten anything. We stayed in the lovely village of Coux-et-Bigaroque, about 45 minutes east of Bergerac. In spite of the weather we were able to take the children to the Perigord Aquarium, the Caves of Grand Roc and the Chateau of Milande, formerly owned by the singer and entertainer Josephine Baker. Whilst I love visiting this chateau and the birds of prey show in the grounds, it always makes me feel a bit sad. It is an example of how someone with such talent and a kind heart didn’t have the right advisers to help her make the best financial decisions.

Tax Calendar

In June there is another tax deadline that still needs to be considered:

Which is that all Trust declarations need to be declared by 15th June. I wrote an article many years ago which you can find HERE

There have been no significant changes to the treatment of trusts since the law of wealth tax was amended to include only immovable property. A trust can be recognised in France and perfectly valid in France provided that it doesn’t go against public policy (ordre public) and in particular the rights of heirs under French law. Income from a trust is subject to income tax depending on the nature of the income (rent from an apartment or capital income) and can be subject to tax credits under a double tax convention. Trusts (excluding charity trusts and pension trusts) must be declared in France if any of the settlor, trustee or beneficiary are French residents or if the trust contains an asset situated in France on 1st January. According to a press release by the Ministry of Finance on 5 July 2016, 16,000 entities had been identified and notified as trusts to the French administration.

Another change this year is that the Wealth Tax declaration which normally had to be submitted by middle of June if you have assets over a value of €1,3million, this year has to be submitted at the same time as your tax returns by way of a tax form called 2042-IFI. Those of you resident in departments numbered 55 and above still have until 8th June to submit. If you French tax residents who came to live in France, after having spent 5 years abroad, you are not taxable on your non-French assets until 5 years after you became resident. Non-residents also have to declare if their French assets are over €1.3million.

Finally, 30th June 2021 is the deadline for Brits who were resident in France before 31st December 2020 to apply for their residency permit under the Withdrawal Agreement. If you haven’t already done so or know of someone who hasn’t, and they were resident before 31st December 2020, please do try and encourage them to go to the following website:

New Spanish tax rules for UK ISAs and investment funds

By John Hayward - Topics: Spain, Spanish Compliant, UK investments, Wealth Tax
This article is published on: 28th May 2021

28.05.21

Brexit increases tax woes for UK nationals living in Spain

Slowly but surely, the impact of the United Kingdom’s exit from the European Union is taking shape. For those UK nationals living in Spain, this could mean higher, and possibly new, taxes. As I wrote last week in my Wealth Tax in Spain article, the Spanish government and regional governments are in desperate need of revenue to cover pensions and the consequences of Covid-19. One source of this revenue will be through applying taxes to people from the UK who hold investments that do not qualify for special treatment in Spain.

At The Spectrum IFA Group, trading as Baskerville Advisers S.L. in Spain, we encourage those who wish to invest to make more from their money in the bank, or those already invested, to use a “wrapper” that is tax compliant in Spain. The main benefit of this is that any tax on gains is deferred until the account holder receives benefits in the form of a withdrawal. There are also other tax advantages that Spanish compliant investments have over those that do not qualify for special tax treatment in Spain.

Part of the “compliant” nature of the products that we recommend is that the companies used to hold the investments report the values, and hence gains, to the Spanish tax authorities. They are also responsible for deducting tax from any withdrawals.

Other important factors to make an investment Spanish compliant are that the distributor (the company offering their products in Spain) must be officially registered with the Spanish authorities and that the funds invested in are based in the EU*.

Tax in Spain and the UK

We meet many people who have UK based investments such as Individual Savings Accounts (ISAs). Others invest in funds using platforms (Online investment facilities) or insurance bonds through UK based companies. Up until 31st December 2020, although gains on these investments may not have been reported to Spain annually by Spanish tax residents, they seem to have been largely ignored by accountants and gestors when completing the annual tax return in Spain. This is possibly due to the fact that the UK was part of the EU and at least part of the compliance stipulations were being satisfied. That is, the funds used were in the EU.

People think that completing the asset declaration using the Modelo 720 is some kind of tax return. It is not. Of course, it gives the Spanish tax office a snapshot of wealth, which in turn could possibly lead to wealth tax being charged, but it is not specifically designed to give the detail of the annual gains, or losses, that occurred in a particular tax year.

