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Spanish Inheritance Tax update

By Susan Worthington - Topics: Inheritance Tax, Mallorca, Spain, Tax, Uncategorised, wealth management
This article is published on: 26th November 2014

The EEC ruled in September 2014 that these discriminate non-residents.

The worldwide estate of British expatriates who are UK domiciles are liable to UK inheritance tax on death, as well as being liable to Spanish succession tax on chargeable Spanish assets, e.g. house, bank account etc.

Spanish Succession tax rates vary from 7.65% to 34%. The tax liability is subject to multipliers based on the pre-existing wealth of the recipient, which can take the highest effective rate of tax to just below 82%.   Then, Inheritance Tax in the UK is payable on assets above £325,000 at a rate of 40%.

There is no Double Taxation Agreement on inheritance Tax between Spain and the UK although if tax is paid in one jurisdiction it is not usual that it has to be paid yet again.  However, the news is that EEC rules state that Spain should not discriminate between resident and non-resident.  This is hoped to come into force by 2016 which is favourable for residents of the Balearics.

There has not been any formal approval by Spain but proposals are to treat those non-Spanish tax residents living in the European Union (EU) or the European Economic Area (EEA) as if they lived in one of the autonomous regions of Spain where tax rates tend to be heavily discounted such as here in the Balearics.   There is currently 99% reduction so the effective rate is just 1%. The region will be determined by where you have spent most time in the last five years or by where the majority of your Spanish assets are situated if you live outside Spain.

Gifts outside the EU or EEA to a Spanish resident could be subject to the rules of the autonomous region where the recipient has his/her residency.

Although the changes have not yet been formally approved, it seems some lawyers are now submitting tax returns on the basis that the qualifying non-resident will receive the tax advantages of the relevant autonomous region.

This will mean that, for example, children living outside Spain, inheriting from parents in Spain, could no longer have the much higher (generally) “National” Spanish taxes to pay. Parents may be able to gift property to their children without necessarily needing to make expensive tax avoidable arrangements.

This would be a tremendous advantage to many UK expatriates living here in Menorca.   Before you die you need to consider all aspects of your tax situation.   In addition to ensuring your assets can pass down easily to your beneficiaries when the time comes, your income and capital gains tax need to be checked for efficiency whilst you are alive.   Little point in worrying about what happens when you die if you are left with little to pass to your beneficiaries in the end!

The details are based on The Spectrum Group’s understanding of current legislation and may be subject to change. No liability can be accepted for any change of interpretation or practice relating to any tax or legislative measure or the introduction of any new measures that may affect this information.

The Spectrum IFA Group suggest you take personal advice on how the new rules will affect you.

Article by Susan Worthington

Susan WorthingtonIf you are based in the Mallorca area you can contact Susan at: susan.worthington@spectrum-ifa.com for more information. If you are based in another area within Europe, please complete the form below and we will put a local adviser in touch with you.

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