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The Problem

The UK system of (IHT) Inheritance Tax a Husband or Wife are usually an exempt Beneficiary, but in the Spanish system...

Your Husband or Wife may not be exempt from Spanish Inheritance Tax.

The level of Tax payable is not a fixed rate and is determined by the relationship to the deceased, their residency status and their existing wealth in Spain. In addition the estate of the deceased could be liable to pay Inheritance Tax in their country of domicile. When you take into account Spanish death duties, Inheritance Tax, legal and agency fees, accounting fees in both Spain and the UK, and other 'incidentals'....possibly 40%, but maybe as much as 50% of the value of your property!

Spanish Inheritance Tax (IHT) in Spain differs from the UK. After an allowance (typically 15,957€) the balance is Taxed at rates from 7.65% up to an incredible 34%. It gets worse, when the inheritor is not a close relative of the deceased the Tax can increase by 140%, that means a possible top rate of 81.6%!

Can you be absolutely sure that those you leave behind will have the money to cover these costs?

The harsh reality is that your Spanish property, cash in a Spanish bank or gift could become a financial burden that your loved ones simply could not afford to pay.

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What is the difference between Death Duties in the UK and IHT in Spain?

In the United Kingdom, it is the estate of the deceased that is subject to Taxation.

In Spain however, it is the individuals who inherit that are taxed.

The other major difference is that there is no marriage exemption in Spain for non-Domiciled or non-Resident people.

Spanish Tax Residents are Taxed by the Region they live within and Non-Residents are all Taxed centrally by the Madrid Tax Office, irrelevant of Nationality, if they are inheriting assets or cash on the Spanish mainland or surrounding islands of The Balearic or Canary Islands.

When a Spanish property is in the joint names of a couple and on the death of one partner, the surviving spouse must pay Spanish Inheritance Tax on the value of the half he or she inherits. In the meantime the property and bank accounts can be frozen by the Spanish Government until all the Taxes are paid which must be within 6 months of the death otherwise fines and interest will be charged by the (Hacienda) Spanish Tax Office.

This means that if you do not plan ahead, and start now, the cold fact is that a huge chunk of your wife or children's Inheritance will go in Spanish Taxes and Probate costs.

What does Not work or could be classed as illegal...

You may believe you have covered the burden of Spanish Inheritance Tax by having a UK Will that states; 'all my world-wide assets'... thinking that you will then be fine as there is no Inheritance Tax between a husband and wife in the UK. Incorrect - Your property is in Spain and comes under Spanish law. It will be liable for Spanish Inheritance Tax and your estate will not be able to sell the Spanish property until this liability is discharged.

You have a Spanish Will. This is not true and a Spanish Will can often complicate matters as it may conflict with an earlier Will prepared in the UK. A Spanish Will cannot be varied after death and therefore limits the options of the Beneficiaries. If there is only a UK Will then, with agreement of the Beneficiaries, the Will can be varied to accommodate the inheritor's wishes should this be required.

Taking out a mortgage will reduce the Tax liability on death. Whilst it is true the value of the asset will be reduced by the amount of the outstanding mortgage, banks often insist that life policies are taken out which settle the mortgage on death and thus the Inheritance is the full value. Even without a life policy a substantial debt would remain outstanding which would have to be paid before the property could be transferred to the Beneficiaries.

Some people have even been advised to not inform the Spanish authorities of the death and wait for 4 and a 1/2 years for the Spanish Statute of Limitations to pass. This is Tax evasion and should never be considered. The Spanish authorities have many courses of action to take under these circumstances, none of which is good news for you or your family. Also if you do not inform Spain or banks of the death then the Co owners or Beneficiaries will be operating Spanish bank accounts illegally and paying the property bills and utilities knowing the owner is not alive.

2015 EU Legislation

The Spanish Government during early 2015 has made some changes to Spanish Inheritance Tax law after the European Court of Justice ruled the legislation, which exempted some Spanish Tax Residents from the Inheritance Tax and was discriminatory to non Residents inheriting Spanish assets as they are Taxed considerably higher.

The problem here is the 17 different Regions of Spain set their own Tax rates for Residents inheriting in their own Region they live within, but some of the Regions of Spain like Murcia and The Canary Islands have taken away the allowances for Residents in these Regions leaving no Inheritance Tax benefits when inheriting.

With this in place it now means non Residents of Spain who come to inherit assets in these Regions and use the new EU Law they believe there are many exemptions, but with the Regions financial focused on increased revenue they are starting to take away the Resident allowances, or reduce the benefits making it a much higher Tax to pay on death.