Inheritance tax allowance increase in 2018

Information and questions about the Law in Spain and Andalucia.
D1ckyS
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Inheritance tax allowance increase in 2018

Postby D1ckyS » Thu Oct 19, 2017 11:53 am

We have been planning to make the move to Spain in the near future but have been holding back due to the possibility of having to pay Impuesto sobre Sucesiones on a potential UK inheritance.
I have had a rollercoaster of emotions over the last few days! My hopes were raised when I read on here and elsewhere of the new 1 million Euro tax free allowance due to come into force in Andalucia in January 2018. They were then dashed when I read elsewhere that one had to have been resident here for the last 5 years for this to apply. They have now soared again upon reading that a State law in 2015 confirmed an EU ruling that non-residents should be treated the same as residents for inheritance purposes and therefore the 5 year residency rule no longer applied.
Is this the case and/or has anyone been through this process since 2015?
I will, of course, take professional advice but it would be great to have your opinions or experiences.
Many thanks
Richard

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Re: Inheritance tax allowance increase in 2018

Postby Paddy Pumpkin » Thu Oct 19, 2017 4:37 pm

Ok....10 million disclaimers on this...but here is my take

The 5 years rule is relevant to people who are resident in Spain but switch where they live. It is to prevent people who know they will come in to money just moving to Madrid where taxes are lower. So the authorities look at where you spent the majority of your last five years that you were resident in Spain..... So for example 2013, 2014, 2015 you lived in Malaga the 2016 & 2017 you lived in Madrid. December 2017 you get an inheritance. For Inheritance tax purposes you are resident in Andalucia (bad news!)

So then how do they treat people who let's say only moved to Spain 15 months ago and then get an inheritance. My understanding is that you are tax resident in the part of Spain in which you spent the majority of time you have been resident in Spain. So if you only lived in one place in that time then that is where you are resident.

So it would appear that you will be entitled to the new 1 mio limit in Andalucia (provided the inheritance is from a spouse or parent).

On the subject of professional advice....be careful, I have had two 'expat' advisors tell me that there is no double taxation agreement with UK and Spain ...which is true. Then try to get me to use their services. However what they did not point out is that it is written into Spanish law that taxes paid in anither country are deducted from the bill.

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Thu Oct 19, 2017 4:39 pm

I take it you are concerned about being resident in Spain when you receive the inheritance and that the deceased is resident in the UK and the assets are in the UK.

The new allowances only apply between parents and children or between spouses, so your relationship to the deceased is critical.

Another factor is that the deceased must be an EU resident. The "harmonisation" rules that you refer to are only applicable in the EU. If the death happens after Brexit, that could affect the issue as the deceased would no longer be an EU resident. If that was the case only the normal state allowances (€16k) would apply.

That is only my interpretation of the new rules, but I would suggest that you check it out with a professional advisor as it is a very recent change regarding Andalucia and is not well documented so far.

Sid

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Thu Oct 19, 2017 4:42 pm

Paddy Pumpkin wrote: I have had two 'expat' advisors tell me that there is no double taxation agreement with UK and Spain ...which is true.


There is a Double Taxation Treaty between Spain and the UK and has been since at least 1972.

Sid

Edited

As pointed out below, although there is a DTT it technically doesn't cover IHT for the reasons given.

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Re: Inheritance tax allowance increase in 2018

Postby AkoAko » Thu Oct 19, 2017 5:15 pm

I know from experience of the situation in 2015 and not a lot has changed from what i can see . I inherited €350k from a parent , there was no liability in the UK but here the only allowance in Andlucia was €16k and the tax bill would have been well over 50k however we didnt need the money and certainly didnt need the hassle and associated costs of administrating everything with obtaining paperwork from the UK when ever the tax man decided they wanted to see something then getting it translated by an officially registered translator , lawyers fees ect so i disclaimed it in favor of my siblings in the UK .

Before anyone points out that Andalucia has a 175k allowance which i am entitled to then they need to read the terms of the allowance . Up to 175k totally tax free , €1 euro over 175k and the whole local allowance is lost and your left with only the state allowance of 16k . Jan 1st 2018 i understand thins change and the allowance increases to 250k but more importantly than the increase is you get to retain the whole amount and only pay tax above this threshold .

