New allowances on Inheritance Tax in Andalucía. Does everyone benefit?
8 Jun 2018
Inheritance and Gift tax in Spain is payable by the heir/beneficiary/receiver and not by the estate.
In Andalucia, as from 1 January 2018, closer relatives (group I & II: spouses, children, grandchildren, parents and grandparents), inheriting less than 1 million euro individually will pay no tax provided that their pre-existing wealth is also less than 1 million euro.
The one million euro allowance computes for each individual and not for the value of the overall estate.
Unlike previous reductions, this is a threshold meaning that -for example- someone inheriting 1.000.001 euros will be free of tax on 1 million but taxed on 1 euro.
Who can apply the Andalucia Inheritance Tax Law?
Residents in Andalucia are taxed on worldwide assets to be inherited. Non-resident heirs have to consider only Spanish assets.
Since 2015, EU residents are entitled to the application of regional legislation in case it is more favorable than the state law. Non-EU residents may be entitled to ask for the same right, following the precedent set by a Court resolution issued early this year, ruling in favor of a Canadian citizen.
The pre-existing wealth
This new reduction is not intended for high net worth individuals. In order to benefit from this allowance, the wealth of the heir by the time of inheriting should not exceed the maximum of 1 million euro.
Nevertheless, the value of the estate and the value of the pre-existing wealth are calculated in different ways. In order to calculate the value of the estate, assets should be valued at market price by the time of decease, therefore the value of the individual portion to be inherited by the heirs. However, the pre-existing wealth has to be valued according to the rules of Wealth Tax, and in case of real estate properties the value for Wealth Tax is that corresponding to the acquisition price, so this could be a relief in case the property was acquired time ago in a way that the purchase price paid by the heir for the house was under the 1 million euro.
Change your will
In the event that individual pre-existing wealth is higher than 1 million euro, changing the will could be a tax efficient solution.
Non-residents are subject to inheritance tax on Spanish based properties. They will pay taxes on the Spanish properties to be inherited and their pre-existing wealth to be considered is as well the Spanish properties they may own prior to inheritance.
Traditionally, spouses do appoint one each other. Changing the will appointing the children as beneficiaries instead of each of the spouses could lead to the consequence that the heirs will have no pre-existing wealth in Spain and, moreover, you may be splitting the property in more than 1 heir and each of the heirs will be entitled to a 1 million euro allowance.