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.

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.

From 28^th March 2007, UK (and other EU/EEA) nationals were no longer required to obtain a Residencia card. Instead, a new system of registration for Europeans was introduced whereby those wanting to stay in Spain for longer than 3 months needed to personally apply, before the end of their first 3 months of residence, at the local provincial Foreigners’ Office (usually located at the police station) to be registered in the Registro Central de Extranjeros.

After presenting various documents (different locations require different documents) usually including your passport and NIE certificate, you are presented with a certificate to confirm that you are registered. Due to the nature of the beast, unless your spoken Spanish is good, it’s better to pay a third party to go along with you to smooth the process.

The certificate differs from the old card in many ways; it’s bigger and more difficult to carry with you and because it’s a paper document, it’s quite flimsy; it doesn’t have a picture of you, so it’s no use as a form of ID in isolation, which means in certain circumstances that you need to carry a bulky passport with you as well. So, with the introduction of this new certificate we may have gained something, through elimination of the burdensome Residencia card application process, but we’ve lost the flexibility that the old card always gave us.

The British Embassy in Madrid recommends that British citizens in Spain always carry some proof of identity.

Over the last year the government has made several changes. Non residents have been affected in two ways. First of all, wealth tax has been all but completely abolished, and whilst it’s possible that it could come back in the future, wealth tax will certainly not be payable in 2008.

Following the change to wealth tax there has been understandable confusion amongst non residents about the continuing need to file a non resident’s tax return, stemming principally from its abolition. The current legal position is as follows.

If you are not resident in Spain and you own a Spanish situated property you still have to file a tax return in Spain every year. Historically, if you owned a property on 31^st December you had to file a wealth and deemed income tax return by the end of the following year e.g. property owned on 31^st December 2006 = return due between 1^st January 2007 and 31^st December 2007.

From 1st January 2009 onwards, if you are a non resident property owner you are no longer required to file a wealth tax return, but you are still required to file a non residents income tax return, and this return is due between 1st January and 30th June in the following year e.g. property owned on 31st December 2008 = return due between 1st January 2009 and 30th June 2009.

1. You spend more than 183 days in one calendar year, in which case you are deemed resident whether or not you obtain Residencia. Days spent in Spain do not have to be consecutive and temporary absences from Spain are ignored for the purpose of the 183-day rule, unless you can prove that you are habitually resident in another country for more than 183 days in the calendar year.
2. Your “centre of economic interests” is in Spain, i.e. the base for your economic or professional activities is in Spain.
3. Your “centre of vital interests” is in Spain – i.e. your spouse and/or your dependent minor children live in Spain. If this is the case you are presumed Spanish resident, unless proven otherwise, even though you may spend less than 183 days per year in Spain.

If you live on a boat within 12 nautical miles of Spanish land, you are a Spanish tax resident. A day within 12 nautical miles is a day spent in Spain for tax purposes.

In addition to the above allowances, residents are also entitled to make the following deductions:

1. Payments to the Spanish Social Security System.
2. Qualifying pension contributions. The limit for the under 50s is €10,000 and for the over 50s the limit is €12,500.
3. Maintenance payments made under a court order to a former spouse, but not payments for the benefit of a child.

The Worldwide savings income of residents and the Spanish savings income of non-residents is taxed at a fixed tax rate of 18% and basically consists of:

1. Dividend income
2. Interest income
3. Income derived from life assurance contracts
4. Purchased annuity income
5. Capital gains on sale/transfer of assets

Spanish residents are taxed on their world-wide ‘general’ income at progressive scale rates from 24% to 43%. Anything not categorised as ‘savings income’ is included here, including all earned income (i.e. salary, self-employment and pension income), rental income and any imputed income and gains not made on the sale or transfer of assets e.g. gambling winnings.

The general income tax rates are: