Reducing IHT
 

If you want to pass your house to a relative (not spouse) then what are some of the ways of reducing IHT?
I have heard of putting the house in a trust and also making up a LTD company to own the house. Doesn't the LTD company attract yearly fees for filing accounts?
Any other options? The IHT seems quite high in Spain and if the people you want to inherit it cannot raise the funds they would have to sell the house as the only option.

Re: Reducing IHT
 

I am led to believe they cannot sell till they pay the tax.

Re: Reducing IHT
 

You can avoid IHT by some of these schemes but the costs can be quite high and there may well be a few scams around.

As the Captains Wench pointed out, you pay the tax first then you can sell - not the other way round.

Be careful.

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and if you can't pay the tax? they just take the entire house?

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Well I am sure there are ways round that - a loan should solve the problem and I am sure there are other ways.

There is nothing to stop you finding a potential buyer and you have up to 11 months to do it before the tax is due.

Re: Reducing IHT
 

That's the thing though, the benefactor shouldn't be forced to take out a loan/re-mortgage.
Imagine if they didn't want the place and found out about it. :)
On a big house, you could end up paying 25%.
I guess the only way round it is for the deceased to have some form of life insurance that pays for the IHT.

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Probably not but that's the law so not a lot you can do about it.

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"sell it" to them. Just don't cash the cheque.

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In Spain it is different you have to agree to accept the inheritance if you don't want it or can't afford it you just say no thanks and you owe nothing.

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Yes but you till have to pay the costs of selling which could be nearly 12% depending where you live.

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Correctly me if i'm wrong, but 12% (and more likely 10% in our part of Andalucia) is far cheaper than paying IHT FOR A NON RESIDENT.

Anyway, it's the only option AFAICS.

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I think you'll find that it's more like 13% now. From August 1st ITP went up to 10% in some (most?) areas. Plus you then have notary fees, land registration and (maybe) lawyer fees - PLUS the dreaded EPC (CEE).

Re: Reducing IHT
 

The percentage due in IHT doesn't depend on the size of the house, it varies according to the degree of relationship between the deceased and the beneficiary. Someone who is not related in any way to the deceased could end up paying as much as 80% in IHT, I believe.

As far as this suggestion of pretending to sell the house to a relative in order to avoid IHT is concerned, what happens if you have more than one heir (ie 3 or 4 children)? Do people not think Hacienda might smell a rat if the house is "sold" to multiple purchasers? And if a "sale" went through with the approx 13% associated costs being paid, if the beneficiary(ies) wanted to sell the property after the original owner's death, all those costs would have to be paid all over again, would they not?

Re: Reducing IHT
 

The residency issue is likely to go away as the EU has told Spain that it is discriminatory and they will have to offer the same deal to both residents and non residents.

They have not changed the law yet but people have taken this issue to court and won the case.

http://www.eurojuris.net/node/41548

Re: Reducing IHT
 

Another couple of (possible) complications occurred to me about the scenario of "selling" your house to a relative in order to try to avoid IHT.

1) The "buyer" would then become liable to pay non-resident taxes each year as the owner of a property in Spain
2) Say the person "sold" their house for €200,000 but didn't bank the cheque. When they submitted their tax return for the following year, how would they account for what had happened to the money if they don't include it in their tax return? Hacienda would know the property had been "sold" as the transfer tax would have been paid on it.

Re: Reducing IHT
 

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

Re: Reducing IHT
 

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.

Re: Reducing IHT
 

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

Re: Reducing IHT
 

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..:thumbup:

Re: Reducing IHT
 

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!

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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.

Re: Reducing IHT
 

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

Re: Reducing IHT
 

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

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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.

Re: Reducing IHT
 

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.

Re: Reducing IHT
 

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

Re: Reducing IHT
 

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.

Re: Reducing IHT
 

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.

Re: Reducing IHT
 

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.

Re: Reducing IHT
 

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.

Re: Reducing IHT
 

That would be pretty normal but when there are stepchildren involved it gets more complicated hence the solution I suggested.

How much tax? That depends on how much the house is worth plus any other assets, money, cars, stocks etc.

Send me a PM if you don't wish to give those details on the forum.

Re: Reducing IHT
 

Sorry what I meant was if she was my mother what percentage of tax would be payable.

Re: Reducing IHT
 

It depends on the amount of the inheritance - it is on a series of scales from 7.65% to 34% which is why I asked the value.

You can see the tables here together with more information.

http://www.eyeonspain.com/spain-maga...e-tax-law.aspx
http://www.expatica.com/es/finance_b...tance-tax.html

Re: Reducing IHT
 

Thank you.

Re: Reducing IHT
 

It's not really a solution.It could be a millstone round the neck, having to pay out taxes and maintain a property you no longer want, for 10 years.
Also the usufruct arrangement-that's not a good solution either;the mother would then not have the money from the house sale needed to live and plan her life, perhaps move etc, may not want to live in that house for the rest of her life!
There is no decent solution to the dreaded IHT, signing over ownership, transferring it to a company etc -they all have serious drawbacks;what is required is a thorough overhaul of this tax, eg exemption for a spouse so that he/she can enjoy the things that they both owned and saved for together without being penalised for it.
How can it be fair that Valencia can have such high allowances when Murcia's regional allowance has been abolished?
There should be no regional variations where tax is concerned -it affects too many lives adversely and should be set as one proper allowance(Not the paltry sum it is now) by central government.
Also Scribble, are you aware IHT has to be paid on ALL world wide assets, not just those in Spain?
Could be a considerable sum!

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As I thought, no one has come up with a painless solution because there isn't one.
Until central Government comes up with a decent allowance(the present one is pathetic and hasn't been increased for years) and abolishes the unfair regional allowances, IHT will continue to be a nightmare.IHT is too important to be left to the whims of regional governments-it should not be a postcode lottery, as to how much tax to pay.
Of course, only those registered on the Spanish tax system and making yearly tax returns would be eligible.Those who have enjoyed living under the radar should pay the full wack.

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I don't understand your comments about the regional governments.

All they can do is increase the allowances - what's so bad about that. Also what is unfair about them when the allowances are better than the state rules?

If the regions had not implemented additional allowances all you would get is the draconian state rules.

Re: Reducing IHT
 

I thought I had made it clear enough!
I am saying that inheritance tax is too important to be subject to the whims of regional governments;in one state you may pay nothing, in another a huge amount-Is that fair?I imagine most retiring to Spain do not do a survey of which region has the highest allowance!
At the moment the government allowance is pathetic and hasn't changed for many years;it needs for regional allowances to be abolished, and the state allowance to be vastly increased to a realistic level, so that those eligible( registered with the Spanish tax office) get a fair deal and not be subject to a postcode lottery.
As for regional allowance being increased,According to Murcia Today, it has been abolished and other regional allowances reduced.

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All I said about the regional allowances is that all they can do is INCREASE the state allowances, they cannot reduce them.

Murcia and Valencia have run out of money so they have reduced their regional allowances.

You are right, the state rules should be improved but at least with the regional government allowances some are better off.

Re: Reducing IHT
 

That's the point-SOME are better off.
As the regional allowances depend on the fact that the house has to be retained for 10 years it's a poisoned chalice-if you sell it you end up paying the IHT;if you keep it it's a millstone round your neck.The fact is most, after bereavement want to downsize or go back to the UK. Better, as I said for the state allowance to be hugely increased.
Anyone thinking of moving here should consider the IHT first;if they did, how many would come here?