Future Proof - How to Save Money on Spanish Inheritance Tax
Some words of advice from one of AIPP's Spanish based legal members, Jordi Mauri Solé
“I would like to try and explain Spanish law in plain English…
Inheritance Tax before Brexit
Nobody knows whether there will be a provisional period of time before Brexit is fully in force or how long this would be. This applies also for taxation regulations in my opinion. The situation now is that if an English person passes away, their direct beneficiaries (spouse and children) have to pay taxes the same as the Spanish do or any other EU member citizen does.
With regards to the Inheritance Tax this has almost disappeared in many Spanish regions. At least there are applicable many personal allowances rather high for spouse and children. In the Valencian region for instance the spouse and each children have a personal allowance of €100,000.00 which is more than enough in most cases to not pay any Inheritance Tax at all.
Inheritance Tax after Brexit
When Brexit is here and in force the situation for the English will change dramatically and the same spouse and children who had a personal allowance of €100,000.00 before Brexit will see this personal allowance reduced to not even €16,000.00 and the difference is huge. Besides, the Inheritance Tax rates are progressive and increasingly depending on the value of the estate.
English property owners in Spain
As the situation currently is, the risk of facing a very expensive Inheritance Tax soon is quite high. And taking into account that many British have holiday homes in Spain and properties are very valuable assets the risk is clear to see. Besides, the risk is even higher as during the real estate boom years the tax office updated rapidly the rateable values of the properties which are in many cases now even higher than the market values and causing many taxes (including the Inheritance Tax) to be based on higher values.
So an easy solution is to donate the property to your spouse (if they will remain EU member citizens after Brexit) or your children now and benefit from the favourable Inheritance Tax rules applicable so far. You can keep a life interest on the property which means from a practical point of view nothing changes at all because the for life interest right will allow you to let the property if you wish. When the time comes, your beneficiaries will have to pay Inheritance Tax for the life interest value set at the time of the donation which is usually very low, therefore the Inheritance Tax bill be zero or very low. And they will really appreciate it as the saving will be of thousands of Euros.