Inheritance Tax

[infoseeker]

Is the inheritance from the UK? If so how can Andalucian allowances apply?
Some say that if the inheritance is over the threshold you pay IHT on the whole lot, some say you pay a reduced amount on the excess.
Who is right it would be very mean to have to pay on the whole lot if its just over the threshold
Sorry, wasnt paying attention about it being from the UK!

[CapnBilly]

I discussed this with a solicitor a couple of years ago. I was more interested in a deed of variation in respect of a UK inheritance, but he did tell me that he had also done this is respect of a spanish property, which I think is what you are asking. The solicitor in question is based in the Costs Blanca, so if you want his details send me a pm.

[El Cid]

The residency rules can apply to the beneficiary. My understanding is that if the amount exceeds 175k the allowance is lost. The 122k home allowance of 122k is different and if the inheritance is more then you pay the extra on the balance.

As for the UK situation with regard to changing the will after the event, then as far as I can see, that should be OK as you pay tax on what you inherit and if UK law has reduced that it should be OK. However, I am not a lawyer, so cannot guarantee that that is correct, but common sense would suggest it was.

You can hardly pay tax on something you did not receive.

Sid

[Curiouse]

Thank you both for taking the time to offer your views , El sid your correct , €175,000 or less then you pay nothing , one euro over and your taxed on the whole amount at the applicable rate ( sliding scale ) less only the state allowance ( aprox €16,000 ) , unfortunately i cant be so sure about the common sense approach regarding the location of the heir , your also right in that the rules apply to beneficiary so the group I'm taxed at would be group 2 whatever but everything i read only refers to beneficiary of estates in Spain or inheriting REAL ESTATE outside Spain , i dont come into either category . If the estate was within Spain its clear from all the websites and lawyers i spoke to that you can choose between either the region the deceased lived in or the region the heir lives , whichever gives the better allowance . As the estate is solely UK one I first need to know if the deed of variation i make in the UK will be accepted by Spain and if so can i take advantage of the Andlucian allowance on the estate is outside Spain . Do i give up all or it or 50% of it , would be nice to have some of it although i dont need but if im to be taxed extortionate on it i would rather kids have it , €52,000 is a lot to pay simply because im a resident of Spain on money my parents worked hard to acquire and paid tax on while earning it .

There was not a will although it changes nothing , a deed of variation is deemed to have been made by to will or when there isn't one applied to the UK intestacy laws , its not like saying to the tax man i was given this money and i am giving it away because you want tax from me , its saying i could have this money but i know you will want tax from me so i wont take all or part of it so heirs never treated as having received it , basically its as if it was always meant to go to whom ever eventually received it . Unfortunate Spain might not see it that way , they might just say , your choice to give it away we still want out tax .

The Spanish do also have something similar to a Deed of Variation however its very restrictive , has to be made on the whole inheritance not part of it , all or nothing , you also dont have an option of saying where it goes , it reverts to the estate to add to whatever is given to the remaining heirs . Basically its more of a rejection of the inheritance than a variation .

I have done a great deal of research on the internet with nothing substantial on either subject .

[infoseeker]

What exactly is a deed of variation?

[CapnBilly]

Sorry, I misread your post I thought the inheritance was in Spain. So your situation is the same as the one I was enquiring about. My understanding of a deed of variation in law is that it changes the will, so that it is as though your inheritance never existed.

[Curiouse]

Sorry, I misread your post I thought the inheritance was in Spain. So your situation is the same as the one I was enquiring about. My understanding of a deed of variation in law is that it changes the will, so that it is as though your inheritance never existed.

Very accurate description , changes a will without challenging it or intestacy laws as long as anyone disadvantaged by it agrees , sometimes might be 2 kids getting un equal shares so the one with more will make one to even things up , another reason is the heir could be old and not want it added to his impending estate so skips a generation and his kids get it earlier so it wont add to the tax burden they pay when they eventually inherit . spot on . C

[CapnBilly]

We were going to use it on a parent inheritance, but we don't need to now, but we still need to use it on an inheritance from an Uncle.

[El Cid]

I have had a more detailed look at the regional residency rules and it looks as though, in the case of inheritances, the residency of the deceased is key. In some other cases such as gifts, rather than inheritances, the residency of the recipient is key.

However the rules seem to vary depending on the region.

This is also made more difficult because the EU have recently ruled that residency rules that discriminate between residents and nonresidents are illegal but Spain has not yet amended the law.

It's certainly not as simple as it first looks.

Sid

[Curiouse]

We were going to use it on a parent inheritance, but we don't need to now, but we still need to use it on an inheritance from an Uncle.

Yes C , depending on the amount you may have to , wasn't a problem before the obligation to complete a Modelo 720 came into force , few declared UK inheritances and the hasienda wasn't concerned either on UK estates for residents of Spain , just on the Spanish parts of an estate so i guess that's why most lawyers don't ave any experience to know .

[Curiouse]

I have had a more detailed look at the regional residency rules and it looks as though, in the case of inheritances, the residency of the deceased is key. In some other cases such as gifts, rather than inheritances, the residency of the recipient is key.

However the rules seem to vary depending on the region.

This is also made more difficult because the EU have recently ruled that residency rules that discriminate between residents and nonresidents are illegal but Spain has not yet amended the law.

It's certainly not as simple as it first looks.

Sid

Residence as you say it the deciding issue but everything available for reference is for residents or none residents inheriting Spanish estate or Spanish resident inheriting REAL ESTATE outside Spain , seems my situation falls between the two . Gift would be simple as far as allowances , there arnt any , allowances are only on inheritances . The EU changes dont apply as its designed to work in favor of non residents inheriting anything in Spain whether its the whole estate or part of a UK estate located in Spain .

