Whether you are moving to Spain, or have Spain villas for sale, you will find the information given in this article very useful. We discuss what you need to know about inheritance tax and estate planning in Spain. After all, there’s nothing more important than to learn the tax structure when you move to a new country.
Every country has its own unique tax regime, so does Spain. If you are from the UK, you will find some of the regulations in Spain related to inheritance tax or death tax really perplexing. Here are the key things to keep in mind as you do estate planning for your Spanish property.
What’s my domicile status?
If you are from the UK, you will still be required to pay UK inheritance tax on your worldwide assets. That’s because domicile status takes years to change. So you may have been an expat in Spain for several years now, but if you were domiciled in the UK through birth, you are liable to pay UK inheritance tax only. Do you have to pay Spanish succession tax too? No - if you are domiciled I the UK, the UK inheritance tax is all that you have to pay, even though you’ve been in Spain for several years. So you can rest easy.
Who is liable to pay the estate tax - the beneficiary or the deceased?
This is where it gets confusing. Contrary to what most expats in Spain believe, the double taxation agreement between Spain and the UK does not excuse their beneficiaries from paying the succession tax. So if you happen to be domiciled in the UK, and were to die, your estate would pay the tax due in the UK, while your beneficiaries are required to pay the succession tax in Spain. We realize this is quite confusing, so you are advised to consult with a real estate lawyer about the details.
What about Gift Tax?
Succession tax is essentially a gift tax. So if you happen to inherit a property in, say, Portugal, and you live in Spain, you will be required to declare your inheritance and pay tax on it as well - to the Spanish government. True, this makes no sense whatsoever, but it is something that simply has to be done.
Are succession taxes same across Spain?
No, they are not, and here’s why it gets so confusing. If you have a house in Madrid, your beneficiaries can get away with paying next to nothing on the succession tax - which is why the richest people in Spain live in Madrid. However, if you have a property in Andalusia, which is a favourite with British expats, then you (or your beneficiaries) must pay a heavy succession tax if you inherit (or pass on) a property worth more than €175,000.
Are there any exemptions for my spouse?
Unfortunately, there’s no exemption given to spouses as far as the succession tax in Spain is concerned. Your spouse would have to pay the same succession tax as would your children or any other beneficiary. Your assets cannot be passed freely to your spouse - there are tax consequences. If your spouse retains the status of UK domicile, he or she may have to pay both the UK inheritance tax and the Spanish succession tax. Tough luck!
There are a lot of complicated issues that you or your beneficiaries will have to reckon with when it comes to inheriting or passing on a property in Spain. It is best to get the advice of a qualified tax consultant and a real estate lawyer, who has a lot of experience with working with the British expat community in Spain.