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WHAT BRITISH SHOULD KNOW ABOUT SUCCESSION TAX IN VALENCIA

If you live in Spain or have Spanish assets, it is likely that your heirs, or even you, will be affected by Spanish succession and Gift Tax at some point. You need to understand how this tax will affect you and your family, and what steps you can take now to mitigate the impact.

With the right knowledge and careful planning, you can take steps to make sure your legacy goes to the right place without attracting more tax than necessary. First you should get to know some of the key features of the Spanish system.

IT IS THE RECIPIENT, NOT THE DONOR WHO PAYS TAX

Unlike the UK, where tax is paid by the estate before an inheritance or gift changes hands, in Spain it is payable by each person on the receiving end. Spanish Succession and Gift Tax –Impuesto sobre Sucesiones y Donaciones (ISD)- is due if either the asset being inherited or the recipient is based in Spain. The same rules apply for gifts.

For Spanish assets, tax is payable regardless of where the beneficiary is resident. So if you leave your Spanish property to children resident anywhere in the world, they will pay Spanish succession ta on it. For inheritances received by Spanish residents, taxation applies no matter where the assets being inherited are located. If you receive a legacy from the UK, therefore, you will be liable for Spanish Succession Tax if you are resident here.

Tax is payable within six months after the date of death, even if the funds are not immediately accessible. As you cannot sell the asset to pay the tax, this could make it difficult for some heirs to pay, especially on higher value inheritances.

YOUR SPOUSE AND CHILDREN ARE NOT EXEMPT

Another aspect that differs to the UK is that Spain offers no blanket spouse-to-spouse exemption on inheritances. So if you are resident here and leave any assets to your spouse (who is also Spanish resident), they will pay tax on it. Even for non-residents, Spanish assets like property will be taxable between spouses in Spain. The, on the second death, succession tax is payable again on Spanish assets passed on to children and other heirs.

While there are some allowances under the state rules, they are just €15,957 for spouses, descendants and ascendants (although and additional allowance is available for children/grandchildren under 21 years-old). This does not include stepchildren, however, who can usually only receive the same €7,993 allowances as siblings, cousins, nephews and nieces. Other heirs –including unmarried partners –may receive no allowance at all.

WHAT IS PAYABLE DEPENDS ON THE REGION

The Spanish government’s state succession and gift tax rates currently range from 7.65% to 34%.

However, each “Autonomous Community” has the right to amend the state rules, and many of them do so in favour of the taxpayer, including the Valencian Government.

Allowances in Valencia are quite generous. The regional reduction for spouses and close family members (descendants and ascendant) adds up to €100,000, plus €8,000 for children below 21 up to €165,000.

The rules that apply in Valencia allow unmarried couples to benefit from the same reliefs as spouses, so long as they are registered as a “pareja de hecho” if they meet certain requirements.

When inheriting a main home from a spouse or direct family member (descendants and brothers over 65) there is a 95% reduction up to €150,000 per person, so long as the property is kept for at least five years.

However, determining whether state or autonomous region rules will apply when calculating succession and gift tax is not straightforward and can vary depending on various factors. Because of these complexities, it is essential to take advice, ideally before buying a property or moving to Spain.

YOU COULD STILL FACE UK INHERITANCE TAX

As UK inheritance tax liability is determined by domicile rather than residence –and domicile is an incredibly “sticky” concept– it continues to affect many British expatriates living here. It means those still domiciled in the UK could be liable for both UK inheritance and Spanish succession tax on their worldwide estate, although the ax paid in Spain can be deducted from UK liability on the same asset to avoid double taxation.

Ultimately, it is important to understand the succession and gift tax rules and how they apply to your situation, as well as how they affect any UK liability. Couples also need to consider the best solutions should the surviving spouse remain in Spain or return to the UK. While it is possible to shed your UK domicile status, this is a specialist area so professional advice is essential to establish your position and plan accordingly.

With Brexit likely to complicate things further, now is a good time to review your succession tax planning and explore your options. Every family is different, so your approach should be tailored to meet your personal objectives and unique situation. You should also consider how your legacy will be received by your heirs –am extra gift you can leave them is having their inheritances structured in a tax-efficient way to maximize their value.

BRAVO ABOGADOS’ specialist cross-border expertise ensure our clients make the most of compliant opportunities to reduce Spanish succession and UK inheritance tax, as well as protect their wealth in their own lifetime. Speak to us for peace of mind that your legacy will go as far as it can and that you have the most suitable approach in place, for yourself and your chosen heirs.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

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