White & Baos can help you in planing your succession in Spain for the purpose of minimizing the payment of Spanish Inheritance and Gift Tax, which in some cases, particularly when applied to Non-Residents in Spain, can be very high.
In the past few months we have received a significant number of enquiries from individuals, normally Non Tax Residents in Spain and normally of British nationality, telling us that they were advised to GIFT their property to an English limited company (set up by them only for this purpose) in order to avoid INHERITANCE TAX (IHT) in Spain at the time of Death for the transfer of their property. Also they were informed that IHT in Spain is charged at 40% of the value of the estate for Non Residents. For this reason we want to cover this subject, as we understand that there could be serious consequences caused by following this advice.
First of all we would like to clarify that we understand that even if you transfer the property to a company by means of a gift, sale, or any other way, and the company has no real activity and its only asset is the property, when the shareholder passes away their shares must be transferred to their heirs and the shares will represent the ownership of the Spanish property so, theoretically the inheritance tax (IHT) should be paid anyway.
First of all one must take into account the fact that Spanish IHT, as applied to Non Tax Residents, is calculated on a sliding scale. The minimum percentage is 7.65% and the maximum is 34%.
These clients also told us that they were advised to transfer the property to a limited company incorporated in the United Kingdom by means of a GIFT, as the companies are not subject and do not pay Gift Tax, so for the Gift Deed, the only taxes to be paid are 1% Stamp Duty (AJD), that means 1% of the declared value of the property.
We agree with the fact that companies do not pay gift tax,, but we understand that when a company receives a gift, the company will need to pay company tax ( Impuesto de Sociedades) if is a Spanish SL or Income Tax for Non Residents (19%) if the company is an English Limited company, as in this case.
This means in practice, as per our interpretation of the Income Tax for Non Resident Law (Real Decreto Legislativo 5/2004), that if you are a Non Resident in Spain and you gift a Spanish property to an English limited company, you should pay 1% Stamp Duty as mentioned before, but also the company must pay as per the article 25.1.F of the RDL 5/2004 a 19% tax for the gain obtained (value of the property). If the company does not declare this tax in the Income Tax Declaration as Non Resident, it could suffer an inspection and be subject to penalty proceedings.
If a Non Resident Tax couple decide to GIFT a property of a value of 200.000 Eur. to an English limited company, the taxes to be paid should be 1% Stamp Duty (which amount 2.000 Eur.) and also the company should declare the gift in its Non Resident Tax Declaration, paying 19%, which amounts 38.000 Eur.. The total tax payable in this scenario would be 40.000 Eur., this being significantly higher than the Inheritance Tax (Impuesto Sucesiones) that they are trying to avoid.
As we mentioned in a previous article, the General Tax Office (Dirección General de Tributos) made this point very clearly in the Consultation number 2017-04. This involved a French Institution that was a beneficiary of a Spanish Inheritance, and it was held that in this scenario the inheritance or gift are not subject to Inheritance or Gift Tax, but there must be paid Income Tax for Non Residents when the recipient is a company non resident in Spain.
Therefore if you want to transfer your property owned personally to a non Spanish Company, there are better options available than to do so as a gift. And if the purpose is to minimise or avoid Spanish inheritance tax, we understand that are often better and more effective ways to do it. Please if you are worried about the IHT to be paid in Spain then come and see us we will be more than pleased to assist you.
While it is true that IHT in Spain can vary from 7.65 % to 34% it is also true that the amount to be paid will be affected by many others factors such as your fiscal domicile, the Spanish Community where the property is located, the years you have lived in Spain and even the way your Spanish Will was drafted.
2010
The Inheritance Tax in Spain (IT) is a tax that must be paid by each of the heirs individually though standard form 650. This system is different, for instance, from the UK; where Inheritance Tax is paid out of the assets that form the estate.
Yes, in comparison with the rest of the countries around us, the tax burden on inheritances in Spain is higher. The amount to be paid is influenced by many factors: the relationship between the deceased and the heir (the closer: parents and children, grandchildren and grandparents, etc., the less you will pay), the amount and value of the assets to be inherited, the regulations applicable to the inheritance (central government regulations, autonomous community, etc.).
