Is Spanish Succession Tax charged in the same way as UK IHT?

The fundamental difference between the two taxes is that UK IHT is a tax which is payable by the estate of the deceased, according to estate value. By contrast, Spanish Succession tax is assessed on each individual beneficiary personally, according to a range of criteria, one of which is the value of the inheritance.

At what rate is Spanish Succession Tax charged?

The calculation of a beneficiary’s Spanish Succession tax liability is a fairly complex exercise, as it involves consideration of a number of criteria, including: the value of the beneficiary’s inheritance; the beneficiary’s residency status; the blood/ relationship connection between the deceased and the beneficiary; the beneficiary’s pre-existing wealth; and application of relevant exemptions. We provide detailed Hacienda table-based calculations for all our clients. There is a very broad range of applicable rates- the charge starts at just under 8% and in the most extreme cases, the marginal rate can go as high as just over 80%.

What is the equivalent of the UK IHT nil rate band under Spanish Succession Tax law?

As Spanish Succession tax is a tax on beneficiaries rather than on the deceased’s estate, there is no nil rate band applied to the estate. Instead, individual beneficiaries have the benefit of a tax free allowance. However, this is a relatively low value allowance- usually just 15,957 Euros per beneficiary.

What exemptions are available from Spanish Succession tax?

In addition to the individual beneficiary tax-free allowance mentioned above, there are certain exempt categories of beneficiary- e.g. officially registered charities. There are also some regional exemptions for main residence and small estates, but in most cases, these do not benefit non-Spanish property owners, as it is generally a condition that both the deceased and the beneficiary or beneficiaries, are locally resident.

When does Spanish Succession Tax have to be paid?

The Spanish taxation authority, Hacienda, applies a rigid deadline for the payment of the tax by 6 months from the date of death. In any event, the tax has to be paid within 30 days of signature of the Deed of Acceptance of Inheritance. Only in very specific circumstances can a time extension be requested. Further, this will only be granted if certain preliminary paperwork is in order and the strict deadline for the request is adhered to.

How is Spanish Succession tax paid?

A practical consequence of the fact that the tax is assessed on the individual beneficiary rather than the estate is that the beneficiary has a personal responsibility to pay the tax before getting title to the assets. This is an issue that needs to be carefully considered in a Spanish probate case, as beneficiaries often do not have the immediately available resources to pay the tax prior to receiving their inheritance.

Is Spanish Succession tax liability affected by residency status?

It is of course, primarily the status of the beneficiary rather than the deceased which affects the tax due. Both resident and non-resident beneficiaries of Spanish assets are liable for Spanish Succession tax. The only advantage of Spanish residency status of a beneficiary is that additional allowances and exemptions are available in some regions of Spain.

Following the death of the first spouse in Spain, does the surviving spouse receive the deceased’s Spanish property and assets free of Spanish Succession Tax, as in the UK?

No. It comes as an unfortunate surprise to many widowed spouses (particularly if non- Spanish resident) that they are usually liable for Spanish Succession tax based on the value of the inheritance they receive from their deceased spouse (i.e. in many cases, 50 % of jointly owned assets).

Is there any advantage to married couples over non-married couples?

Yes. Surviving spouses are taxed at a substantially lower rate than surviving partners who were neither married nor in a formally documented civil partnership with their deceased partner.

If Spanish Succession Tax is paid by my beneficiaries on my Spanish estate, does that mean my estate receives a credit for the tax paid in the UK?

Unfortunately, it has to be assumed that this is not the case. There is a Unilateral Relief Treaty between Spain and the UK that provides relief for ‘equivalent’ taxes e.g. income tax. However, the latest indications given by the UK tax authorities are that they will not treat Spanish Succession tax and UK IHT as ‘equivalent’ taxes, as the former is charged on the beneficiary and the latter on the deceased’s estate.

How can Spanish Succession tax be mitigated or avoided?

Like UK IHT, Spanish Succession tax is an optional tax, in the sense that if your affairs are structured so as to avoid or minimize it, that is perfectly legal and acceptable. However, those who are ill informed or who do not consider the issue will almost inevitably fall into a trap, with expensive consequences for their family. At LEGAL4Spain, we work with our clients to ensure that they are aware of the extent of this potential liability. Further (and always within the framework of the applicable tax law) we are able to advise clients on the most tax efficient way to hold their Spanish assets. As each case is unique and will depend entirely on its own circumstances, we have to consider these issues individually.