[CapnBilly]

Residence as you say it the deciding issue but everything available for reference is for residents or none residents inheriting Spanish estate or Spanish resident inheriting REAL ESTATE outside Spain , seems my situation falls between the two . Gift would be simple as far as allowances , there arnt any , allowances are only on inheritances . The EU changes dont apply as its designed to work in favor of non residents inheriting anything in Spain whether its the whole estate or part of a UK estate located in Spain .[/quote]

As far as I am aware the legislation was changed at the start of the year, so that inheritances outside Spain are subject to the rules of the region where the beneficiary is resident. Unless I am mistaken this seems to cover your situation.

[El Cid]

That's certainly good news. It does seem to make sense as it is the beneficiary that pays the tax. Let's face it, the rate of income tax (in theory) and some tax allowances depend on where you live.

In fact, the Andalucian law on IHT merely states that:-

Autonomic Reduction for spouse and immediate family when the value of the assets and rights acquired does not exceed € 175,000.

It does not mention anything about the residency of the deceased so that may have been the case in Andalucia anyway, before the changes you mention were made.

Sid

[CapnBilly]

The residency of the deceased and the period (5 years) is enshrined in the legislation that delegates the powers to the region. Some regions then add a requirement about residency of the beneficiary, but not Andalucia.

They didn't really have much choice but to amend it this way, otherwise it would require a complete rewrite of the legislation to be able comply with the ruling. It wouldn't surprise me if that happened in the future.

[Curiouse]

As far as I am aware the legislation was changed at the start of the year, so that inheritances outside Spain are subject to the rules of the region where the beneficiary is resident. Unless I am mistaken this seems to cover your situation.

Thank you Capnbily if that's correct it would cover my situation and mean i can accept a sum lower than the Andlucian threshold of 175k and not be taxed on it . Can i ask where you read the info as i haven't had any success finding information to cover it . I have read that there were changes to the succession laws in 2012 to fit in more with other EU countries but nothing other than succession and the right to decide what country's laws apply to who we want to leave everything to . The situation regarding REAL ESTATE is well documented , that is immovable and wherever in the world it might be its the residency of the beneficiary in Spain that applies to the way the inheritance tax is applied . The fact that all the articles mentioning this are specific in saying REAL ESTATE with no mention of anything else can only add to the confusion as to whether or not the same applied to movable assets outside Spain . I can only find reference to the changes that came into force this year relating to equal treatment for none residents on inheriting assets in Spain as were previously given only to residents .

The residency of the deceased and the period (5 years) is enshrined in the legislation that delegates the powers to the region. Some regions then add a requirement about residency of the beneficiary, but not Andalucia.

The latest bit puzzle me as i cant help but wonder if its referring to a Spanish residents period of 5 years . My inheritance comes from a UK resident with no assets or ties to Spain what so ever .

[CapnBilly]

The comment about the 5 years was in response to Sid, clarifying the location of the rule about period of residency required in respect application the the regional rules, and relates to the residency of the deceased.

With regard to the changes I talked about, these were amendments to the inheritance tax legislation at the start of the year. This is a summary from Blevins :

From January 2015, if you are resident in Spain when you die, beneficiaries resident in an EU or EEA state can apply the local regional rules of the regional community you live in. If you receive an inheritance of Spanish assets from someone resident outside Spain, but in an EU/EEA state, you have the right to apply the regional rules of the autonomous community where the highest value of assets is located. If the assets are outside Spain you can apply the rules of your local community.

This is the actual legislation

” En el caso de la adquisición de bienes y derechos por herencia, legado o cualquier otro título sucesorio, si el causante hubiera sido residente en un Estado miembro de la Unión Europea o del Espacio Económico Europeo, distinto de España, los contribuyentes tendrán derecho a la aplicación de la normativa propia aprobada por la Comunidad Autónoma en donde se encuentre el mayor valor de los bienes y derechos del caudal relicto situados en España. Si no hubiera ningún bien o derecho situado en España, se aplicará a cada sujeto pasivo la normativa de la Comunidad Autónoma en que resida”

[infoseeker]

With the recent legislation about not discriminating between residents and non residents in regard to regional allowances for IHT, what is happening about the requirement for beneficiaries to have lived for 5 years in the region.
Obviously a non resident won't have lived there for 5 years, so will the requirement be amended to
Having owned the property for 5 years?

[Curiouse]

I understand the new rules to mean that a non resident now has the choice , they can take advantage of the regional allowances the property is situated in or the state allowance of around €16k , not a lot but more than some regions , a resident has the choice of the using the allowances the region the property is situated in or his own regions , not 100% sure of that bit , might be choice between his own region and State but for the later he will have to comply with its own requirements for residency such as the length of time he has been resident there . The 5 year thing is not applicable to none residents . All of the above is only applicable to group 1 or 2 which are immediate family members .

[infoseeker]

Surely the state allowance is applicable as well as the regional allowance?
If non residents are to be treated the same as residents, then there needs to be clarity about the 5 year thing.
The most logical way is to say that both residents and non residents must have OWNED the property for 5 years in order to be eligible for the regional allowances.

[El Cid]

The state rules apply to everyone. Any special regional allowances are in addition.

Residency in an Autonomous Community is based on physical residency in that AC, not whether you own property there.

In this particular case, no Spanish property is involved, just an asset it the form of money in the UK. If the beneficiary was non resident, no tax would be due anyway, as the asset is outside Spain. If resident, tax is due and if resident in Andalucia the special allowance would apply.

The EU ruling about not discriminating between residents and nonresidents would only apply to assets situated in Spain, where tax is always payable in Spain, irrespective of residency. So, if the property or assets are situated in Andalucia, the special regional allowance would apply to residents and non residents alike.

Sid