The picture has changed dramatically due to Brexit. If you hold investment funds in the UK, these will be some of your responsibilities moving forward:

  • You will have to report any gains each year
  • You have to itemise each element of the investment so that if, for example, you hold 20 different funds, you must detail each one
  • In addition, if your portfolio is made up of income paying funds, any dividends/coupons have to be itemised. Even cash within a portfolio has to be shown separately
  • You need to know exactly when you bought each fund

There is a lot more to consider but, as you can imagine, this is going to be a nightmare situation for many, especially for those who have bought, sold, and then bought funds again over the years.

tax in spain

We can simplify all of this.
For those who have yet to become Spanish tax resident, we can organise your investments so that you never have to experience this incredibly difficult situation. For those who are already tax resident in Spain, we can switch your non-compliant, and potentially painful, investments to compliant ones. If you wish, you can select the same types of fund that you currently hold but in a Spanish tax compliant manner. This is extremely important because it means that, if you move back to the UK without having withdrawn any money from the investment, you will have escaped Spanish taxation on gains made whilst resident in Spain. Added to that, through investment structures that we can guide you to, if you return to the UK, any gains made whilst you lived in Spain, are ignored for UK tax purposes (I will write more on this in another article).

If you would like to legally avoid annual Spanish taxation on your investments, as well as the headaches and additional accountancy costs, you need to act now. The problem is not going to go away unless you leave Spain, which might be an extreme measure. It might be that your investments are in poor shape or that your UK adviser can simply no longer deal with you since Brexit. There is a host of other ways that I might be able to help you so contact me today for a free and no obligation discussion.

*Source: JC&A Abogados

More Spanish residents to pay wealth tax

By John Hayward - Topics: Spain, Tax in Spain, Wealth Tax
This article is published on: 19th May 2021

19.05.21

Valencia reduces allowance with more people having to pay
the Impuesto Sobre el Patrimonio

Further to my article from last week, and after consultation with our accountant associates, it appears that the main residence wealth tax allowance of up to €300,000 only applies after 3 years of living in the property (habitual residence). This has been questioned but, as is often the case in Spain, getting a response from the tax office can be tricky.

The tax office words that are relevant in terms of getting around this 3-year rule are “circumstances that necessarily require the change of housing”. Moving to Spain to retire or for a change of lifestyle would not generally tick that box. If there are justifiable health reasons or similar then that appears to be acceptable in terms of applying the allowance.

To emphasise the habitual residence aspect, from JC & A Abogados in Marbella: “Please note that you must live effectively and consecutively in the property for more than 3 years, so you cannot rent the house out even for one day. In addition, you have to impute a benefit in kind for the Spanish property during the same 3 years period.”

In the words of JC & A, “The 3 year period starts counting from the purchase date as long as the dwelling is inhabited effectively and permanently within 12 months as from the purchase date.”

“…..a taxpayer who bought his main home but could not live in it because it was not suitable and had to have some works that exceeded 12 months; the conclusion is that the 3-year period starts counting from the date he moved in and not the purchase date.”

Adding salt to this potential tax wound, whilst it is not treated as your main residence (even though you live there permanently), you have to pay tax on its value as if you were a non-resident.

This all seems rather inequitable but is the law as things stand.

If you would like to discuss managing your money in these volatile and uncertain times, please do not hesitate to contact.
Visit John Hayward of The Spectrum IFA Group or complete the form below.

Wealth Tax in Spain

By John Hayward - Topics: Spain, Tax in Spain, Wealth Tax
This article is published on: 10th May 2021

10.05.21

The UK tends to rely on income and inheritance taxes to generate revenue, but countries such as Spain and France, also apply wealth tax (Impuesto sobre el patrimonio). This is an asset tax and can be on cash, real estate, pension funds, shares, investment bonds, ISAs, and even cars. Portugal also has a wealth tax but this relates solely to immoveable property.

Spain eliminated wealth tax in 2008 but then “temporarily” reintroduced it in 2011 and it has been here ever since.

Each autonomous region sets their own allowances and rates after initial direction by central government. The Spanish State’s allowance is €700,000 plus up to €300,000 for one’s main residence. This is per taxpayer. It is important to note here that a property only becomes a main residence after 3 years of continuous habitation. There are a number of exceptions to this rule.

