Spanish Inheritance Tax
A little forethought and planning can ensure that your heirs don't have to suffer through complicated legal procedures should you die in Spain. Thinking ahead can also ensure that, should your spouse die, you are not left with disastrously high tax bills.
Making a Spanish will is the first step to making sure that your Spanish assets are left where you intend. Without a Spanish version of this document, heirs must undergo a time-consuming and expensive legal process, which could include translating and certifying the validity of a foreign will. And if you have no will at all, the process could be nearly as difficult.
Spanish inheritance law, which is designed to protect the family structure, requires that children inherit most of their parents' estate. However, foreign residents of Andalucia and non residents who inherit assets located in Spain are able to get around these requirements, by declaring in the Spanish will their preference for the assets to be delt with under rules of their nationality.
How is inheritance tax calculated in Spain?
Inheritance tax is paid by the inheritor and not on the estate. This is theh oppote way round from the UK. To estimate how much inheritance tax you your heirs as inheritor might pay in the event of death, it is first necessary to calculate how much the inheritance would be worth and then make the deductions allowed by law.
The amount an heir is allowed to deduct depends on his relation to the deceased. Those with the highest deductions are children under the age of 21 who can subtract anywhere between approximately 12,200 and 42,000 euros depending on their age. In the next category are children over 21, spouses and parents, who are allowed around 12,200 euros. Relatives such as siblings, aunts, uncles and cousins receive the substantially smaller deduction of 6,100 euros, while in the last category more distant relatives and non-family heirs get no deduction at all.
If you feel this penalises non-family heirs, you're right. And that is exactly how the system has been designed to work - in favour of families looking out for their own.
Once the value of the inheritance after deductions has been determined, your own wealth will be taken into account. And here is where you will meet with another aspect of "the system" - that which is clearly designed to favour the poor and make the rich pay. For, while at the lower end of the wealth scale you might be required to pay around 8 per cent on your inheritance, at the highest end, you might have to give up to 85 per cent of what you receive - directly to the government.
Each region in Spain has different allowances. Andalucia has for many years one of the highest allownces in Spain. This is allowance of inheritance for Andalucian Residents of one million euros. This means tat in most cases there will be no Inheritance to pay. The assets such as a house must not be sold withing two years.
It is also necessary for a Spanish or Andalucian resident to declare an inheritance within six months of the death and present the Inheritance Tax Declaration. This applies to worldwide assets. In the case of UK assets where Inheritance Tax has already been paid on the estate it will most like need to be paid again on the Spanish resident's inheritance tax. It appears this is not covered under UK & Spain's double taxation treaties.