Spanish Inheritance tax does not
working the same way as U.K. Inheritance Tax.
The fundamental difference between the
systems is that in the UK Inheritance Tax does not apply between spouses,
however in Spain you are deemed to own the property on a 50-50 basis (assuming
the property is registered in joint names) and that on the death of one of the
spouses, the surviving spouse inherits the 50% of the deceased spouses share. It
is at this point that Inheritance Tax can become an issue. (This tax applies to
residents as well as non residents) All taxes must be paid within 6 months of
the date of death.
The table of inheritance tax, in the
form of a progressive or sliding scale, starts at 7.65% and it goes up to 34%.
Depending on the pre-existing wealth of each beneficiary and the group to which
he/she belongs as above, the resulting tax can be in excess of 80%
For those who are not resident in
Spain for tax purposes, only property situated in Spain or rights capable of
being exercised or enforced there are classified as pre-existing wealth.
The amount of tax payable by a
beneficiary will depend on the net value of his/her share in the estate;
i.e. the actual market value of the assets less deductible charges, debts
and expenses. 3% of the net value of the estate is normally added to take
into account personal chattels.
Accordingly, in contrast to the
practice in the UK, Spanish inheritance tax is not calculated on the total value
of the estate or property transferred but, rather, on the value of the share
acquired by each beneficiary.
Inheritance tax is normally paid when
the documents relating to the estate are filed, by self-assessment.
Tax payment or tax declaration must be
filed within 6 months from the date of death; otherwise, surcharges and interest
for late payments may apply.
Taxes must normally be paid in full at
the time of making the self-assessment although it is possible to obtain a
deferment of payment of up to five years in certain cases, but interest will be
charged.
Tax authorities have a period of four
and a half years within which they may review the self-assessment and request
extra tax payments if they consider the value of the assets to be understated.
spanish inheritance tax,spanish property tax,tax free allowance,spain
tax on property |
Offshore Companies and Spain
From January 1 1996, the law over the
taxation of Spanish properties owned by offshore companies changed.
An annual tax of 3% of assessed value
is placed on all such properties regardless of whether the real beneficiary is
declared. Up to January 1 1996, if the real owner declared himself, no tax was
payable. From 1st January, a tax of 3% will always be payable each year. (There
is a two year grace period for those who previously obtained exemption, so that
for them the 3% annual tax starts on January 1 1998.)
Exemption is given if both the company
and the real beneficial owner are resident in a country, which has a Double Tax
Treaty with the UK. (Gibraltar, Jersey and Guernsey have no such agreement, but
the UK does.)
The steps someone with an offshore company might take are as follows:
Pay the 3% tax, leaving the property
in the offshore company.
If UK tax resident, the individual
could make their offshore company (in, say, Gibraltar) a UK resident company
without selling the property in Spain. By appointing UK residents as a
majority (or all) of the Directors of the Offshore Company then the company
will be "managed and controlled" in the UK. In other words, it will become a
UK tax resident company, and protected by the Double Tax Treaty. This could
lead, however, to UK benefit in kind tax charges depending on other matters.
Liquidating the company and transferring the property to the beneficial owners
name might lead to:
1% tax on asset distribution in Spain.
6% transfer of property tax payable by
the "new" owner
Nonresident capital gains tax of
35% payable by the offshore company on disposal.
This is a very expensive way to purchase property in Spain as one also needs
to consider the annual running costs associated with running a Spanish
company as well as perhaps the costs of an offshore company!
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On the unfortunate death of any of the
property owners, the remaining heir(s) must collect together a number of papers
to claim the Inheritance, the Escritura for the Acceptance of the Inheritance
must be signed and handed in to the Property Register and taxes paid - all
within 6 months of the date of death.
There are tax-free allowances
available to certain beneficiaries.
Group I: spouses, parents and grandparents
and adoptive parents: € 15,956.87 as well as direct issue and legally adopted
children who are 21 years of age or older, plus € 3,990.72 for each year by
which the beneficiary is under 21, up to a maximum of € 47,858.59
Group II: siblings, uncles and aunts,
step-parents and step-children: 7,993.46 Euros.
Group III: cousins, distant relatives and
unrelated persons. No tax-free allowance.
NB.
Be aware that unmarried couples do not come under Group I: but Group: III and
depending on existing wealth can be in excess of 80%.
As from April 6 2001, the UK Inland
Revenue to the Spanish tax authorities will send details of all interest bearing
bank or building society accounts in the UK, with a Spanish address. In fact,
this information exchange is with over 30 other countries, and not just Spain.
Why give 40% to the Taxman when you
don’t need to?
In June 2002, the Spanish authorities announced that they had signed a similar
agreement with the Channel Islands. This follows the discovery of secret bank
accounts held by BBV (Banco Bilbao Vizcaya), and effectively ends the Channel
Islands banking secrecy rules.
For further
information on the exchange of information issue please read the section on
Swiss Banking.
spanish inheritance tax,spanish property tax,tax free allowance,spain
tax on property |
Tax Table
|
Tax base(€) |
Tax Payable(€) |
Remaining Tax
Base(up to €) |
Applicable Rate
(%) |
|
0 |
|
7.993,46 |
7,65 |
|
7.993,46 |
611,5 |
7.987,45 |
8,5 |
|
15.980,91 |
1.290,43 |
7.987,45 |
9,35 |
|
23.968,36 |
2.037,26 |
7.987,45 |
10,2 |
|
31.955,81 |
2.851,98 |
7.987,45 |
11,05 |
|
39.943,26 |
3.734,59 |
7.987,45 |
11,9 |
|
47.930,72 |
4.685,10 |
7.987,45 |
12,75 |
|
55.918,17 |
5.703,50 |
7.987,45 |
13,6 |
|
63.905,62 |
6.789,79 |
7.987,45 |
14,45 |
|
71.893,07 |
7.943,98 |
7.987,45 |
15,3 |
|
79.880,52 |
9.166,06 |
39.877,15 |
16,15 |
|
119.757,67 |
15.606,22 |
39.877,16 |
18,7 |
|
159.634,83 |
23.063,25 |
79.754,30 |
21,25 |
|
239.389,13 |
40.011,04 |
159.388,41 |
25,5 |
|
398.777,54 |
80.655,08 |
398.777,54 |
29,75 |
|
797.555,0 |
199.291,40 |
and over |
34 |
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