The State’s rates of wealth tax are as follows:

Lower Band Limit (€) Upper Band Limit (€) Tax rate (%)
Nil 167,129 0.2
167,129 334,253 0.3
334,253 668,500 0.5
668,500 1,337,000 0.9
1,337,000 2,673,999 1.3
2,673,999 5,347,998 1.7
5,347,998 10,695,996 2.1
Over 10,695,996 2.5

Wealth tax in Valencia has changed over the years. In 2019, it was announced that the tax-free allowance was being reduced to €600,000. With effect from 2021, the allowance is being reduced further to €500,000. This means that more and more people will become subject to wealth tax.

In addition to the reduction in allowances for 2021, Valencia has higher wealth tax rates than the State’s own rate, as follows:

Lower Band Limit (€) Upper Band Limit (€) Tax rate (%)
Nil 167,129 0.25
167,129 334,253 0.37
334,253 668,500 0.62
668,500 1,337,000 1.12
1,337,000 2,673,999 1.62
2,673,999 5,347,998 2.12
5,347,998 10,695,996 2.62
Over 10,695,996 3.50
spanish tax

Example:
If a couple have assets totalling €2.5 million, including a main residence worth €600,000, the individual annual wealth tax bill based on the State allowance and rates could be around €600. Using the Valencia allowance and rates, the tax bill could be almost €1,800. To clarify, this is per person and payable each year.

Depending on one’s income, and if one is a resident in Spain, the amount due can be reduced. The wealth tax due cannot exceed 60% of one’s taxable base (e.g., annual pension income, savings, etc.) when adding the wealth tax to personal income tax liabilities with a minimum payment of 20% of the wealth tax due. It is important to make certain that all of one’s assets are eligible for this rule.

UK Inheritance Tax and Spanish Succession Tax

By Charles Hutchinson - Topics: Inheritance Tax, Spain, Spanish Succession Tax, Succession Planning, Wealth Tax
This article is published on: 5th August 2020

05.08.20
Succession tax in Spain

Much has been written and said on this subject, particularly in many of a 19th hole. There is a fundamental difference between the two:

  • The UK Inheritance Tax is upon the deceased’s estate
  • The Spanish Succession Tax version is upon the inheritors

UK Inheritance Tax Liability is on the worldwide estate of the deceased and all global assets are assessed and ‘gathered together’ for the purpose of probate. Once fully quantified and valued, the tax is levied at a (current) rate of 40%. There is a nil rate band of (currently) £325,000 estate value below which no tax is payable. The tax has to be paid BEFORE the estate is distributed.

Spanish Succession Tax is payable on EITHER assets being located in Spain OR on global assets if the inheritor is a resident of Spain. If neither is the case, then there is no liability. If one or both is the case, then Spanish Succession Tax is payable by the inheritor(s) whether they be a resident or non resident of Spain.

There are some essential measures one can take to either mitigate or avoid these liabilities.

One of the best and most effective is the use of (Spanish compliant) investment bonds. In Spain for example, Succession Tax is payable on assets passing between spouses (this is unlike the UK where assets can pass between them untaxed). Where an investment bond is jointly owned, the deceased’s half can pass to the spouse untaxed.

An even greater advantage is that the bond can pass down the generations with the possibility of continuing investment growth free of both UK Inheritance Tax and Spanish Succession Tax. For as long as the policy holders and lives assured continue to be appointed, the bond will continue and each generation of policy holders can enjoy capital withdrawals on both a regular or intermittent basis. Thus all inheritance tax is avoided by an unlimited number of generations.

Furthermore, should a Spanish resident bond owner pass away and their beneficiaries are non residents of Spain, there would be no liability to Spanish Succession Tax because the bond is also domiciled outside of Spain (e.g. Dublin).

Spanish Inheritance Tax

For the moment, Spanish Succession Tax in the region where I live (Andalucia) is virtually non existent. There is a €1m allowance between close family members, providing their individual existing wealth does not exceed that figure. The remaining assets are also liable to a 99% exemption.

These two taxes are the only ones not included in the UK/Spain Double Tax Treaty. However, there is an unwritten rule that if it has been paid in one country, then it will not be charged again by the other. To my certain knowledge, this informal agreement has always been observed.

