Stalwart wealth management

Your estate may not be subject to inheritance tax (often referred to as succession tax in Spain). Much depends on whether you live in Spain, and if so where.

If you’re not habitually resident in Spain the state succession tax rules will apply to your estate. However, if you’re a resident in Spain and have been for at least 5 years your estate will be treated according to the rules set by the autonomous community where you live.

Non Resident Property Owners

If you don’t live in Spain, but you own a holiday home here, the beneficiaries of your estate (note that the liability rests with the inheritor rather than the estate) when you die will be liable for succession tax on your Spanish situated property - when I say beneficiaries this includes the spouse of the deceased. Under the state rules each non resident beneficiary is entitled to an allowance of approximately €16,000 above which tax is payable at the scale rates (7.65% – 34% depending on the value of the estate).

E.g. Let’s say you own a Spanish situated property with an escritura value of €150,000 and this is your only Spanish asset. You die, and in your will you leave the property to your spouse. Your spouse has a tax-free allowance of €16,000, so the taxable estate is €150,000 – €16,000 = €134,000 and the associated succession tax liability will be €18,000.

Resident Property Owners

As for non residents, the liability to succession tax rests with the inheritor rather than the estate, and the inheritor is liable for Spanish succession tax on any assets they inherit regardless of whether the assets inherited are situated in Spain or not. However, if you inherit assets located outside Spain you can usually claim an allowance for any foreign inheritance taxes paid.

There are quite a few reliefs and allowances, and they vary between each autonomous community, but I’ll try to give you a flavour of what’s available below: -

The following allowances apply for spouses and children: -

Andalucia – 100% of the inheritance providing the amount inherited is less than €125,000 and the beneficiary has personal wealth of less than €402,678. Otherwise circa €16,000 per beneficiary.

Cataluna – €18,000 per beneficiary.

Islas Baleares (IB) - 99% of the tax due for habitual residents in IB (defined as resident for at least 1 year before the death); €25,000 for each non resident beneficiary.

Islas Canarias - 99.9% of the tax due for habitual residents; €18,500 for each non resident beneficiary.

Murcia – 99% of the tax due for habitual residents; circa €16,000 for each non resident beneficiary.

Comunidad Valenciana - 99% of the tax due for habitual residents; €40,000 for each non resident beneficiary.  

So in certain communities there’s no tax to pay providing you’re a resident (read as paying resident’s taxes). The length of time that you need to be resident before you qualify for the higher levels of relief available in certain communities varies from one to five years. If you live in a community where the five year rule applies I’d recommend a short term life policy to pay the potential tax liability – contact us for an assessment of the potential liability to succession tax on your estate.

On 18th April 2008 Spain’s Council of Ministers approved a measure to abolish wealth tax from 1st January 2008. However, if you’re Spanish resident and your assets are worth more than your allowances (up to €150,253.03 for the main home plus up to €108,182.18 for all other Worldwide assets) you may still be required to file a wealth tax return.

If this is the case you will be given a 100% credit for your assessed wealth tax liability, which means that, as the rules stand at the moment, you will pay no wealth tax. It’s worth noting that wealth tax hasn’t been completely abolished since the tax credit of 100% could be reduced in the future.

For non residents, the annual tax payment made until 2008 in respect of your Spanish holiday home comprised both wealth tax and an element of non residents income tax.  The wealth tax declaration no longer needs to be made, but the tax on the deemed rental income from the property will still be payable via a separate return.

The deemed income earned is equal to 2% of the property’s catastral value. Where the catastral value has been reassessed since 1^st January 1994 the deemed income drops to 1.1% of the catastral value but in the absence of a catastral value the it’s deemed to be 1.1% of exactly one half of the purchase price, or the escritura value if higher.

The income tax is then calculated at the non residents rate, which is currently 24%. Residents who own a 2^nd home are also charged tax on a deemed income arising from the 2^nd home. The deemed income is calculated in the same way as for non residents, but the rate of tax payable will be equal to your highest marginal income tax rate.