The date of death is the deciding factor and the 4 year rule 4 which for inheritances was actually 4 and a half years as its taken not from the time of death but from the time the tax was due to be paid however its not relevant now anyway so for those thinking of keeping quiet for 4 and a half years they changed the rules to stop that practice because the clock now starts when the taxman becomes aware that there was an inheritance and i doubt they would put off asking for the tax for that long .

Dont hold me to the date but i think it was in August 2015 that an important rulling by the the EU came into effect in Spain that basicly states that the beneficiary can elect to have all laws relating to inheritance of the country of the deceased can be applied , that does not apply to tax should there be any due under Spanish inheritance rules but there are laws in the UK which Spain has agreed to accept that can be used to reduce of even totally mitigate any liability in Spain easily . I am not referring to the rules for disposal of the deceased estate , thats a totally different matter and simply circumvents Spanish rules on succession ..

No one so far has mentioned another factor that comes into play when looking at allowances from inheritance and thats the personal wealth of the beneficiary as it can make a world of difference to what allowances they are or are not entitled to , not at the time they learn of their inheritance but what their wealth will be after they receive their inheritance meaning its added to whatever they are worth without it , if their worth 300k and they are due to inherit 300k then their worth is calculated as 600k for the purposes of calculating allowances .

Technically the double taxation agreement dosnt apply to inheritances as it only applies to situations where there are similar taxes earnings would be the simplest example . In the UK tax is levied on an estate , in Spain its levied on the beneficiary and that varies with several factors such as how closely they are related , where they live in Spain etc , there is also no allowances between spouses here , in the UK its 100% so its not the same at all and cant be compared .

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Re: Inheritance tax allowance increase in 2018

Postby D1ckyS » Thu Oct 19, 2017 9:12 pm

Thanks for the responses.
Sid: Yes, the inheritance would come from my sole surviving parent so this allowance is relevant. I take your point about the post Brexit uncertainties but this is one of many (see below)!
Paddy: My understanding is that this ruling/law applies to ALL EU citizens living in Spain but not resident for the previously required 5 years.
AkoAko: I believe that the current limit is already 250k and that it becomes 1 million in Jan 2018.
My next worry is that if my wife retires as a teacher in August next year and takes her (to the UK) tax free lump sum that, to be safe, we would need to stay in the Uk till October to ensure that we were resident there for that tax year. Given the differing tax years it seems to me that the period July to October is a grey area tax residency wise or does your habitual domicile status take predence?
We then have the whole post-Brexit scenario of her (being French) being an EU citizen and me not! You can see that I'm a bit of a worrier!

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Thu Oct 19, 2017 10:20 pm

The Spanish tax year would take precedence as that is the calendar year. That would mean that if you arrived in July you would avoid tax on the lump sum taken in the previous months as you would not be tax resident in Spain.

You are tax resident in the UK after only 90 days or less so would still be tax resident there if you moved out in July. Anyway, that’s not relevant as you will only pay tax on it if you were tax resident in Spain. Whether you were tax resident in the UK doesn’t make any difference as far as I can see.

You are right to be worried because getting it wrong could be expensive!

Your or your wife’s EU citizenship isn’t an issue once you are tax resident in Spain, in the case of the IHT, it’s your father’s EU residency (or not) which is the issue.

Sid

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Re: Inheritance tax allowance increase in 2018

Postby AkoAko » Thu Oct 19, 2017 10:53 pm

Your correct , i was wrong on the date of the increase to €250k , after July 2015 i stopped my research and made my decision on what i felt was best for myself but a friend showed me the article in the Euro weekly or the Sol Times a few months ago about the increase to €250k and it said from Jan 1st next year , i remember remarking TYPICAL and accepted it and never had reason to look into it further however after your post i have looked and the Euro weekly defiantly had their facts wrong , either that or they reprinted an old article .

Have not read anything about a million , seems to good to be true but im sure you have done your research on it as its something that will be of interest to you now .

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Fri Oct 20, 2017 7:49 am

AkoAko wrote:eir facts wrong , either that or they reprinted an old article .

