sassrafrass

I was reading on another thread that some people won't buy in Spain but rather rent, because of the inheritance tax issues with property, when one partner dies.

Does anyone know what the situation would be between spouses, inheritance tax wise, if one partner was to die and they had a sizeable chunk of money in a joint bank account.....i.e. they had banked their savings and rented, instead of buying a house.

Would this money be subject to inheritance tax ?

Just wondering........

snikpoh

Firstly, it depends where in Spain you are - each autonomous region has different rules.

Here in Valencia, if both husband and wife are resident (tax resident that is) here in Spain and one dies, then the inheritance tax is one percent less any allowances. This can make the tax almost nil!

I shalln't ask which other forum this information came from but I would disagree that (a) this is a reason for not buying and (b) that the tax level is high.

The only reason I can imagine for any concern is if either one or both of them are non (tax) resident.

Lynn R

I am one of the posters who has said that I intend to sell my property in a few years' time and then rent, partly due to the inheritance tax issue. This is because my partner and I are not married, and I own our house outright. As such, if I were to die first, he would have a very large tax bill to pay. Even if you are married, though, inheritance tax can still be a big issue once the surviving half of a couple dies, as any children, siblings etc. would then have inheritance tax to pay.

The implications of this have been brought home to me within the last 12 months as a close friend of ours died. He had never married and his house was left to his sister as his nearest relative, and she has had to pay a fairly substantial sum even though the property is not an expensive one.

As far as money in the bank is concerned, I understand that if the account is a joint one, and the bank is informed that one of the named account holders has died, then the account will be frozen and the surviving account holder will not be able to access the funds. It will count as part of the estate for inheritance tax purposes.

I've heard it advocated that if a spouse dies and you have a joint account, you should withdraw or transfer the funds immediately to avoid this situation, I wouldn't like to comment on the legality of this!

sassrafrass

Thanks for your replies.

I don't suppose it would make any difference if you kept most or your money in a joint bank in the UK, would it ?


Because I would imagine if you were tax resident in say Javea, then your worldwide income , no matter where it was held, would be subject to inheritance tax.........although as mentioned By snikpoh......this tax penalty may be less in the likes of Valencia, hopefully.

lynnxa

afaik the inheritance tax is only on assets held in Spain - not anywhere else in the world

Fred James

It depends on your tax residency status.

If you are tax resident in Spain then IHT is due on your world wide assets - just like income tax.

For non residents only Spanish assets are affected.

Even if you are Spanish tax resident, as a British expat you may well still be considered UK domiciled in which case UK IHT may be due as well.

Also the special regional rules only apply to tax residents of that region and usually you and the beneficiaries have had to have been tax resident there for five years or more.

DENISE WALTERS

How would it effect me then as although my hermana and I ARE MARRIED WE BOUGHT A PR0PERTY BETWEEN US ????? no husbands involved in the purchase??????

Fred James

Essentially the rules are the same - if one party dies then only half of the value of the property is liable to tax. Whoever inherits the deceased's share pays the tax. There are no exemptions for transfers between spouses (as there are in the UK).

Where it gets complicated in the case of siblings is that unless they are living together in the house and it is their habitual residence most of the special allowances do not apply. Also the tax increases by over 50% as siblings are not considered close relatives (spouses and children are).

It's a very complicated subject, the rules are different in each region and they are changing all the time. If it is a real concern for you then you should seek local professional advice.

lynnxa

of course - I was thinking at cross purposes

lynnxa

interesting

we've just discovered from Denise though (on another thread) that she is non-resident - so no spanish inheritance tax???

am I getting this right?

snikpoh

If she is TRULY non-resident she will still pay Spanish IHT but only on her Spanish assets and, of course, UK IHT

However, I suspect she is actually tax resident here but simply doesn't fill in any tax forms. This will mean that there will not be any of the allowances that residents are normally able to apply for.

lynnxa

I am totally confused


so glad I have no property here

snikpoh

But you have! - it's not 'property' per se but chattels (including vehicles, cash, equities etc.)!

What I mean is, it is not simply the house/flat, but ANY possessions that may be passed on to someone else. The reason we all concentrate on property, is that this is (usually) the bulk of an estate.

Lynn R

I think (but will bow to Fred's superior knowledge) that the property in Spain will be subject to Spanish inheritance tax, and as a non-resident she will not be entitled to offset any allowances against the liability. Nor will the beneficiaries of the will, if they are also non-residents. This was the position our friend was in.

On the subject of bank accounts, I could be wrong, but as I see it the advantage of keeping the bulk of your savings in UK or offshore accounts (Gibraltar, for example) is that in the event of your death these could be dealt with under a British will and go through the UK probate system, which is much simpler for beneficiaries based in the UK to deal with and would allow them to get access to the funds from which any liability to Spanish inheritance tax could be settled. Our friend's sister, however, has had to pay the tax within 6 months of his death (otherwise surcharges would be applied) before the house could be transferred into her name to enable her to sell it, as she does not want to keep it. In the meantime she also has to pay IBI and utility bills on the property, and will have selling costs such as agent's commission to pay if and when a buyer can be found. Not to mention maintenance issues the longer the property remains empty, although we are keeping an eye on it for her for security purposes and will deal with any emergency maintenance needs. If she didn't have people available locally to do this for her, that would be another service she would have to pay for. By the time she is able to sell, I would guess that more than a third of the value of the property will have been swallowed up in taxes, legal fees and so on. Even if my partner died before me, I don't have any children and my estate will go to my sister and brother, I don't want them to go through all this.

lynnxa

yes I guess so - although we lease the car, so it's just some furniture & a few bits & bobs which wouldn't add up to a huge amount

we only keep enough money for expenses in our Spanish account

isn't there a lower limit where IHT kicks in?