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Impuesto sobre Sucesiones: perspectivas

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Spanish Inheritance Tax: outlook

The Spanish Supreme Court declared last May that current local Inheritance Tax regulations are against the Spanish Constitution, as it discriminates Spaniards. The fact that someone living in Madrid will not pay Inheritance Tax or someone in Valencia will get a 75% discount (99% previously) compared to other Regions in Spain violates the principle of equality under the Law.

Previously, the European Commission referred Spain to the EU´s Court of Justice for discriminatory rules on inheritance and gift tax that require non-resident to pay higher taxes than residents.

Recently, the Spanish Government has announced a “comprehensive and complete” tax reform that will be tackled in 2014, aimed at making our tax system “comparable with our peer countries”. Therefore, we expect changes in the Inheritance Tax legislation in the near future.

Equity release: no longer valid for Inheritance Tax purposes

The Spanish Tax Authorities have recently resolved that non-residents cannot deduct the mortgage on a Spanish property, to reduce the taxable base for Inheritance tax purposes, in case it refers to a loan that has not been used to acquire the property, granted abroad not complying with the Spanish Laws or not subject to the jurisdiction of the Spanish Laws and Courts.

Non-resident individuals (heirs) are subject to Spanish Inheritance Tax on assets and rights located or executable in Spain and the above mentioned loans are not included.

New EU Regulation on Inheritance

The Regulation 650/2012 will apply from the 17 of August 2015 and it will allow European citizens to chose the national law applicable for succession from any EU member State, just indicating the election in the Wills.

Spanish law, like France, Germany or Portugal, places significant restrictions on the freedom to dispose of one´s possessions by Will, as it forces the deceased to leave a full two thirds to the legal heirs, leaving only one third for free disposal.  .

Contributing the Spanish property into a UK Company is not the solution for Inheritance Tax

You may have read or heard some firms offering a simple solution to a complex issue: investing the property into a UK private limited company to avoid paying Inheritance Tax in Spain, based on the fact that whatever happens to the shareholders, the ownership of the property will remain the same (UK Company) as the Spanish authorities are concerned.

Non-resident receiving assets or rights located or executable in Spain are subject to Spanish Inheritance Tax. Non-Spanish companies are not located or executable in Spain, unless they fall under article 108 of the Spanish Securities Market Act, a special anti-avoidance clause that puts the transmission of shares on Companies, which main asset is formed by real estate properties located in Spain, on a level with the transmission of the properties themselves. 

And looking forward to the New Spain-UK Double Tax Agreement, not in force yet, the Capital Gain Tax on the sale of shares formed mainly by real estate properties will be taxed in the country where the properties are located, as well as subject to Wealth Tax.

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