IHT

Information and questions about the Law in Spain and Andalucia.
Becca
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IHT

Postby Becca » Fri Aug 12, 2011 5:38 pm

Hi sorry if this has been asked before...I'm spanish resident and a beneficiary in my Aunt's Will. My Aunt was always UK resident and never owned property or had any assets in Spain at any time. The UK estate will be subject to UK inheritance tax. My question is as a spanish resident, do I have to pay gift tax ( or any other spanish tax) also on the amount that I receive, even thought the estate has been taxed in the UK ? If so, how much is payable
Thanks

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Re: IHT

Postby El Cid » Fri Aug 12, 2011 10:22 pm

If you are a Spanish tax resident then you will pay IHT on any inheritance, wherever the assets are located.

As you are not a close relative the allowance against the tax is half the normal allowance giving only 8K allowance and the tax rates are also increased by 60%.

The tax rates start at 7.65% and go up to 34% plus the increases I mentioned.

Any tax also paid in the UK can be allowed against the Spanish tax paid.

Sid

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Re: IHT

Postby Becca » Sat Aug 13, 2011 6:38 pm

Thanks Sid - Not sure I have got it yet though ! Are you saying that ( with the 60% increase because not a close relative) I would pay between 67.65% and 94% tax on any amount received over 8,000 Euros ?

By way of example: Say the estate in Uk was £500,000 and Uk IHT was paid at 40% over approx £300,000, so in the UK IHT tax was paid at £80,000 ( say 90,000 euros). Myself and another seperately receive the residual estate after tax of £210,000 each.

On my share of £210,000 ( convert to euros =say, 220,000 euros ) 220,000 - 8,000 allowance = 212,000 euros - can I then deduct the whole 90,000 euros equivalent paid in the UK leaving 122,000 euros which would be taxed in spain at either the 67.65% or 94% ?

Anything you can add would be very much appreciated !

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Re: IHT

Postby John & Kath » Sat Aug 13, 2011 7:23 pm

Hi Becca, I am no expert in this area but you must understand that the Tax on an estate in UK and that on the same estate in Spain are completly different.

In UK IHT is charged on the Deceaseds estate.

In Spain the Gift Tax is charged on the individual who receives the legacy.

So if the estate is taxed in UK and you pay £x the residue is divide between you (say 2) then you would have £x/2 to set against you tax charge in Spain.
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Re: IHT

Postby El Cid » Sat Aug 13, 2011 8:05 pm

Becca, the tax rates you quote are far too high.

There is a sliding scale of 16 tax bands from 7.65% to a maximum of 34% (plus of course your 60% surcharge).

On an inheritance of €212K the basic tax (max rate 21.25%) would be about €34k plus 60% making about €55k.

Since there is no Spanish property involved then I think you can deduct the Spanish tax from the UK tax rather than the other way round.

It is a very complicated area and there is no specific relief for IHT under the double taxation treaty between Spain and the UK but in the absence of that another relief kicks in. Some details here

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM27185.htm

I suggest you take some professional advice in the UK.

Of course you will only have this problem if you declare the UK inheritance to the Spanish tax authorities. It is for you to decide how you play it. Many Spanish do not declare their inheritances until the 4 year statute of limitations expire but this is now more difficult to get away with.

A UK inheritance may well slip under the radar.

Sid

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Re: IHT

Postby Chunky Monky » Sun Aug 14, 2011 2:36 am

I think Sid is right, what are the chances they would ever catch up with you?

As long as you are prepared to pay the penalty, just plead ignorance!

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Re: IHT

Postby julian » Sun Aug 14, 2011 9:32 am

"As long as you are prepared to pay the penalty, just plead ignorance"

The problem is some brits who knowingly don´t do things by he book here have a habit of later not being prepared to pay the penalty when found out, and plead ignorance even though they knew perfectly well what they were doing at the time, but their memories seem to fade.
They could always then write to Brussels to complain that the penalty is unfair as they were led to believe it was ok to not pay the tax at the time.

