Paying Tax on value of Property on death

[alig99]

We have been advised that we have to pay tax on the value of the portion of the house left to the partner that survives (sorry don't know what the tax is called). This is not a problem, but could anyone advise how soon after death and being notified would the tax have to be paid? ali

[DavidSearl]

FROM DAVID SEARL

FOR ALIG99

You refer to inheritance tax. If both names are on the title deed, each partner owns one-half. If this half is left to the surviving spouse, it is subject to Spanish inheritance tax. If the partners are non-residents, this can be quite high.

You are not notified. Inheritance tax is one you must declare for on your own. You have six months to do this after the death is registered. If you wait longer you can be fined, 25 per cent for starters.

You can negotiate with the tax department for an extension of the time limits.

Good luck with it, David Searl

[alig99]

David thank you for your very helpful reply. We assume that the inheritance tax based on the 50% of the cadestral value, I appreciate that tax rate change but do you know what it currently is? many thanks in advance. ali

[El Cid]

The tax is charged on the current value of the property.

Since it is always difficult to decide what that is, especially if it is some time since you bought it, the tax office will have an idea of the minimum that is acceptable and that is based on the catastral value but that value is multiplied by a factor which varies from town to town. Typically is will be between 2 and 3 times the catastral value.

There is even an online calculator to work it out.

http://www.juntadeandalucia.es/economia ... Urbana.jsp

The tax rates can be found at http://www.spanish-taxes.co.uk/services ... -in-spain/

If you are residents of Andalucia there may well be no tax to pay at all as there are some very generous allowances before the tax kicks in.

Sid

[alig99]

El Cid, thank you for your response and the links there are very helpful, as a supplimentry question it is our understanding that the tax is only based on the half owned by the partner that had died? is that correct?

[Beachcomber]

Yes, correct. Could I also suggest that in the event of a part owner of a property being seriously ill but not yet dead you could consider a process known as 'disolucion de condominio' for which the tax is only 1%.

[alig99]

thanks Beachcomer, what a good idea

Just to let you know the reason behind the orginal question is that we have 2 spanish insurances to cover the inheritance tax bill but we are considering changing it when its next up for renewal, possibly for a UK life policy.

[Miro]

If you are residents of Andalucia there may well be no tax to pay at all as there are some very generous allowances before the tax kicks in.

Any link to these?

So, let me see if I understand this; using the calculator by entering the current valor catastral, locality & year of revision on your IBI receipt, you can obtain an approximate value of the property; halve it if one joint (50/50) owner is passing their half to the other; deduct any allowance as per the four groups - €15,965.87 if a spouse, nothing if not married; then find the relevant % tax rate from the table on the link given. What's the "cumulative tax" column mean? I think I'm missing something here.

Also, anyone know if couples who register as "pareja de hecho" are entitled to the same allowances as spouses?

[El Cid]

If both the deceased and beneficiary are residents of Andalucia and have been for 5 years then there is a special exemption of €125000. The other proviso is that they are close family (ie Group 1 or 2) and that the wealth of the beneficiary is less than €402678. If the amount of the inheritance exceeds €125k then only the state allowance of €16k applies. I think the allowance may be now €175k but I haven't confirmed that.

Your understanding of the calculation is correct. Cumulative tax is there to make it easy to read off the correct amount. The other way is to work out the tax in each band and just add it all up.

In Andalucia, pareja de hecho is considered the same as marriage for IHT purposes.

Sid

[Miro]

Thanks Sid, you're a star!

[Jool]

Sid you are a mine of helpful information - in this IHT context does resident mean physically resident or fiscally resident please?

[El Cid]

Sid you are a mine of helpful information - in this IHT context does resident mean physically resident or fiscally resident please?

Fiscal residency is based on physical residence in Spain.

In this case we are talking about living in Andalucia as a permanent resident for some considerable time and the allowances only apply to the "habitual residence". There does not seem to be a written rule but Blevins Franks suggest that to qualify for the special allowances both parties (deceased and beneficiary) would have to have lived in Andalucia for 5 years.

I have also clarified the €175k question I raised - the allowance is still €125k but the actual bequest can be up to €175k before the allowance is removed (originally it was €125k). So, if you are left €175001 you get no allowance except for the state allowance - carefully planning is obviously required!!

If this is likely to be significant in your own personal case it is essential to take good professional advice as early as possible as it is a very complicated subject and there are many ways of avoiding IHT.

Sid

[rafiki]

If this is likely to be significant in your own personal case it is essential to take good professional advice as early as possible as it is a very complicated subject and there are many ways of avoiding IHT.

Definitely room for a new book "You and Taxation in Spain" .... just distilling some of the excellent threads here on A.Com would be a very good start.

[concorde]

This is a purely theoretical question.
Say the property in question is only used minimally as a second/holiday home and the married couple are non-residents, if one of the couple died in the U.K., and then the Spanish house was put up for sale and sold, how would the Spanish authorities know that a death of an owner had occurred so how could the surviving owner be pursued for that particular tax?

[Miro]

Mejora de la reducción de la base imponible por la adquisición “mortis causa” de la vivienda habitual (aplicable a hechos imponibles producidos desde el 1 de enero de 2003).

* El porcentaje asciende al 99,99 % cuando la vivienda transmitida haya constituido la residencia habitual del adquirente al tiempo del fallecimiento del causante.

(This is from a link to Junta Andalucia that Sid very kindly sent me by PM)

Do I understand this correctly - that if you inherit your partner's half share of your property, as long as you can prove that at the time of death it was your main home, the taxable base will be reduced to effectively nothing?

And in answer to Concorde - if the property is in joint names, the dead partner would have difficulty signing at the sale. Unfortunately, the property would first have to be transferred to the surviving spouse's name, incurring IHT in the process. The only way to avoid this that I can see, is if you both sign power of attorneys in anticipation, then keep schtum. Or, wait 10 years or so before selling it, after which time I think any tax that was due cannot be claimed. Don't quote me on that though.

[El Cid]

First point - as far as I can see it could be a child that inherited the house and if resident then the big allowance would apply. The key point is that the house was the deceased's main residence.A surviving spouse/partner would obviously get the allowance.

Second point - yes, as you say, the big problem is selling the property. If you just want to keep the house and avoid the tax, not reporting the death is an option not uncommon amongst the locals. Four and a half years is the timescale - after that you are OK - statute of limitations and all that. This applies to many situations in Spain but beware, if deliberate fraud can be proved - big problem! I have heard both bank managers and lawyers propose this as a method of avoiding (evading?) the tax.

Sid

[Miro]

The key point is that the house was the deceased's main residence.A surviving spouse/partner would obviously get the allowance.

Really? I read it as "....when the property constitutes the main residence of the beneficiary at the time of death of the benefactor". I thought IHT was payable by recipients, rather than on the estate?

[El Cid]

That applies when you are claiming the 99.9% exemption and planning to stay in the house. The beneficiary must have lived in the house for 2 years.

The €125k exemption applies to any bequest, not just limited to the house. That's in paragraph 2 of the relevant section of the law that you are looking at.

Yes, the tax is paid by the recipients, unlike the UK where it is taken from the estate. The problem with the Spanish method is that you cannot get your hands on the money or sell the assets to pay the tax - it has to be paid first.

Sid

[Julie]

If one had a property valued at 200.000 euro you were married and non residents, what inheritence tax would the spouse pay?

I know some of you can work this out as quick as lightening, me I am just totally baffled.

[El Cid]

The tax would be €9838

Sid