Mariblanca XVII - Spanish Property Wealth Tax & Inheritance Tax

We have many clients who have either bought in Spain or the Balearics, or are thinking about doing so. In the past few years, there have been some changes in how the Spanish government tax those who are UK based and have a Spanish property, although with a change of government this could alter again.

Here we will look at two aspects - Wealth Tax & Inheritance Tax.

Wealth Tax

This applies to ownership of assets less any allowable charges or debts. Assets include immovable property, cars, cash, shares, jewellery etc. Therefore wealth tax is calculated on the net wealth of an individual less properly registered mortgages, charges and loans.

Non-Spanish residents are liable to wealth tax solely on assets located in Spain. It also means that any allowances that Spanish residents qualify for do not apply to a non-resident. So tax commences on all the assets held in Spain for a non-resident.

The way the property is valued, and most wealth is normally held here, is based on the higher of:

- the rateable value

- the acquisition cost

- official valuation undertaken by the tax authorities

There are special rules for valuing bank balances as well as other assets.

So what are the rates of tax?

Well, they are annual and range from 0.2% (up to 167,129 euros) to 2.5% (exceeding 5,347,998 euros). Perhaps the most common bandings might be 167,123 to 334,246 euros where the tax is 0.3%, and 334,246 to 668,499 euros at 0.5%. The tax is graduated, so you do pay the lower amounts up to the next banding level and then the higher level on the next etc.

So if you have a property valued at say 400,000 euros, your annual tax bill would be 1165 euros. Not the end of the world, but important to keep in mind.

Inheritance Tax (IHT)

This tax is assessed on the recipient - the heir - and if a non resident would normally be taxable on Spanish assets only.

One of the main things to grasp here is that there is NO spousal exemption. So if you jointly own a property, and one of you dies, the surviving spouse is subject to tax on the half value!

Rates of tax range from 7.65% on up to 7,993 euros, to 34% above 797,555 euros. It is then subject to another calculation based on the heir's relationship to the deceased as well as their own wealth.

So, as a rough example, if the deceased spouse's share was worth 160,000 euros, then the IHT would be circa 23,000 euros.

A very important action point here is to ensure that you have a Spanish Will, and that you inform your UK solicitor of the fact to ensure the Wills are linked. Then Spanish law deals with Spanish assets and UK law with UK assets.

The main benefits of making a Spanish Will are:

- there would be delays, extra work and costs involved in relying on a UK Will for the disposal of your Spanish assets

- If you do not have a Will and die intestate, then the assets will be distributed as per the intestacy laws. This means that third parties decide who inherits your assets, and many countries favour children over spouses

- If you are a non-Spanish national your Spanish Will can also specifically state that you wish your Will to be regulated under your own nation's laws

It should also be noted that having a loan held against the Spanish property would reduce the taxable IHT element.

This is based on our current understanding of Spanish Law. The advice above is not meant to cover all aspects of buying in Spain, and please ensure you take reliable professional advice.

Key Considerations:

If you plan to invest abroad, make sure that you take all factors into consideration - informed choice every time.

ACTION POINT

If you have a Spanish property, look to have any borrowings based in Spain, and if you do not have a Spanish Will, do it now and link it to your UK Will!