Those who knowingly avoid paying IHT tax by lying low for 4 years till it is unclaimable are just as bad as some of those who walked out of a looted store with a tv in their hands last week....and those who suggest others should do it are supporting stealing.

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Re: IHT

Postby El Cid » Sun Aug 14, 2011 11:15 am

julian wrote: Those who knowingly avoid paying IHT tax by lying low for 4 years till it is unclaimable are just as bad as some of those who walked out of a looted store with a tv in their hands last week....and those who suggest others should do it are supporting stealing.
I wouldn't disagree with that.

However it does seem that it is a solution promoted by lawyers gestors and even bank managers and has almost become the norm.

That said, as a loophole its days are numbered. I did read that the regional tax authorities (who are responsible for the tax) are now cross referencing all deaths with the property register and checking that the inheritance has been declared. It amazes me that they haven't done this before.

They will charge 20% interest on the outstanding amounts and fines from 50% to 150% - OUCH!

It's all down to the general crackdown on tax evasion. Hacienda collected 24% more tax last year than the year before and that's in a recession.

Back to the case in point, while I am obviously not condoning it, I think the the taxman has far more important things to do than chase for taxes on assets or capital gains outside Spain in the same way that they don't seem too concerned with earnings from outside Spain - probably because so few Spaniards fall into either category. HMRC on the other hand have a view that anyone who spends a few days in the UK should pay tax on everything!

Sid

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Re: IHT

Postby julian » Sun Aug 14, 2011 11:49 am

"However it does seem that it is a solution promoted by lawyers gestors and even bank managers and has almost become the norm"

that rings a bell !!! watch this space in a few years time !!

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Re: IHT

Postby John & Kath » Sun Aug 14, 2011 1:00 pm

El Cid wrote:
julian wrote: Those who knowingly avoid paying IHT tax by lying low for 4 years till it is unclaimable are just as bad as some of those who walked out of a looted store with a tv in their hands last week....and those who suggest others should do it are supporting stealing.
I wouldn't disagree with that.

However it does seem that it is a solution promoted by lawyers gestors and even bank managers and has almost become the norm.

That said, as a loophole its days are numbered. I did read that the regional tax authorities (who are responsible for the tax) are now cross referencing all deaths with the property register and checking that the inheritance has been declared. It amazes me that they haven't done this before.

They will charge 20% interest on the outstanding amounts and fines from 50% to 150% - OUCH!

It's all down to the general crackdown on tax evasion. Hacienda collected 24% more tax last year than the year before and that's in a recession.

Back to the case in point, while I am obviously not condoning it, I think the the taxman has far more important things to do than chase for taxes on assets or capital gains outside Spain in the same way that they don't seem too concerned with earnings from outside Spain - probably because so few Spaniards fall into either category. HMRC on the other hand have a view that anyone who spends a few days in the UK should pay tax on everything!

Sid
This won't be world wide deaths so how would they pick this up? They have abandoned the Wealth Tax so if the money is left offshore I cannot see how they know.

It is 90 days in UK before HMRC start to claim tax.
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Re: IHT

Postby annfoto » Sun Aug 14, 2011 1:13 pm

julian wrote:
Those who knowingly avoid paying IHT tax by lying low for 4 years till it is unclaimable are just as bad as some of those who walked out of a looted store with a tv in their hands last week....and those who suggest others should do it are supporting stealing.
or alternatively

Those who knowingly avoid paying IHT tax by lying low for 4 years till it is unclaimable are just as bad as some of those councilors who award non-jobs to their relatives at vastly inflated salaries or accept bribes in return for favours ....and those who suggest others should do it are supporting stealing
Ann

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Re: IHT

Postby El Cid » Sun Aug 14, 2011 1:26 pm

John & Kath wrote:
This won't be world wide deaths so how would they pick this up? They have abandoned the Wealth Tax so if the money is left offshore I cannot see how they know.

It is 90 days in UK before HMRC start to claim tax.
I specifically referred to the regional authorities and clearly they are only looking for deaths in their region. I was not referring to the OP.

