Don’t get caught out by Inheritance and Succession Taxes when moving to Spain
Buying a home in Spain is an exciting time, and there is certainly an awful lot to think about. Your inheritance and tax liabilities are probably not the first subjects that spring to mind, but it is incredibly important not to overlook the important financial planning that needs to be done before your move, particularly considering what inheritance tax can be levied and how to protect your worldwide estate. A move to Spain requires getting to grips with a different tax regime, and it can be very confusing. Spain Property Guide discusses the key points you need to be aware of.
UK Inheritance Tax
You could still be liable for UK Inheritance Tax (IHT), in addition to succession taxes, even when leaving the UK to live in Spain. It all depends on your domicile status, as UK Inheritance is also applied to your worldwide assets if you are domiciled in the UK. Don’t automatically assume that because there is a double taxation agreement between the UK and Spain that you will not be taxed in both countries. This is a really important issue for expats, so you need to know the facts – succession taxes in Spain is paid by the beneficiary, rather than the deceased, as, is the case in the UK. It’s also important to note that there are no exemptions for spouses to allow assets to be passed freely from husband to wife and vice versa without having to pay tax on those assets. Unfortunately, this means that somebody with UK domicile status could end up pay both the Spanish succession taxes in Spain and IHT in the UK.
Don’t automatically assume that because there is a double taxation agreement between the UK and Spain that you will not be taxed in both countries.
The amount of succession tax that needs to be paid changes across the different regions of Spain. In Madrid, the Balearics, Murcia and Valencia, up to 99 percent of assets can be passed from the deceased to children and/or spouse. The fact that these lucky residents have to pay a very small amount of succession tax is perhaps one of the reasons why many wealthy Spanish nationals choose these locations as their home. In Andalusia, there is a tax-free allowance of up to €175,000 to be inherited by a child or spouse. This rule is particularly strict – if you inherited €175,001, the one cent extra would mean that you had to pay succession tax on the full sum. The allowance in Catalonia is up to €650,000 for a spouse or €400,000 for children.
In early 2015, the European Court of Justice ruled that non-residents in Spain who own property there are now eligible for the same exemptions as residents, and may even be eligible for a refund for the difference they have had to pay over the years. This is particularly good news for holiday home owners and those who spend their time equally between the UK and Spain.
Gift tax liabilities
Succession tax is classed as a gift tax, so you are required by law to declare any gifts from relatives’ wills and pay tax on that amount.
Maximise your estate with currency planning
It is also possible to make the most of any estate left to you or that you wish to leave to loved ones internationally by using a currency specialist to avoid any unnecessary losses through unfavourable exchange rates, banking or transfer fees. You can even set the exchange rate using a Forward Contract on any large inheritance sums or regular payments, offering peace of mind at an otherwise difficult time for you or your family.
It is also possible to make the most of any estate left to you or that you wish to leave to loved ones internationally by using a currency specialist to avoid any unnecessary losses
The importance of finding the right advice
Owning property in Spain does raise a number of complex tax and other financial issues – it is so important to make sure you have covered all these different areas, and get the right advice on your liabilities. An independent financial advisor will be able to help you navigate this minefield and avoid risk wherever possible.