You’ve probably heard that Spanish Inheritance Tax (ISD) can be particularly punitive possibly as much as 82% of the value of the gift and that there is no way of avoiding this charge.
Well let’s start with a few facts. First unlike in the UK where the tax is levied on the estate of the deceased, in Spain it is the recipient of the lifetime gift or inheritance who is the taxpayer and spouses are not exempt. Under UK Inheritance Tax Law a spouse is usually an exempt beneficiary but with Spanish tax this is not the case.
An individual resident in Spain is liable to tax on receipt of assets sited anywhere in the world.
An individual not resident in Spain is liable on receipts of assets that are situated in Spain.
Nationality or domicile has no effect on whether tax is payable the simple question is where do you reside and where are the assets situated. So a married couple who jointly own property in Spain, whether resident or not, would be subject to ISD payable by the survivor on the deceased spouses share of the property. This would apply to all assets not just bricks and mortar.
You should also remember that as far as the UK is concerned inheritance tax is payable if you are UK domiciled and if you have lived in the UK for 17 out of the last 20 tax years you will be subject to UK tax on your worldwide assets so property in Spain could be subject to tax in two jurisdictions. Furthermore whilst there is a double taxation tax treaty in existence between the UK and Spain this does not apply to inheritance tax except when “similar taxes” are involved. NO relief is available where no foreign tax has been paid so on the death of an English domiciled couple resident in Spain there is no UK inheritance tax due and therefore no relief against any ISD between spouses.
Whilst there can be some significant relief in some of the autonomous regions that make passing residential property between spouses virtually tax free there will always be a liability on money invested in Spanish banks.
So are you going to bury your head in the sand or arrange your affairs in a proper and efficient manner so your beneficiaries pay the minimum amount of tax they are obliged to do?
The first thing to be aware is that no two people are the same and there isn’t likely to be a one size fits all answer. You will have no doubt seen solutions put forward such as transferring your property into a company, arranging a massive mortgage on your property, transferring your investments into a trust arrangement or putting them into an offshore company or just simply arranging a life policy that will cover the amount of tax that is likely to be due when you die.
Each of the above can be problematic for example can you actually raise a mortgage, get or afford insurance or set up a trust arrangement in a country that doesn’t recognize trusts? Will the shares in the UK company be subject to Inheritance Tax if the company is purely a shell and does not trade?
We do not come with any pre conceived strategies but we know what does work and what doesn’t both from a UK and Spanish perspective. Don’t you owe it to those who will eventually share your wealth to protect it from tax wherever possible, both whilst you are alive and also when you are gone.
Speak to one of our financial advisers by emailing firstname.lastname@example.org or telephone 956 796 911.