For information and assistance with your inheritance planning, please contact me by completing the form below of email/call:
charles.hutchinson@spectrum-ifa.com
Tel:(+34) 952 79 79 23
Mobile: 605 903 472

Tax increases in Spain

By Barry Davys - Topics: Barcelona, Inheritance Tax, Spain, Tax, tax advice, Tax Efficient Savings, Wealth Tax
This article is published on: 16th May 2020

16.05.20

This is an article for those of us who live in Spain but will apply in every developed country around the world.

The Covid-19 pandemic has led to a worldwide lockdown, including here in Spain. The economy has been shut down with the likes of Seat in Barcelona stopping production and Barcelona tourist numbers collapsing. We all know this because we are all a living part of the lockdown.

In response to what looks like the worst economic crisis in the 300 years of modern data collection, governments and central banks around the world have provided some $7 trillion dollars of stimulus packages to economies and workers. It is the fastest and biggest reaction EVER to an economic crisis. Well done, the central banks! It genuinely is helping to make sure that as we slowly exit lockdown, individuals and companies will be in a little better condition to start up again.

Would I have it any other way? No! However, the question we now need to answer comes from Angela Merkel when asked to provide a European bailout in the 2009 crisis; “But where will the money come from?” A valid question. And even more so for the crisis that has come from the coronavirus pandemic.

Saving in Spain, ISA, Tax Free Saving in Spain

The money will come, in part, from higher taxation. In the UK today, a menu of proposed increases in taxation has been leaked. In Spain, a loophole in wealth tax legislation that allowed some unit linked insurance savings plans to be exempt from

wealth tax has been closed. What is significant is that these changes are coming now, before we are even clear of the lockdown and virus.

The changes to taxation in Spain are likely to include savings tax, inheritance tax and wealth tax in particular. Changes were already being discussed and the economic fallout from the pandemic provides the reason to bring forward these changes. Specifically, the EU has told us to harmonise inheritance tax across Autonomous Communities as there are big differences in the amount of tax to be paid.

In the draft budget for 2020, there is a proposal to change savings tax. At present, we have three bands of tax. The top rate for gains and investment income over €50,000 is 23%. A new band will be introduced for gains and investment income over €160,000 of 27%. We should expect this change to happen soon as it is already in the budget which is going before Parliament for approval. The first case I have seen where this will apply would lead to an additional €48,000 in tax. It is pertinent to bear in mind that these tax rates can apply to the gain on some property sales.

In addition to the wealth tax change described above, we understand that others may now be considered.

Planning actions

Help is at hand. There are planning actions that can be taken to minimise the tax issues. Here is a three point plan to minimise the effect of these changes:

1. Savings Tax. Move investments into Spanish tax efficient investments. These are available and you do not have to move your investment to Spain to qualify. They are available in Sterling as well as Euros and USD. If you would like confirmation on which of your current investments are tax efficient in Spain, I am happy to review them with you.

2. Inheritance Tax. This requires very careful consideration before making decisions to manage inheritance tax. Making sure you can maintain your lifestyle is an important part of this planning, especially for the survivor in the event of one half of a couple passing away. Once these criteria have been met, planning is feasible. A recent case of planning has saved £87,719 in UK inheritance tax for a couple living here in Spain. For nearly all of us from the UK, our estate at death will be assessed for UK inheritance tax.

3. Wealth Tax. Sometimes, the planning for wealth tax is simple. In other cases, not so simple. Care is needed and it is worthwhile asking for a review.

We have had our cake in the form of stimulus to protect the economy. We will shortly find we will have indigestion from eating the cake in the form of higher taxes. Fortunately, we still have a few indigestion tablets available to relieve our pain.

If you wish to discuss tax on your savings, inheritance tax or wealth tax please feel welcome to call. If this helps, you can match your availability for a call with mine online here.

Planning for the Inevitable

By David Hattersley - Topics: Inheritance Tax, Spain, Succession Planning, Wealth Tax, Wills
This article is published on: 13th February 2020

13.02.20

The Grim Reaper is not a nice subject, but its finality remains. There are those left behind, alone after the loss of their Spouse or Partner. There is a grieving process. But at the same time is the harsh reality of due process. Wills, Probate, Succession Tax, Inheritance Tax and Death Certificates spring to mind, with added complication in a “Cross Border” society. One hopes that we can offer sympathy, support and help, but trying to soften the blow for loved ones is best prepared for with forward planning such as Wills, Funeral Plans, Life Insurance and Estate Planning.

Circumstances prior to death take many forms. Recent family experience has bought all of this into sharp focus; there was the duality of emotions, allied to the need to help in a professional capacity in what was a complex mire. The double edged sword of living longer applies. Death can be quick, or prolonged due to substantial improvements in many critical fields such as cancer treatment.

“Lingering Death” can take months or years. Drugs can help alleviate Dementia & Alzheimer’s, but do not provide a cure. These illnesses are certified causes on a Death Certificate. What isn’t is the loss of “Independent Existence”. This is a gradual erosion; loss of a lifetime spouse/partner, location, loss of mobility and simply carrying out simple day to day tasks all take their toll. It creates an immense strain on the family, financially and emotionally. ”Long Term Care” often starts in the home, but eventually Long Term Care in a Residential Nursing Home can become the only option.

In Spain costs are substantially less than the UK, but for some the UK becomes the only option due to language and family support. Careful planning in advance can sometimes mitigate the more onerous UK costs and “taxes” or help prolong the benefits of living in Spain. But it is complex and many factors need to be considered well in advance, taking into account “Cross Border Taxes” and differing rules.

It is hard to consider the impact of all the above and many people prefer to ignore it, but I feel compelled to bring this important subject into the open. There are things you can do to make things easier for your loved ones; if financial and legal aspects are well planned out, that is one less thing for them to worry about. I will be posting a series of articles dealing with the many differing issues that I have come across and the steps you can take to overcome them, as it will affect us all one way or another.

Don’t despair or defer; positive steps can be made to mitigate future headaches as much as possible and we are here to help. One of the best ways forward is to sit down with someone who understands the possibilities and to make a plan. Contact me now if you would like to discuss what you can do to make the future easier.

Inheritance Tax in Catalonia

By Chris Burke - Topics: Catalonia, Inheritance Tax, Spain, Succession Planning, Wealth Tax
This article is published on: 27th January 2020

27.01.20

With all that has been happening this year, it could well have slipped many people by that significant changes have been made to the inheritance laws in Catalonia, particularly for those who are resident there and receiving an inheritance from someone outside of Catalonia.

Previously, spouses and descendants received great allowances in respect of tax due to be paid, starting from 99%. However, for those receiving inheritance as a descendant this has been reduced, at the worst to only a 60% reduction. This raises two main questions, firstly, what would the tax payable be for an inheritance, and secondly, is there a better way to receive this, for example, as a gift rather than an inheritance, which itself has different tax rates?

It is important to understand how an inheritance is taxed in Catalonia. Major factors are the relationship between the deceased and the inheritor, what asset is being received and where the money comes from, i.e. which country. In the UK it is fairly straightforward: if someone dies being resident in the UK and leaves you assets up to £325,000 there is usually no inheritance tax (paid by the estate); anything over this is taxed at 40%. However, in Catalonia it is not that simple (Surprise surprise, I hear you say!) and alongside what is declared and may be tax payable in the UK, you must also declare and pay the relevant tax in Catalonia. Any assets you already own can also be taken into the equation of what tax is payable.

Tax in Spain and the UK

Inheritance tax in Catalonia is paid for by the receiver, not the estate, and very importantly, you have 6 months to declare this inheritance, EVEN if you haven’t received it yet (this is from the date of decease) or you will be fined the following way on the amount of tax you are liable to pay:

  • 5% in the following 3 months (i.e. months 6-9 since death)
  • 10% from 3 months to 6 months
  • 15% from 6 months to 12 months
  • 20% plus interests after 12 months

But if you know that you will need more time you can ask for an extension of an additional 6 months during the first 5 months from the death. In this case, the surcharges described above will not be applicable and you will have an extra period of 6 months.

There are some discounts on inheritance tax in Catalonia. To start with, there is usually no tax to pay on the first €100,000 being received if you are a spouse or child of the deceased. For other descendants the allowance is €50,000. If you are an ascendant the allowance is €30,000 and for any other relation the reduction is €8,000.

