 | Inheritance Tax (ISD) in Spain |
There are two main features of inheritance tax (ISD) in Spain:
- The taxable person is the recipient: ISD is a tax on acquisitions, not on transfers. In the UK (for example)
in regards to equivalent inheritance tax (IHT), it
is the estate of the deceased which is subject to tax. In Spain, the recipient
of the lifetime gift or inheritance is the taxpayer.
- Spouses are not exempt from Spanish inheritance tax: Spouses are treated
no differently than adult
children.
In the IHT example, a spouse is generally an exempt beneficiary.
People Obligated to Pay ISD
- An individual resident in Spain is liable for ISD on worldwide assets.
- An individual not resident in Spain is liable on assets held in Spain.
Nationality has no bearing at all and the only two questions asked are:
- Where is the heir resident?
- Where are the assets sited?
For example, in the situation of a married couple who jointly own a property in Spain
(whether or not they are resident there), on the death on one spouse, the
survivor will be liable for ISD on the deceased spouse's half (assuming the wills
have been written that way).
Working Out the Tax to be Paid
The calculation of the tax due is done in five stages:
- Valuation of the asset: While all sorts of valuation bases may be used in
Spain, the basis required for ISD is known as "real value". In
reality, this means that the starting point is a full, open-market valuation. If
there is a mortgage on the property (which is registered in the Spanish land
registry) the appropriate portion of that may be deducted from the market value.
- The taxable person is the recipient, the relationship between the taxpayer
and the person making the gift or leaving the inheritance must be identified and
that relationship falls into a specific group:
- Group I: natural and adopted children, grandchildren in
direct line of the descent who are under the age of 21
- Group II: the same descendants listed above in Group 1 but aged
21 and over, ascendants in direct line, and spouses
Note: Spouses
are not favoured beneficiaries and are not treated differently than adult
children, parents and grandparents
- Group III: consists of those in the next degrees of kinship out to first
cousins
- Group IV: consists of the rest of the family (collateral fourth grade and beyond)
and unrelated persons. This category of unrelated persons includes unadopted stepchildren,
and the so-called common-law spouse.
- Work out the personal allowance available (this is per recipient).
Note that no allowance is available on lifetime gifts - only on inheritances.
- Deduct any personal allowance available from the value arrived at in stage 1
above, calculate the "raw" tax figure which are set on bands according
to the amount .
- Apply the relevant co-efficient. This takes into account the degree of kinship
and the taxpayer's
pre-existing net wealth (for non-residents, pre-existing net wealth is
calculated with reference to wealth held in Spain only.
Summary
- Value the asset received
- Deduct any allowable deductions or relief
- Determine the degree of kinship between donor and donee (the taxpayer)
- Establish into which kinship Group the taxpayer falls
- Deduct any available personal allowance
- Tax the resultant figure through the bands
- Calculate the taxpayer's pre-existing net wealth
- Determine which co-efficient is applicable
- Apply the co-efficient to the tax figure obtained earlier
When Payment Should be Made
It is the taxpayer's duty to present all the documents reporting the taxable
transaction necessary for the calculation of the tax due. A taxpayer may opt to
calculate the tax due and present the declaration together with the payment.
This must be done as follows:
- The liability to tax arises:
- Death
- Lifetime gifts (this is the date on which the gift is made)
- Declarations must be made on:
- Death; within six months of the date of death of the transferor
- All other cases: within 30 calendar days of the day following the conveyance
of the gift
Deferring Payment
It is possible to defer payment, but mostly only in the case of inheritances. To defer payment
the taxpayer must demonstrate that they have insufficient liquidity to meet the
tax in cash. If deferment is granted, interest is charged at the official rate
and added to the tax bill.
There are some limited circumstances where deferred payment is possible on
lifetime gifts, however this is limited to interests in a family or professional
business.
The four-year window
The tax administration is prohibited from seeking payment, or applying sanctions
for non-payment of tax once a period of four years has passed counting
from:
- the date for final presentation by the taxpayer of all the required
documents, or
- the date of any tax offence
This four-year
(formerly five year) proscription period is a general one in Spanish tax law.
There are various opportunities for the tax authorities to "stop the
clock" and keep the case within the four year window.
Notifying tax authorities
Most institutions - such as banks and insurance companies, Spanish authorities and other
people likely to be involved in a transfer of value (notaries and registrars) - are obliged to make reports to the tax authority. This duty is reinforced by
making them "subsidiarily liable" for payment of the tax.
Related Information
Information provided by John Siddall Financial Services
Limited
Siddalls Spain - Tel: 0034 663 845 549 / www.siddalls.net
Copyright © 2008 John Siddall Financial Services Limited All
Rights Reserved
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