While Spanish Inheritance Tax law stipulates fines for late payment, there are highly useful options to defer the payment of the tax.
Difficulties with paying Inheritance Tax
A common situation that arises is that the beneficiaries are unable to manage payment before the legal deadline of six months from the date of death of the testator.
This is often due to the fact that the inheritance involves a property or some other asset that is difficult to convert into cash quickly.
While the asset itself might be valuable, there may be no ready cash to pay the Inheritance tax. And of course, the property cannot be sold with good title until the taxes have been paid and the title of the property changed in to the name of the beneficiaries. It is a classic Catch 22 situation.
The matter is not made any easier by the draconian fines and interest penalties enforced by the Spanish government.
Fines for late and non-payment
Spanish law stipulates that any Inheritance tax due must be paid within six months of the date registered on the death certificate. If this is not complied with then penalties are charged and interest begins to accrue.
According to Article 27.2 of the ‘Ley General Tributaria’ the charges for late payment of Inheritance Tax are as follows:
- Within 3 months of the deadline: 5% surcharge
- Within 6 months of the deadline: 10% surcharge
- Within 12 months of the deadline: 15% surcharge
- Over 12 months since the deadline: 20% surcharge.
In the first three scenarios, the surcharge is a percentage of the amount payable alone. In the last scenario where 12 months have elapsed since the deadline, interest also becomes payable, currently at a rate of 4.75%.
So, it can readily be seen that it is certainly in our best interests to get all of the legal issues connected with an inheritance in Spain resolved as soon as possible.
However, where a tax bill of many thousands of Euros is due to be paid and the asset inherited is a property that is not generating income there can easily arise a problem in liquidating the tax bill.
How to Defer Payment of Inheritance Taxes
Luckily, the governing legislation (Law 29/1987) provides for such difficult situations and allows for payment of taxes to be deferred or in instalments. The rules may be summarised as follows:
- The taxpayer may opt to delay payment of the tax or to pay in instalments where a request has been submitted within the correct timeframe
- In general, approval of a request to delay or pay the tax in instalments will incur a levy for legal interest
- The deadline for making an application to delay or pay in instalments is six months from the date of death of the testator.
- For requests of a delay of a year or less in payment of the tax it is required that the request has been made within the allowed time period and that there are not sufficient liquid assets to pay the tax
- For requests to pay instalments over five years in addition to the rules regarding requests for a delay of one year, it is additionally required that a guarantee that covers 125% of the amount of the tax and interest payable
Inheritance Taxes and the Family Home
Where the asset that is the subject of the tax is a property then the inheritance tax may be paid in instalments where:
- The application has been made within the required timeframe
- The property is required for use as a primary, habitual residence
- The size of the property does not exceed 120m ²