From this point on, there are further reductions between 97-99% and there are also other factors to be taken into account, such as are the children under 21, disabled, or if you receive the main home (“vivienda habitual”), family business or shares in certain type of companies.

Wealth Tax in Catalunya

As you can see, the calculation is not straightforward. The quickest and simplest way, I feel, to give you an idea of what tax you would pay is if I give examples using the most typical scenario of people we help, which is of a parent resident in the UK leaving their child, who is living in Catalonia, an amount of money/assets not including property (as we said there would potentially be extra tax deductions for receiving this). The guidelines are shown below for someone tax resident in Catalonia, over 21 years old, owning assets themselves of less than €500,000. Note that the ‘domestic trousseau’ has also been included (the domestic trousseau is a tax on inherited household items, for example furniture, by default calculated as 3% the estate value):

Amount to be inherited Tax due in Catalonia
€100,000 €84
€250,000 €6,969
€500,000 €29,888
€750,000 €64,908
€1,000,000 €109,297

One possibility we would check for a client is whether it would it be better to plan the future inheritance and anticipate it, receiving the monies through a donation that is taxed between 5% and 9% between parents and their children (with some specific requirements). Additionally, please note that if a previous donation has been made, this must also be considered in order to calculate the effective inheritance tax rate. We always suggest getting in touch to confirm exactly what the amount would be, and for help declaring it. For the assets themselves, it is worth knowing that many assets overseas are not always efficient to have while living in Catalonia.

For example, investments or ISAs in the UK are declarable and tax is payable in Spain on any gain annually, EVEN if you do not take any of the money, unlike in the UK. It is possible to have these monies in a Spanish compliant structure, still in sterling if you prefer, where you can benefit from the money growing through compounding and potentially greatly mitigating tax. This is where we help our clients to get organised efficiently and can manage the assets if needed.

If you have any questions relating to this article, would like help planning for this eventuality, or anything similar, don’t hesitate to get in touch.

TAXATION UPDATE IN SPAIN

By Charles Hutchinson - Topics: Modelo 720, Spain, Wealth Tax
This article is published on: 16th January 2020

16.01.20

We now have a new government here in Spain, albeit quite far to the left which could cause some more interesting changes in taxation. Watch this space.

WEALTH TAX
So far, the reinstatement of the 100% allowance for Wealth Tax (which was approved in 2011) has been delayed again for one more year as part of the 2018 budget extension, due to the recent era of no federal government being in place. Nor has the Junta de Andalucia made any moves to reinstate the allowance in the 2020 budget either.

MODEL 720 DECLARATION OF FOREIGN ASSETS
On the 23rd October 2019, the EU Commission filed a complaint in the European Court of Justice to the effect that Spain has not complied with the Commission’s findings in November 2015 namely that Modelo 720 deters businesses and private individuals from investing or moving across borders in the Single Market. Also these provisions are in conflict with the fundamental freedoms in the EU; this conflict affects free movements of persons, free movement of workers, freedom of establishment, freedom to provide services and the free movement of capital.

Furthermore, the Commission has claimed that by introducing late filing penalties and the labeling of these foreign assets as unjustified capital gains (which are not subject to the statute of limitations), it has breached EU law. Additionally, whatever the amounts involved, they are all subject to tax at the top marginal rate (45% in 2012) plus a fixed penalty of 150% in addition to the tax and further fixed penalties for failure to file, which are higher than the general rules on similar infringements. Spain, therefore, is liable to comply with EU law and to pay costs.

Although precedence does not exist in Roman law, a precedent was set in 2011 when the EU successfully prosecuted Spain over discriminatory Inheritance and Gift Tax rules. This ended with a Court resolution in 2014 that led to an amendment in Spanish Law and opened the door for reclaims of taxes paid over the previous 4 years.

The issue of the Declaration continues to be of great concern to many people in Spain, particularly the expatriate community. Some of the most vulnerable assets are foreign bank accounts. These can be easily switched into other foreign assets where reporting under Modelo 720 is not required and the taxation of income from them (if taken) is greatly reduced.

If you have concerns in this area, please contact me where I can assist you with the problem.

Source: JC&A Abagados, Marbella