How to reduce your inheritance tax bill in Spain

Posted on: 9th June 2021 in Retirement Planning

Living in another country as an expat can be a challenge. New laws, new rules and different customs sometimes set the stage for a different lifestyle. Estate planning for expats in Spain is one of the biggest challenges they face. In our blog, we will be sharing some important information regarding estate planning and inheritance tax for expats in Spain which would make your life easier in the future while saving you money in the process.

Inheritance in Spain and liability to death taxes

In regards to death taxes, it depends on whether the person is a tax resident in Spain or not. Tax residents in Spain are people who spend over 183 days in the country in a year. If the person is a tax resident in Spain, they would be liable for all the wealth that they own worldwide. If the individual is not a tax resident in Spain, he or she would be liable for the owned assets within the territory of the country.

At the moment, in the region of Andalucía the inheritance tax grants a 99% deduction (for 1st-degree relatives) which means that, under certain circumstances, individuals would enjoy a zero-tax benefit. Inheritance tax in Spain is based on the acquisition of wealth. In Spain, the person who receives the wealth or beneficiary is the one that is obliged to pay inheritance tax. Inheritance tax is the only tax that the beneficiary has to pay in Spain, unlike in other countries where capital gains and capital transfer taxes are applicable.

If the beneficiaries are not first-degree relatives, they would be obliged to pay the regular tax rate (7-36%) which is different from region to region. A number of factors play a role in determining the payable tax amount, so it is suggested to ask for the help of a qualified financial adviser.

What is “Plusvalía”?

Expats should know that in addition to the inheritance tax, they would have to pay a rather small tax called “Plusvalía”, in case of inheriting a property. This is a municipal tax which the Spanish tax legislation describes as “a direct tax on the increase in value of the land of an urban nature, which is evidenced as a result of the transfer of ownership of this land.” The payable amount depends on how many years the property had been owned by the deceased.

What if the beneficiary isn’t a Spanish tax resident?

Beneficiaries who are not Spanish tax residents would have to pay taxes on the assets located in Spain. In this case, the Spanish tax legislation revolves around property and insurance which has been taken out in Spain. Regarding financial assets such as funds, stocks etc., if they are deposited or located in a Spanish bank, beneficiaries would be liable to taxes. In general, it is essential for beneficiaries to know whether the depository bank is located in Spain or abroad.

Tips to reduce inheritance tax in Spain

If you have been living in Spain, but you are not registered as a tax resident and your wealth is located in Spain, especially in the region of Andalucía, it is recommended to move forward with your registration. Not only it is your obligation to do it, but you could also benefit from the 99% tax deduction mentioned earlier in the blog.

Regarding financial assets, specialists recommend moving them to jurisdictions outside of Spain to avoid paying inheritance tax in the country. In regards to property, it is best to have a mortgage as it reduces the base amount on which the tax rate is calculated.

Expats and funeral planning in Spain

Experts recommend considering building a funeral plan as soon as expats move to Spain. While funerals in the UK take place two or even three weeks after the inevitable has happened, this isn’t the case in Spain. Funerals in Spain take place one or two days after a person’s death. Another key difference with the UK is that most funeral directors expect upfront payments.

Parents and grandparents are encouraged to put plans in place to reduce the burden of a sudden unfortunate event, especially due to the limited timeframe and the difficulty in travelling across Europe. Firms specialising in funeral planning for expats living in Spain are there to help you minimise the stress of a process that most would like to avoid. Funeral planners offer their support speaking your language and are on hand 24/7 to solve potential problems for you.

Holborn and expat estate planning in Spain

Some say that estate planning helps to protect your loved ones from the consequences of a sudden unfortunate event. Financial advisers note that estate planning should be a part of your ongoing financial planning.

If you are an expat living in Spain, our experienced team of advisers at Holborn is qualified to walk you through the process of estate planning and suggest the best solutions. Contact Holborn today to make sure that everything goes according to your plans and wishes.