In Spain, the Inheritance Tax is a “State Tax”, that the government transfers to the Autonomous Communities. Each region has its own regulations. Depending on the circumstances of the deceased and the heirs (whether they are residents or non-residents) the regulations and applicable jurisdiction is different. You can find an explanatory table from the Tax Agency below.
DECEASED | HEIR | AGENCY IN CHARGE | APPLICABLE REGULATION |
RESIDENT | RESIDENT | REGION of residence of the deceased | REGION of residence of the deceased |
RESIDENT | NON RESIDENT | CENTRAL GOVERNAMENT | Option: – CENTRAL GOVERNAMENT – REGION of residence of the deceased.
|
NON RESIDENT | RESIDENT | CENTRAL GOVERNAMENT | Option: – CENTRAL GOVERNAMENT – REGION of Spain with the assets of most value, and if there are no assets, REGION of residence of the deceased.
|
NON RESIDENT | NON RESIDENT | CENTRAL GOVERNAMENT | Option: – CENTRAL GOVERNAMENT – REGION of Spain with the assets of most value. |
The deadline for paying the Inheritance Tax in Spain is 6 months from the date of death. However, during the first 5 months, it is possible to request an extension of another 6 months (1 year total). In all cases (i.e. whether an extension has been requested or not) from the 6th month onwards, late payment interest will be payable.
If an inheritance ends up in Court, it is necessary to notify the competent Tax Authority depending on the Region. Once notified, the deadline for payment will be suspended until the end of the judicial process.
If payment is made after the deadline (after the 6th month, if no extension has been requested; after 1 year, if an extension has been requested), in addition to the interest for late payment, a series of surcharges established in the Tax Law will be due.
Yes. However, the conditions will vary depending on the Region. In the Valencian Region, under certain circumstances, you can request a 5-year payment plan.
Yes, from the assets to be inherited (a house, a bank account, a car, etc.) it is necessary to subtract any debts that the deceased may have had. For instance, a debt with the tax authorities. Burial and funeral expenses can also be deducted.
This happens because each Region of Spain (Autonomous Communities) can set its own deductions and allowances. For this reason, in much cheaper to inherit under the regulation of regions like Andalusia or Cantabria, rather than the Canary Islands or Asturias.
The Region of Valencia applies a progressive rate, ranging from 7.65% to 34%. For instance, if you inherit assets worth 150.000€, the taxable amount will be approximately 22.000€. Although to this amount you could still apply allowances related to kindship, disability, etc. You can find a table of the applicable rate below.
Taxable base (Up to, €) | Taxable amount (€) | Remaining taxable base (Up to, €) | Applicable rate (%) |
0 | 0 | 7.993,46 | 7’65 |
7.993,46 | 611,5 | 7.668,91 | 8’50 |
15.662,38 | 1.263,36 | 7.831,19 | 9’35 |
23.493,56 | 1.995,58 | 7.831,19 | 10’20 |
31.324,75 | 2.794,36 | 7.831,19 | 11’05 |
39.155,94 | 3.659,70 | 7.831,19 | 11,9 |
46.987,13 | 4.591,61 | 7.831,19 | 12’75 |
54.818,31 | 5.590,09 | 7.831,19 | 13’60 |
62.649,50 | 6.655,13 | 7.831,19 | 14’45 |
70.480,69 | 7.786,74 | 7.831,19 | 15’30 |
78.311,88 | 8.984,91 | 39.095,84 | 16’15 |
117.407,71 | 15.298,89 | 39.095,84 | 18’70 |
156.503,55 | 22.609,81 | 78.191,67 | 21’25 |
234.695,23 | 39.225,54 | 156.263,15 | 25’50 |
390.958,37 | 79.072,64 | 390.958,37 | 29’75 |
781.916,75 | 195.382,76 | Onwards | 34’00 |
In the Valencian Region, among others, there is a 95% deduction for the main residence (with a limit of €150,000), the deduction for kinship (which allows that, for example, from parents to children, no deduction is paid for the first €100,000) and others that we have already analysed in detail previously.
In Spain, the Gift Tax is always paid by the donee. That is, the person who receives and benefits from the gift. In the Valencia Region, this tax must be declared through form 651, within 30 days following the gift.
