Reducing Spanish Inheritance Tax
Inheritance taxes in Spain can swallow-up a huge percentage of any inheritance and so it is worth planning ahead as carefully as possible to avoid the lion’s share of any legacy winding up in the Spanish government’s coffers.
Of course it may be that investments and purchases have already been made and therefore there remains little to be planned for. In any case we will look at all of the options open to an individual who wishes to minimise the inheritance tax they must pay in Spain.
Ever since the Spanish government devolved responsibility for inheritance taxes to the regional governments, huge steps have been taken to reducing and in many cases eradicating the payment of inheritance taxes.
However, the exemptions granted apply only to those who are resident in the region – often requiring residency for a majority of a period of five years. If residency in any specific region is not established then the ‘State’ approved tax exemptions will apply.
Deductions At State Level
Even if unable to take advantage of the more generous deductions available at a regional level there do exist certain exemptions based on the governing legislation at state level. In addition to the personal exemptions up to a maximum of €47,858.59 for close family members there are also exemptions for inheritance of the habitual family residence.
Inheriting The Family Home
This will specifically benefit those who have moved to Spain to live permanently and can therefore call their Spanish property their permanent residence or ‘vivienda habitual’ – as per Article 20(c) Law 29/1987.
The concept ‘vivienda habitual’ is as defined by the Law relating to income tax in Spain (Ley de Impuesto sobre la Renta de las Personas Fisicas). Following this, anyone who spends more than 183 days a year in Spain is technically resident for tax purposes.
It is also very important to obtain a certificate of ‘Empadronamiento’ which means to register as being a local resident with the town hall. It is a simple process and may be used as evidence of being a resident and using the home as your ‘vivienda habitual’.
The amount of time that needs to have been spent by the deceased living in the property before it may be called a ‘vivienda habitual’ is described in the income tax laws as three years though it also states that death of the individual during that period is an exception so it can only be said for sure that the longer the period of time the better.
The exemption amounts to €122,606.47 per beneficiary and is restricted to spouses, children, and parents of the deceased and only to extended family members who have lived with the deceased for a minimum of two years prior to the date of death.
This exemption has a ceiling of 95% of the value of the property. One proviso is that the beneficiaries may not immediately sell the property and must maintain ownership for several years.
Client reviews of our legal services, as uploaded by clients directly to the Wufoo survey platform:
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Esther speaks both Spanish and English, and is very friendly, professional and genuine. ...She took care of the whole purchasing process and explained all the steps for us, including giving advice on Spanish bank account, NIE numbers etc.
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This was a big move for me and Rosa fully explained everything to me in detail so I had a full and clear understanding of the lega...l side of things as well as always promptly responding to any emails or questions I had.
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Always kept us updated on the progress of our purchase
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Tax Residency in Spain
If you are resident in Spain for tax purposes (more than 183 days a year) then you are legally obliged to make tax return once a year (even if it be a zero return).
Known as the ‘Declaración de la renta’, this also helps to prove residence and if the address used on the tax return is that of the property in question it goes towards evidence that it is your ‘vivienda habitual’.
*** Care should be taken here as if you are determined to be resident in Spain for tax purposes then in theory your worldwide wealth is taxable in Spain.
Debts, Loans & Charges
In order to reach the ‘net’ estate that is to be divided among beneficiaries, it is necessary to first deduct from the estate any existing debts or loans belonging to the deceased. There are limits however and typically a ‘loan’ or debt to any beneficiary is not deductible.
The only exception to this is where the deceased owed monies to the Spanish Social Security system and in this case any person, including a beneficiary, who pays off such debts, may be able to deduct them from the estate before it is distributed to other beneficiaries.
In order for a debt to be deducted from the estate of the deceased it should be ratified by a public document i.e. an informal debt will not constitute a deductible debt for the purposes of Article 13.
As a result it is possible to reduce the value of a property by any mortgage that exists. This can radically reduce the value of any inheritance tax payable.
Article 12 ‘charges’ on properties may also be deducted but these are unlikely to be present in most typical scenarios.