Over the last year I have noticed a definite increase in the volume of search queries for ‘Spanish Inheritance Tax Law – free advice‘ coming in to us at Spanish Property Eye and www.spanish-inheritance-tax-law.co.uk
The majority of these queries for free Spanish Inheritance Tax Law advice are coming from UK citizens who are either already living permanently across in Spain or have second holiday/retirement homes there.
More often than not affected individuals have held property across in Spain, the Canary Islands and the Balearic Islands for quite a number of years but have only just become aware of the legal implications relating to Spanish Inheritance Tax Law.
Unfortunately, for many the awareness has come far too late. A partner or loved one has a passed away and the surviving partner or heirs have been thrown headlong into the confusing, expensive and stressful nightmare that is Spanish Inheritance Tax Law, Wills and Probate.
The surge in enquiries is partly fuelled by couples who originally purchased Spanish property 10-15 years ago when in their 60’s as part of their dream retirement in the sun. At the time of purchase many did not receive any or good quality advice regarding planning for Spanish Inheritance Tax or arranging for dual UK and Spanish Wills. The UK citizens and expats that we now find ourselves assisting never dreamed that they would end up facing the wrong end of the Spanish Legal system.
Other enquiries are made up of badly transacted Probate affairs such as a recent enquiry made to us in December 2014. This came from a UK citizen whose father passed away in 2007 and was left a 20% share in the property, with the remaining share going to her father’s new partner.
Her father’s partner bought her out of her inherited 20% share advising that she would sort the legal process. The daughter accepted the buyout and carried on with the rest of her life…up until now that is.
HMRC in the UK came calling on behalf of the Spanish Authorities requesting immediate payment of a 10,000 Euro Spanish Inheritance Tax bill, which included additional daily interest backdated for the last few years, for the non-payment of Spanish Inheritance Tax on the 20% share that she originally received at the time of her mother’s death way back in 2007!
All of the cases we assist show misunderstandings regarding Spanish Inheritance Tax and Probate – many of which could have been easily avoided if the parties concerned had take proper legal and financial advice before the death of their partner/mother/father.
By far the biggest mistake or misconception we see made is that Spanish Inheritance Tax Law works the same as it does in the UK – whereby the surviving spouse receives an exemption of up to £325,000 before paying any Inheritance Tax. This is not the case.
Unlike in the UK, in Spain there is no exemption from Spanish Inheritance Tax between husband and wife.
A Spanish Inheritance Tax form must be completed, the taxes due are then calculated on a sliding scale of allowances depending on the relationship of the deceased to the inheritors and region of Spain that the property is located within and the taxes due must be paid within 6 months of death. Failure to pay within the 6 month period means daily interest and fines will be applied to the amount due meaning the final amount owed could be considerably higher than the original bill.
For those unaware of Spanish Inheritance Tax Law this news comes as a shock as it leaves them financially and emotionally unprepared to deal with the ramifications of failure to plan ahead.
Key facts to be aware of are:
- Inherited property cannot be sold/used as collateral to secure a loan/mortgage in order to pay the Spanish Inheritance Tax bill. If there is no life insurance, savings must be plundered to clear the Spanish Inheritance Tax bill.
- Common law partners or spouses and very distant relations/associates come off the worst. Common law partners or spouses are not recognised in Spanish law and so are classed as non-relatives. This means that they are not allowed any allowances so are taxed at the highest rate of Spanish Inheritance Tax (double that of married partners).
- In Spain it is the heir who is taxed and not the estate.
These are just some of the important considerations to take into account when planning for Spanish Inheritance Tax, which applies to each inheritor not to the total estate.
By taking expert advice on Spanish Inheritance Tax planning and Dual Spanish and UK Wills many UK owners of Spanish property can ensure that their loved ones avoid added stress, financial problems and bureaucratic difficulties.