Can anyone comment on the latest situation on the proposal of the Spanish government to scrap inheritance tax as reported last September - see

http://www.citywire.co.uk/personal/-...aspx?ID=313872

Its already as good as abolished here between spouses. The problem comes when the last of you dies and the estate is left to a non resident, then the IHT can be exhorbitant

Our neighbours husband died a year or so ago and when she saw the solicitor she was told there was no IHT to pay.

That's a relief. I must admit it was something that weighed on my mind.

You need to take advice though, house in joint names etc etc iirc and Spanish will helps

A Spanish REGISTERED will, in spanish, is essential. It can be done in accord with English/Scots Law, and will be accepted.

There can be a problem with non-spousal disposal, but I think you can get round this by your children getting NIFs. I'm not certain about this, so you should ask your Advogado when you do your will.

Mitzyboy, you are correct in saying that in many cases there is no tax to pay but it really is not a simple as that.

For a start, IHT has not, in any way, been abolished between spouses. A spouse is always liable for IHT on an inheritance from the deceased spouse. Apart from a basic exemption of about €16k, tax is due on the balance. However, if the house has been the main residence of the surviving spouse then an exemption of 95% will apply so long as the house is not sold for 10 years. This also applies to children who are left a share in the house.

There is also a limit of €122k on this exemption, so if the value of the inheritance was over this amount, IHT would be paid on the balance even if the house was not sold.

These are the basic rules which apply to the whole of Spain, however many regions have made additional allowances and exemptions available. These rules are very complex and vary from region to region so it is very important to understand them or seek professional advice.

For example, in Andalucia, there is a personal exemption of €125k so long as the total value of the estate is less than €500k so this means that a spouse inheriting a half share of a property valued at less than €250 would be free of tax with no requirement to keep the property.

You mentioned the residency status of the inheritor – this is not normally an issue as IHT is a property tax, not a personal tax. The residency status of the deceased is only relevant with regard to the 95% exemption as a non resident’s house cannot be considered the main residence and also some of the regional differences only apply to residents of that region.

What is more important is the relationship of the inheritor. If you are not a close relative the tax will be doubled – this is particularly relevant to couples who are not married. Also if the inheritor is “wealthy” then the tax is increased further and can reach 82%.

So yes, in most cases, for the average family without large assets, IHT is much less of a problem that it was, but it IHT is still alive and well and can really catch out the unprepared.

I think the difference is Resident / non resident.
If they are resident its fine, if residing in another country then its taxed
Interested to know if you know different though

If the asset is in Spain, Spanish IHT will be paid by the beneficiary wherever they live.

Yes, but if I peg it my wife pays nothing now as a spouse as she resides here, whereas if we both peg it then my daughter in the UK will end up paying full whack

Don´t think you have it quite right -inheritance tax is still payable - but you are married and I think probably both fiscal residents and of course you live in the Valencia region which has very favourable inheritance tax laws so any tax payable would indeed be minimal.

There is a lot of confusion over the residency issue with IHT.

As I said, everyone is liable for IHT irrespective of residency.

Where residency becomes an issue is with the "family home" which has some generous allowances. For it to be classed as a family home, the occupiers must have been residents for 3 years. A child can benefit from the same allowance but only if a resident.

This all came about when these rules were introduced to stop a family business having to be sold to pay the tax but it also applies to the family home.

Where this rule can present a problem that would not apply to a family business, is where the surviving spouse wishes to move to a smaller house. This is a common situation where the survivor wants a smaller, easier to manage house and to release some equity to improve their possibly reduced income (pensions etc).

Under these circumstances the IHT would have to be paid and if under 65, CGT may also be payable on any profit not reinvested.

Take the case of an elderly couple who decide to downsize now. One of them dies a year later - IHT is payable because they haven't lived in the house for 3 years so it is not classed as their family home.

It is a very complex subject, not helped by the ever changing regional rules (at least they do seem to change for the better). That's why it is so important to look into it carefully as there are many ways of minimising the effects of IHT if you plan ahead.

Which is what I said, using my neighbour and I as an example
As Fred says I guess it varies from area to area although thats crazy really

Residency has, in fact, very little to do with it! The biggest issue is where you are domiciled.

As per previous posts on this topic, proving one is NOT domiciled in UK is VERY, VERY hard! So, 'nearly' everyone should be concerned about IHT because the UK government take first claim on any monies. Spain will also try to get their hands on it.

The very best thing to do is to have a Spanish will AND take legal advise.

For this reason (IHT) we have already decided that will not leave our Spanish house to our son, it will be more trouble abd expense for him than it is worth.

When we do not need and/or want it any more, we will sell it. We will be resident in the UK anyway in a year or two. If we get old and frail, the Spanish house can be the one that is sold to pay care home fees! and our son can painlessly inherit the UK one. (there won't be any IHT).

Allthough one can never be sure when your time is up, I intend to sell before we get too old and maybe rent, spend the money and give what we dont want to our daughter