Have not read anything about a million , seems to good to be true but im sure you have done your research on it as its something that will be of interest to you now .


I posted the information quite recently. The changes were made in late September.

Plenty of sites with the information here

https://www.google.es/search?q=andaluci ... 7&bih=1237

Sid

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Re: Inheritance tax allowance increase in 2018

Postby Paddy Pumpkin » Fri Oct 20, 2017 9:53 am

El Cid wrote:
Paddy Pumpkin wrote: I have had two 'expat' advisors tell me that there is no double taxation agreement with UK and Spain ...which is true.


There is a Double Taxation Treaty between Spain and the UK and has been since at least 1972.

Sid

Edited

As pointed out below, although there is a DTT it technically doesn't cover IHT for the reasons given.




Yes sorry I should have been more precise to avoid confusion.....no DTT for IHT. However to confirm IHT tax paid abroad is dealt with in Spanish law so you don't pay twice. You do however have to pay the difference if the Spanish bill is higher.

Point regarding advisors though is still very relevant. The level of knowledge within the advisors I went to see was horrendous. For example one didn't even know that rental income was 60% tax deductable. Another one from a big company who write their own guide book didn't know the contents of the book. I had read the book and had to pull him up on things in our meeting. i walked away from meetings with the distinct feeling that they were at a minumum trying to scare me in to believing I had a tax bill much bigger than I had or worse they simply didn't have a clue. Anyway my advice on advisors is take away what they say and check it.

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Fri Oct 20, 2017 10:17 am

It's not just the "advisors" that get it wrong. A friend recently went to the tax office to do his RENTA declaration. He receives a government pension as an ex-teacher. He was concerned about the new DTA which now says that such pensions have to be declared but are still tax free in Spain. Apart from the tax man not understanding the new procedures he was adamant that the only UK Govt pensions that are tax exempt in Spain were police pensions!

Sid

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Re: Inheritance tax allowance increase in 2018

Postby Paddy Pumpkin » Fri Oct 20, 2017 10:28 am

Very true...I had an issue at hacienda were the guy at the counter had no clue about the subject.... so called in the head of the whole office. I told the bosss what I was after...he said it was not possible I was wrong. I showed him the webpage...his reply....the agencia tributaria website was wrong!

Anyway hired a gestor and surprise surprise...I was right and got what I was looking for, just cost me an extra E120.

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Re: Inheritance tax allowance increase in 2018

Postby oliveview01 » Fri Oct 20, 2017 2:02 pm

I am totally confused! I had a letter out of the blue, my brother died almost 10years ago it seems there is a small pension that I might inherit. Both me and my husband are beneficiaries in his will. We are only talking of £5,000 more or less, they cannot give me a full figure yet. Do I pay take on it or is it below the inheritance tax threshold?
Thanks in advance!
PS we are tax residence here

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Re: Inheritance tax allowance increase in 2018

Postby D1ckyS » Sat Oct 28, 2017 8:38 pm

Sid,
One more brain-pick!
Further to your comments above and on another thread about the potential loss of the new IHT allowance post-Brexit for UK citizens I may have come up with a solution, at least for me, but it may be worth bearing in mind for others in a similar position.
If the UK estate I am potentially a beneficiary of were to give me a "gift" pre-Brexit, and whilst UK tax resident, of an equivalent amount to that I might receive in the will, possibly post-Brexit and Spanish resident, would that protect me from the future potential post-Brexit loss of IHT allowances? Apart from helping me now it would enable the estate to, hopefully, benefit from the UK 7 year IHT taper relief rules.

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Re: Inheritance tax allowance increase in 2018

Postby elusive » Sat Oct 28, 2017 8:59 pm

If you get given money while a uk resident ,long before moving to spain then i dont see why there should be any issue with whatever money you have pre becoming a spanish resident.haciendas issue is about whether the money came from spain or the person getting it is a spanish resident interms of tax issues

Re the seven year. A neighbour who did trust planning etc said in reality the 7 seven year rule doest excist because if HMRC thinks the asset was given away with the intent to avoid taxes they can go after you at any time .of course its only relevent if the estate is above the IHT limit anyway.

