Westonman

Hi fairly new to the forum and will be purchasing hopefully within the year.

I noticed in the thread that IHT seems to be quite high in Spain.

Could anyone explain please if you have the time.

1..How being resident effects this tax.

2..How making a Spanish and Uk will would possibly effect IHT.

3..For many expats I would think IHT is a very important issue and I would be interested to know without prying how those of you already living there are planning for this tax?

Many thanks

Fred James

Being resident can make a big difference. At the national level there is 95% relief for your habitual home so long as the surviving spouse retains ownership for 10 years with a limit to the allowance of 122k.

In some autonomous regions there are very significant allowances given to residents but this discrimination is being challenged at EU level. However allowances relating to the habitual home will never be allowed to non resident as by definition it cannot be their habitual home.

Making a Spanish will does not affect the issue so long as you have a UK will and having a Spanish will to cover just your Spanish assets is desirable but not mandatory. If you don't have one the legal process is more complicated.

There are many ways to minimise IHT but some can be quite complicated and expensive. Professional advice is essential if you feel you may have a problem but please don't talk to any of these "specialist" companies as they are just out to sell you an expensive solution.

snikpoh

Fred, am I correct in remembering that this has now reduced to 75% in the Valencia region (Alicante, Valencia and Castellon)?

Westonman

Thanks Fred for that rapid and informative response appreciated.
We fully intend to become resident at some time after the move actually happens and following further research hope to gain more clarity on a complicated situation!
There would in our case be just myself and my wife in Spain with our two grown and apparently independent girls resident in the Uk!! these would be the only beneficiaries.
Good tip re experts and schemes..I have already been approached by a company that specialises in forming UK companies with a view to making the property a ltd company and limiting your IHT..On further research this does seem an expensive way to do this albeit possibly legal..with ongoing fees involved.
I want to be legal of course and with your advise regarding up to 95% allowances in certain areas (we will be locating to the Almeria region) I now have some clarity and a base for further research.
Thanks again..

Neptuno

Many people do not realise the awful implications of IHT in Spain, and if they did they would surely reconsider moving here.
With regard to regional allowances, (not the national one applicable to all)I think Murcia has abolished it.That's the unfairness of allowing each region to set their own allowances;these and tax allowances should be set by the government with one sum for all.
The point about living in the property for 10 years in order to qualify-how many bereaved people would stay in the house for ten years due to not being able to maintain it due to physical condition, loneliness, financial constraints etc.? Therefore they would still have to pay a considerable amount of IHT, if they moved soon after.
All the schemes to reduce IHT seem to have problems. The answer is-Just don't die in Spain!

Fred James

They don't have to live in it - just retain ownership. They cannot sell it but there is nothing to stop them letting it and renting a smaller property to live in.

Fred James

No it hasn't. That basic relief on the family home of 95% relief is applicable across Spain and cannot be changed by regional governments apart from their ability to add extra allowances to it.

Valencia and Catalunya used to allow much higher general allowances but these have been reduced but some other allowances increased.

It was covered in this thread.

http://britishexpats.com/forum/showthread.php?t=805494

EsuriJohn

Fred did not say "live in" in the property only that you retain ownership.

CapnBilly

I was reading the Valencia changes last week, and one thing I noticed was that the retention period (over 65) was only 5 years (as far as I could tell it wasn't a change). Valencia is looking reasonable now, compared to Murcia.

One other point, as far as I can tell the extra allowances for groups 1/2 only applies when both the deceased and beneficiary are resident, or have i got that wrong.

Fred James

As far as my info is concerned Valencia did not offer any changes to the state rules on relief for the family home which requires 10 years of ownership. The only change that has occurred that under the new rules the relief is increased to a maximum of 150k rather than the state rule of 122k.

Yes, the extra allowances only apply if the deceased and the beneficiaries are resident - usually that means for the last 5 years.

However, as I said in post #14 this could well change.

CapnBilly

No, its definitely a new change, as I've just checked the previous version and this clause (translated) is new from the 6th August 2013

c) In the acquisition of the residence of the deceased, shall apply, with the limit of 150,000 euros for each taxpayer, a reduction of 95 per 100 of the value of the dwelling, provided that the beneficiaries are the spouse, parents or children of that, or collateral relative more than sixty-five who had lived with the deceased for two years before death, and that the acquisition is maintained during the five years following the death of the deceased, unless the purchaser dies within that term

Fred James

Well spotted. It's difficult to keep up with all the changes.

These changes have some downside and some upside. It looks to me that they favour the smaller inheritances but reduce the allowances on large ones which seems fair.

Hopefully more regions will move this way so that the "ordinary" estate will be almost tax free and the wealthy will get clobbered.

funinthesun

I am resident in Spain. My father and stepmother bought a home here and were residents. There is just my stepmother now. If she dies and I am left the house do I have to pay tax on it if I do not sell it.

Fred James

Bad news I am afraid.

The 95% allowance that applies to the family home only applies if the inheritor is a Group 1 or 2 relative. That includes children but not step children who are in Group 3.

Also your basic allowance is only €8k not €16k and the tax payable is increased by 58% as you are not classed as a close relative (Group 1 or 2).

It's easy with hindsight to say this, but if your father had left his half share to you with your step mother holding a usufruct on it until her death it could have saved you a considerable amount of money.

funinthesun

The joint will states that whoever went first got the house but it was to go to me after the last one died.

Also if she was my mother what tax would be payable.