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WILL YOU PAY TOO MUCH TAX?
The Valencian Community, amongst other autonomous regions in Spain, allows huge reductions on inheritance tax. Conversely, Spanish Inheritance Tax (aka Succession Tax) can be a nightmare if you don´t qualify for these reductions. To qualify, the deceased AND the beneficiary would need to be habitually resident in the Valencian Community, or live in a EU country and be in Group 1 or 2 as detailed in the Spanish Inheritance Tax Rates section . Habitually resident is defined as spending the majority of the 5 years prior to death in the Valencian Community.
In the UK, inheritance tax is chargeable on the deceased’s estate when it is worth more than £325,000 (£650,000 if unused allowances are included). In Spain, it is the beneficiary who is taxed. The rate of tax will be determined by the relationship, where the parties are resident, and what existing wealth the beneficiary has. There is no inter-spouse exemption in the same way there is in the UK. For example, a husband and wife will generally own their property in joint names but, for tax purposes in Spain, they own 50% each. This means that the surviving spouse, on the death of the first, will inherit the deceased´s 50%, and pay tax on it. (We have access to arrangements to reduce or defer this liability).
In the Valencian Community, the tax free allowance is €100,000. This would apply to children (over 21), parents and spouses. Children under 21 have increased allowances. In addition, there is a 50% reduction on the remaining tax due. As mentioned, these allowances and reductions are only applicable to habitual tax residents and/or those who are in Group 1 or 2 and living in a EU member country . Those who do not qualify, such as some unmarried couples, or those who are non-resident, would expect an allowance of around €16,000 (€15,956.87 to be precise) with no further reductions. There are a number of other factors but these are the basics.
Tax is payable on gifts as well as inheritances and the rules are very similar to inheritance tax albeit with some restrictions on how much can be gifted to benefit from the reductions.
To see how much tax you could potentially pay, or leave for someone, please go to the section on Spanish Inheritance Tax Rates.
If you would like to see the Valencia Government’s publication on this, please visit their website.
For ideas on how to reduce your inheritance tax liability,
call John Hayward on (+34) 96 558 7633 / 618 204 731 or email firstname.lastname@example.org