It currently is 90 days but the whole residency issue is being reviewed by HMRC and under certain circumstances you could be classed as UK tax resident after only 9 days in the UK.

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Re: IHT

Postby annfoto » Sun Aug 14, 2011 1:30 pm

under certain circumstances you could be classed as UK tax resident after only 9 days in the UK.
Then the OP could do that and arrange for the solicitor to pay the inheritance on the 9th day then return to Spain on the 10th day and become tax resident in Spain again :think:
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Re: IHT

Postby El Cid » Sun Aug 14, 2011 1:48 pm

annfoto wrote:
under certain circumstances you could be classed as UK tax resident after only 9 days in the UK.
Then the OP could do that and arrange for the solicitor to pay the inheritance on the 9th day then return to Spain on the 10th day and become tax resident in Spain again :think:
No it doesn't work like that. Even with the current 90 day rule you are still tax resident in Spain if you spend more than 183 days in one calendar year in Spain and you are then deemed tax resident for the whole of that year.

If you also spend sufficient time in the UK you will be deemed tax resident there AS WELL.

It's the reciprocal tax treaties and arrangements that sort out the mess.

HMRC are doing this, not to get money from people living in the EU but from people who have all their income and wealth offshore in places where they pay little or no tax.

If you want to read the consultation document about changes to the residency rules it's at http://www.hm-treasury.gov.uk/d/consult ... idence.pdf

It's mindbogglingly complex so you are probably best not to bother!!

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Re: IHT

Postby knowal » Sun Aug 14, 2011 9:38 pm

julian wrote:"As long as you are prepared to pay the penalty, just plead ignorance"

The problem is some brits who knowingly don´t do things by he book here have a habit of later not being prepared to pay the penalty when found out, and plead ignorance even though they knew perfectly well what they were doing at the time, but their memories seem to fade.
They could always then write to Brussels to complain that the penalty is unfair as they were led to believe it was ok to not pay the tax at the time.

Those who knowingly avoid paying IHT tax by lying low for 4 years till it is unclaimable are just as bad as some of those who walked out of a looted store with a tv in their hands last week....and those who suggest others should do it are supporting stealing.
You don't think that taking money off ex-pats inheriting cash from the UK, arriving in a UK bank account is stealing, Julian? Theft by the Spanish government of money accrued by people during their lifetime, whilst paying all the usual taxes under the sun.
Inheritance tax is the most immoral tax on earth.
I would do all I could to avoid paying it. Tax avoidance is legal, tax evasion - well, that is another matter...

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Re: IHT

Postby julian » Sun Aug 14, 2011 9:50 pm

I don´t agree with 90% of taxes and laws, but I live by the laws of the country I choose to live in, and therefore are tax resident in..not liking a certain obligatory tax is not a good enough excude to no pay it...not paying IHT is stealing from the govt and from other taxpayers

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Re: IHT

Postby El Cid » Sun Aug 14, 2011 10:16 pm

julian wrote:I don´t agree with 90% of taxes and laws, but I live by the laws of the country I choose to live in, and therefore are tax resident in..not liking a certain obligatory tax is not a good enough excude to no pay it...not paying IHT is stealing from the govt and from other taxpayers
I totally agree.

If you choose to live in Spain you should pay the taxes.

Just because you don't like them is no excuse.

If you don't want to pay them go and live somewhere else.

Sid

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Re: IHT

Postby katy » Mon Aug 15, 2011 10:01 am

In order not to complicate matters you could just pay the inheritance cheque into an offshore bank account and that would be the end of the matter. Not that I would do that as I am a member of A.Com and I am perfect :angel:

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Re: IHT

Postby knowal » Mon Aug 15, 2011 11:41 am

katy wrote:In order not to complicate matters you could just pay the inheritance cheque into an offshore bank account and that would be the end of the matter. Not that I would do that as I am a member of A.Com and I am perfect :angel:
You wouldn't be the only "holier than thou" on here katy!

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Re: IHT

Postby Becca » Mon Aug 15, 2011 5:37 pm

Thanks everyone..I couldn't risk not declaring anything, so its either pay up or move I guess !


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