Thread: Inheritance Tax - everyone should read

Spanish Inheritance Tax is a minefield, this tax is one of those passed by the National Government to the regions that can use the law as they see fit for their region.

Out of the 17 regions in Spain 8 have their own interpretation on Inheritance tax.

In Valencia the couple must be married, can prove fiscal residency for three years, then there is a nominal tax of 1%, but the beneficiary must remain a resident of the area for 10 years and can not sell the property for 10 years, otherwise they have to repay the 99% tax allowance with interest.

CDThader is correct that all bank accounts with the deceased name inc joint accounts are frozen until the estate has been probated and the tax bill paid.

The banks will not allow you to withdraw any money; they will only allow bills relating to the property to be paid from the account.

This 'disaster area' is making the specialist media in the UK sit up and take notice. It could be as cataclysmic as the Land Grab laws. Thank God I rent. I know my children will be grateful, but it shouldn't be that way.

That is one way but breaking the law and leaving you exposed to fines.

I have just experience all this with the death of my Father in Law. Leaving his wife at the mercy of the lawyers.

Because of her awful experience I sought out a way to avoid the same happening to my wife. I say my wife as it usually us chaps that go first isn't it?

I have discovered and taken a more simple and legal route to ensure that my hard earned assets stay with my family and those that are named in our wills.

For those that want to know more and want to do it legally, no dodgy abagados, no black money, no looking over your shoulder and totally stress free. I would be delighted to share that information with you.

I also believe that it can be done up to 2 years after the death of a spouse by a deed of variation.

By the way this method also saves you a substancial amount of Spanish tax during the buying and selling process.

Kind regards

Bob

I am a little late to this string so apologies!

It is clear that this area of financial planning is somewhat complex to understand and certainly worrying for some. But the reality is that there are many simple steps that can and should be taken in order to mitigate if not eliminate the threat. In many cases the exposure to ISD is small if not zero and hence, each case has to be looked at on it's own merits.

And, as I have implied, a lot of the concern that exists is somewhat excessive or even overcooked. But certainly it is better to find out your own position to be sure.

There are some general rules that should be followed in order to i) reduce/eliminate the exposure and ii) thus simply the handover to the surviving spouse or end beneficiaries (in most cases children).

Firstly, for ordinary purchasers, consider who is to go onto the property ownership. Family politics allowing, the addition of children can ease the transition on death greatly and reduce tax exposure.

Secondly, consider a Spanish Will for each (part) owner. Remember that ISD here is beneficiary taxed and not, as in the UK, on the deceased so the general rule is to use multiple beneficiaries, each of whom has a personal ISD allowance.

Thirdly, when buying, consider using a mortgage to reduce equity investment. The negative with the mortgage is the monthly repayment but remember you have capital that has not been invested to use for such. This capital should not be in Spain as otherwise that too will be exposed to ISD tax.

Forthly - and this does not apply to all - a non Spanish 'Holding Company' can be used to purchase the company rather than an individual. This company is owned by the would-be purchasers and, on a death, it is the shares that are transferred to beneficiaries. Hence, no change in the ownership of the property in Spain. And i) the Spanish do not like to see these structures (they smack of tax evasion) and ii) there is still a potential IHT exposure in the home country as the shares of the company will have an inflated value.

A complex route to consider though for a risk that may be small and which could be overcome following the simpler and more economic 'fixes' as above.

A final comment re some of the previous posts.

1) ISD is calculated on exposure at the time of the death. That means all assets in Spain (at least - subject to Tax Residency status) including joint bank accounts. To remove and not advise the authorities is potentially fraudulent. Many people may do it but that does not make it right!

2) Delayed reporting. The same risk as above. The obligation is immediate. I have seen cases where the clients have been advised to 'stick their heads in the sand' for some years after which the tax exposure is reduced or removed.

But what if another death occurs in the meantime! Boy, then there will be a mess to resolve.

No, better to understand the nature of the tax (it varies by province but follows a genral national line) and then address it to suit your own and family circumstances.

The original thread has lead to lots of comment.

Thanks to everyone. The main message is get professional help!

DJ

Good answer Rose FP.

Except that in most cases having a mortgage does not negate the asset as generally there will be insurance policy to cover the mortgage.

Point taken Bobwad.

Actually, the percentage of borrowers that have life cover is fairly low, despite increased pressure from lenders to have this.

And, of course, the policy does not have to be Spanish issued and, for non residents, Brits, they will find it cheaper to organise in the UK. And, when the policy is paid out it will not enter Spain, so no IHT exposure on that!

Hi,
Hippyshake i know it's a bit late but the 4 year period is taken from the End of the 6 mths that you have to pay the tax in. So you have to wait 4yrs.6mths and 1 day to be on the safe side BUT if they think you have done it just to avoid the tax rather than being an ignorant foreigner they will still chase you! If you don't need to sell it wait for a long period of time and then change it over. As Jazmines II said, the Spanish just wait for years ( if they can ) and ignore it then plead ignorance. CDThader's right too, our Bank manager said the same, clear the account into the other before telling me and he also advised, when we opened individual deposit accounts, that each of us is a signatory on the others account and able to access that account for that purpose.

One way to overcome IHT in Spain is to transfer the deeds of your property to a UK company. But this has an initial cost of around 8000 euros or more and regular management fees. Apparently Spanish law will change to abolish some part of the IHT burden before to long so be carefull as to what you do. Another way for people in good health is to take out life assurance to cover the liability. This can be easy and inexspensive.