Although the Gift Tax is a “State Tax”, the government has transferred it to the different Regions or “Comunidad autónomas” and each one has its own regulation. Depending on the circumstances of each case, the agency in charge of this tax, and the applicable regulation will be one or another. You can find an explanatory chart, below:
DONEE | TYPE OF ASSET | AGENCY IN CHARGE | APPLICABLE REGULATION |
RESIDENT | ASSET LOCATED IN SPAIN | REGION where the asset is located.
| REGION where the asset is located |
RESIDENT | OTHER ASSETS OR RIGHTS | REGION of residence
| REGION of residence |
RESIDENT | ASSET LOCATED OUTSIDE OF SPAIN | CENTRAL GOVERNAMENT | Option: – CENTRAL GOVERNAMENT – REGION of residence.
|
NON RESIDENT | ASSET LOCATED IN SPAIN | CENTRAL GOVERNAMENT | Option: – CENTRAL GOVERNAMENT – REGION where the asset is located. |
NON RESIDENT | OTHER ASSETS OR RIGHTS LOCATED IN SPAIN | CENTRAL GOVERNAMENT | Option: – CENTRAL GOVERNAMENT – REGION where the assets or rights have been located during most of the time in the last 5 years. |
If the donation is formalised before a notary, it will be necessary to provide the identity document or passport of both (donee and donor), the NIE (if either of them is a foreigner), proof of the transfer (if the gift consists of money), title deeds and cadastral reference (if it is a property), etc. Depending on the case (gifts from parents to children that are exempt from tax) it will also be necessary to provide a copy of the birth certificate, which must be duly apostilled and translated if it was not issued in Spain.
In the Valencian Community, gifts of less than 100,000€ between certain family members are exempt from taxes. For instance, if a father donates a house valued at 200,000€ to his two children, they won’t have to pay gift tax. Above this amount, tax is payable according to the following chart:
Taxable base (Up to, €) | Taxable amount (€) | Remaining taxable base (Up to, €) | Applicable rate (%) |
0 | 0 | 7.993,46 | 7’65 |
7.993,46 | 611,5 | 7.668,91 | 8’50 |
15.662,38 | 1.263,36 | 7.831,19 | 9’35 |
23.493,56 | 1.995,58 | 7.831,19 | 10’20 |
31.324,75 | 2.794,36 | 7.831,19 | 11’05 |
39.155,94 | 3.659,70 | 7.831,19 | 11,9 |
46.987,13 | 4.591,61 | 7.831,19 | 12’75 |
54.818,31 | 5.590,09 | 7.831,19 | 13’60 |
62.649,50 | 6.655,13 | 7.831,19 | 14’45 |
70.480,69 | 7.786,74 | 7.831,19 | 15’30 |
78.311,88 | 8.984,91 | 39.095,84 | 16’15 |
117.407,71 | 15.298,89 | 39.095,84 | 18’70 |
156.503,55 | 22.609,81 | 78.191,67 | 21’25 |
234.695,23 | 39.225,54 | 156.263,15 | 25’50 |
390.958,37 | 79.072,64 | 390.958,37 | 29’75 |
781.916,75 | 195.382,76 | Onwards | 34’00 |
The Reference Value is an indicator used by the Tax Administration for the payment of several taxes. Among them, the Gift Tax. If, when submitting the tax, the donee declares an amount lower than the Reference Value, the administration will most likely initiate a verification procedure and claim the payment of the difference.
No. If the gift is monetary, it could be formalised in a simple private document or made verbally. However, by law, if the donee wants to benefit from the reductions foreseen in the Valencian Regulations, he/she will be compelled to formalise the donation in a public deed. Therefore, although it is not compulsory, it is highly advisable.
When the gift consists of a real estate property, it will be necessary to pay the Municipal “Plusvalía” and the Capital Gains Tax. The Plusvalia is paid by the donee, within 30 days. The capital gains tax is payable by the donor. The deadline will depend on whether the donor is resident or non-resident. If he/she is resident in Spain, he/she must declare the possible gain in his/her annual tax return the following year. If, on the other hand, he/she is a non-resident, the deadline for declaring the gain is 4 months from the signing of the deed.
Although it is difficult to give a generic answer (because each case has its own particularities), it can be stated that inheriting is usually more fiscally beneficial than receiving a donation/gift. The number of deductions and allowances applicable in inheritances is higher. Also, the capital gain is not taxable in inheritances.
If the funds you wish to gift to your non-resident child are not located in Spain, the transaction would, in principle, be exempt from taxation in Spain.
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