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Sat Oct 28, 2017 9:46 pm

D1ckyS wrote:Sid,
One more brain-pick!
Further to your comments above and on another thread about the potential loss of the new IHT allowance post-Brexit for UK citizens I may have come up with a solution, at least for me, but it may be worth bearing in mind for others in a similar position.
If the UK estate I am potentially a beneficiary of were to give me a "gift" pre-Brexit, and whilst UK tax resident, of an equivalent amount to that I might receive in the will, possibly post-Brexit and Spanish resident, would that protect me from the future potential post-Brexit loss of IHT allowances? Apart from helping me now it would enable the estate to, hopefully, benefit from the UK 7 year IHT taper relief rules.


Yes you could do that but the new allowances do not apply to gifts. All you get are the basic state allowance of 16k. Brexit would not change that. Yes the UK end of it would be different if death was later than 7 years but the Spanish gift tax is payable in full at the time of the gift.

Sorry about that but a good try!

Sid

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Re: Inheritance tax allowance increase in 2018

Postby AkoAko » Sun Oct 29, 2017 12:03 am

From August 2015 Spain followed the EU ruling designed to simplify the handling of estates where different countries and rules apply , it officially accepts all laws and mechanisms connected with UK estates so a Deed of Variation can be used to transfer to someone else and thats treated as if the benefactor had included it in their will or in the case of no will the same applies , it is not treated as if you inherited it and gave it away but treated as if you had never inherited it so as long as the deed of variation is in favor of a non Spanish resident it has nothing to do with Spain . You could for instance transfer sufficient only to take you below the IHT threshold and accept the remainder .

The 7 year rule becomes a sliding scale attracting a lower tax rate the longer the benefactor of the gift survives between 3 and 7 years . If given for instance 2 years before death it would be added back to the estate which then would be taxed if the total value exceeded the threshold , ignoring the 3k annual amount it would only be taxable if the threshold were exceeded , if less then it would not be taxed .
The 7 year taper relief rule on gifts is detailed on the UK government website and details the sliding percentages that apply to sums gifted over the £325k allowance
The value gifted is not on amounts over 325k , its everything combined over 3k annually for the current and previous year .
Last edited by AkoAko on Sun Oct 29, 2017 1:20 pm, edited 4 times in total.

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Sun Oct 29, 2017 8:26 am

I know how it affects inheritances, because a Spanish resident friend had a property in the UK. When her spouse died, she inherited his half of the house. To avoid Spanish IHT the UK will was changed to leave it to the children instead.

I'm not sure how that changes the situation where a Spanish tax resident receives a gift from the UK. Surely that does not change the fact that in Spain Gift Tax is applied at the time of the gift and in this case D1ckyS clearly wants to receive the money, not see it transferred to someone else.

Sid

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Re: Inheritance tax allowance increase in 2018

Postby elusive » Sun Oct 29, 2017 9:24 am

El Cid wrote:
D1ckyS wrote:Sid,
One more brain-pick!
Further to your comments above and on another thread about the potential loss of the new IHT allowance post-Brexit for UK citizens I may have come up with a solution, at least for me, but it may be worth bearing in mind for others in a similar position.
If the UK estate I am potentially a beneficiary of were to give me a "gift" pre-Brexit, and whilst UK tax resident, of an equivalent amount to that I might receive in the will, possibly post-Brexit and Spanish resident, would that protect me from the future potential post-Brexit loss of IHT allowances? Apart from helping me now it would enable the estate to, hopefully, benefit from the UK 7 year IHT taper relief rules.


Yes you could do that but the new allowances do not apply to gifts. All you get are the basic state allowance of 16k. Brexit would not change that. Yes the UK end of it would be different if death was later than 7 years but the Spanish gift tax is payable in full at the time of the gift.

Sorry about that but a good try!

Sid


Why would spanish gif tax apply if the poster is receiving any money long before he moved to spain and became tax resident which is what they are saying?

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Re: Inheritance tax allowance increase in 2018

Postby El Cid » Sun Oct 29, 2017 9:52 am

Yes, you're right, he was originally looking at the situation if he became resident. I missed the point that he would accept the gift before that so it does indeed look like a "cunning plan".

I really must resolve to not respond to complicated tax questions after dinner!

Sid


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