Within the last years we have observed an increase on the transmissions by or in favour of non residents subject to the Inheritance an Git Tax in Spain. First of all we must know that the Inheritance and Gift is levied in one of the following three cases:
- by acquisition by individuals of any type of real estates, goods, or rights, through an inheritance or legacy.
- by acquisition by an individual of goods or rights as a gift or donation.
- For any kind of amounts received by the beneficiaries of life insurance contracts when the contracting party is a different individual than the beneficiary.
The taxable base is normally the net value of the goods and rights and the the tax rates depend on Spanish Region or Comunidad Autonoma where the goods are located, the amount involved, the degree of family relationship between the deceased/donor and the heirs/ recipients and the previous net worth of the last ones.
In the Balearic islands, there are reductions available of up to 99 percent under certain conditions for Inheritance Tax which means an effective tax rate of 1% , and 7% for gift or donations. These reductions were in principle only applicable for tax residents however EU Court resolution from 2014 and the following Spanish High Court Tribunal Supremo resolution forced to change the Inheritance and Gist Tax Law with the Disposition Additional 2ª extended said tax benefits also to non residents since 2015.
In case of decease of a person, technically, the whole inheritance procedure is ruled according to the national Law of the deceased however tax consequences are applicable in Spain if in this country is located any real estate, good or right and depending the residence for tax purposes of the deceased and of the heirs. So, when a person dies and the heirs are resident for tax purpose in Spain, they would have the obligation to declare, file and pay inheritance tax not only for the estate in Spain but also for the whole estate – world wide – of the deceased no matter in which country he goods or rights are located. On the other hand, if the heirs are resident for tax purposes outside Spain they would have to declare, file and pay inheritance tax only of the estate located in Spain. However, if the non resident heirs are going to be taxed also for the worldwide estate of the deceased (including the house in Spain) they would have the right to deduct the tax paid in Spain for the property located here in order to mitigate the double taxation as Inheritance and Gift Tax in not included in Double Tax Treaties. Normally each legislation establishes tax deduction or tax savings facilities that reduces the final tax burden but the double taxation on the same property does not disappear totally. For example in our Spanish legislation if a tax resident heir receives from a non resident owner a estate that include properties located in other countries he might deduct the effective Inheritance Tax paid in said countries to the limit of the amount that he would been obliged to pay in case he were resident for tax purposes in Spain.
It was quite common I the past the case of a foreigner in Spain with a property or estate in Spain and as by being non resident for tax purposes at his decease the heirs were forced to sell it in order to pay the very high inheritance tax and the local capital gain tax on the land value (“Plusvalía Municipal”) otherwise they could not get the change of ownership in the Property Registry. This has changed as we already mentioned.
For practical purposes, being the heirs non resident in Spain they have previously to do the following:
- Apply a Spanish Fiscal Number or NIE if they do not have one
- Apply a Certificate of Last Wills from the Dirección General de Registros y Notariado del Mº de Justicia
- Grant Public Deed before Notary accepting the will or file a legalised and notarized acceptance of the will or the correspondent judicial declaration of heirs
- Once paid the Inheritance Tax they are obliged to file in the Oficina Nacional de Gestión Tributaria in Madrid the tax returns 650 y 651 (c/ Infanta Mercedes, 29). The deadline is 6 months after the decease, however this deadline might be extended another 6 months. .
- Finally, they would have to appoint a tax and legal representative, normally, the Lawyer or Tax Adviser who deals with the Inheritance.
We can affirm that in general Inheritance Tax is lower than the Gift Tax but there are interesting institutions as the donations in life with inheritance agreements – a kind of anticipation of the will – that might mitigate under certain circumstances the taxation. However as this dispositions also affects other taxes like Income Tax and the still “living”Net Wealth Tax and due to the reason of the particular and casuistic of this tax we recommend to foresee and set up an effective tax planning and also to grant a will before Spanish Notary for the goods, properties, real estates and rights (golf shares, berths, bank accounts etc. ) located in Spain in order to clarify and ease the whole procedure and also to contact any specialised Lawyer or tax adviser in order not to pay much taxes.
Carlos Espinosa
Solicitor & Tax Adviser
+34 627 41 32 01
carlos.espinosa@iurisnautic.com
