Inheritance taxes in Spain

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Buying Property in Spain - Inheritance taxes in Spain

If you are a UK expatriate, resident in Spain then you should be aware of these points:

Spanish Inheritance Tax
Expatriates resident in Spain for tax purposes are liable for Spanish Inheritance Tax (IHT) regardless of the country in which the inheritance is situated. Those not resident in Spain are liable to IHT in Spain on assets they inherit which are physically located in Spain.

UK Inheritance Tax
The worldwide assets of a UK expatriate are also liable to IHT in the UK. Where the deceased is not domiciled in the UK, IHT is assessed on UK sited assets.

The bottom line
Many will say that Spain is now their permanent home and that they will remain here for the rest of their lives, however most will admit that they would probably return to the UK should either partner become ill or one of them died. The fact is that most UK expatriates in Spain retain their UK domicile so are therefore liable for IHT in the UK and in Spain.

The tax - UK
The tax in the UK is assessed on the total worldwide wealth of the deceased. Currently the first £234,000 is exempt from tax - this is known as the 'nil-rate band'. A single rate of 40% applies to the excess. An important point is that no tax is payable on transfers between spouses, providing that the surviving spouse is also UK domiciled. A non-UK domiciled spouse has an allowance of £55,000.

The tax - Spain
Tax is assessed on each individual. The tax payable depends on the relationship to the deceased, pre-existing wealth and if under 21 years of age and the amount inherited. Here in Spain there is no exemption for the spouse. Tax is payable on all transfers and the allowance is just £10,000.

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The home in Spain
Spanish IHT legislation states that, subject to certain conditions, the value of the family home can be reduced by 95% subject to a maximum of £75,500 (20,000,000ptas). However, any tax saved can be clawed back, with interest if the home is sold within 10 years, except on the death of the recipient. Since many surviving spouses return to the UK following the death of their partners, this 95% reduction has little meaning in practice.

There are however, several ways to reduce any liability to IHT and you should seek professional advice. The information given here is only a rough guide and bear in mind that legislations and allowances do change.

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