Inheritance Tax

" UK Inheritance tax (IHT) works very differently to its Spanish equivalent ISD (Impuestos sobre donaciones).

The major differences are listed below.

  • In the UK it is the estate that is taxed - in Spain each individual beneficiary is taxed
  • A UK estate has a nil rate band (tax free allowance) of £325,000 - in Spain each beneficiary has a tax free allowance of €15,996
  • In the UK, inheritances and gifts between spouses are exempt from IHT - in Spain spouses are NOT exempt
  • In the UK there is one set of laws which everyone is subject to - in Spain, there is a national set of rules although each autonomous community varies these
  • There is no double tax treaty between Spain and the UK for Inheritance Tax"

Who is liable to ISD?

An individual resident in Spain is liable (by way of obligación personal) to ISD on receipts by him of assets (etc) sited anywhere in the world. An individual not resident in Spain is liable (by way of obligación real) on receipts of assets (etc) sited in Spain.

Note that nationality has no effect whatsoever. The only two questions are: where are you resident? ... and where are the assets sited?

How much tax is payable?

All rates, percentages, band thresholds, and so forth given in this article are those which apply to taxable events falling in the year 2010 (note that Spain's tax year runs concurrently with the calendar year).
Calculation of tax due is done in five stages:

First: Value the asset. Whilst all sorts of valuation bases may be used for different purposes and reasons in Spain, the basis required for ISD is that known as "real value". In practice, this means that the starting point is a full, open-market valuation.

Second: Remembering always that the taxable person is the recipient, work out the relationship between the taxpayer and the person making the gift or leaving the inheritance. That relationship falls into a group. It goes like this:

Group I consists of natural and adopted children, grandchildren and so forth in direct line of descent who are under the age of 21.

Group II consists of the same descendants listed above in Group 1 but of the age of 21(+), ascendants in direct line, and spouses or equivalent titles.

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 latter category (unrelated persons) would include not only unadopted stepchildren, but also the so-called common-law partner. This latter is a common condition amongst, say, joint property owners.

Third: work out the personal allowance available (remember, this is per recipient). Note that no allowance is available on lifetime gifts - only on inheritances. The table is as follows:

Kinship Group Those included Allowance (DEATH ONLY)
I direct descendants under 21 yrs Euro 15,956.87 plus Euro 3,990.72 for each year under 21 yrs of age maximum allowance of Euro 47,858.59
II direct descendants over 21 years, spouse, ascendants Euro15,956.87
III Other relatives, out to collateral second and third degree (e.g.: brother, uncle, nephew) Euro 7,993.46
IV more remote family, unrelated persons (including "common-law spouses") nil

 

Fourth: having deducted any personal allowance available from the value arrived at in stage 1 above; calculate the "raw" tax figure from the following table:

Band up to.... Euro Tax rate on band % Cumulative tax Euro
7,993.4 7.65 611.50
15,980.91 8.50 1,290.43
23,968.36 9.35 2,037.26
31,955.81 10.20 2,851.98
39,943.26 11.05 3,734.59
47,930.72 11.90 4,685.10
55,918.17 12.75 5,703.50
63,905.62 13.60 6,789.79
63,905.62 13.60 6,789.79
71,893.07 14.45 7,943.98
79,880.52 15.30 9,166.06
119,757.67 16.15 15,606.22
159,634.83 18.70 23,063.25
239,389.13 21.25 40,011.04
398,777.54 25.50 80,665.08
797,555.08 29.75 199,291.40
Excess 34.00 -

 

Fifth: apply the relevant co-efficient. This is derived from the table below which takes into account the degree of kinship (stage 2 above) and the taxpayer's pre-existing net wealth (for non-residents, pre-existing net wealth is calculated with reference to Spanish sited wealth only):

Pre-existing net wealth (Euro) Group
I and II III IV
0 - 402,678.11 1.0000 1.5882 2.0000
402,678.11 - 2,007,380.43 1.0500 1.6676 2.1000
2,007,380.43 - 4,020,770.98 1.1000 1.7471 2.2000
4,020,770.98 (+) 1.2000 1.9059 2.4000