25 Feb 2008

Inheritance Tax for non residents

Published in Legal & Tax

Liable to this tax are the persons receiving an inheritance, bequest or legacy and not having have their usual residence in Spain, as well as residents in Spain if the deceased person did not have his/her usual residence in Spain.

The competent Tax authority is the Special Branch of the Tax Authority in Madrid, i.e. depending on the State Tax Agency (AEAT), whereas for residents in Spain, the competent tax authority is the regional tax authority. It is important to know that the filing deadline for acquisitions resulting from death is SIX MONTHS from the date of death.

For the case that the delay in obtaining the necessary documents from abroad (i.e. Certificate of Inheritance) might make it difficult to comply with the deadline, it is advisable to apply for an extension of the six months delay, but that must be done within FIVE MONTHS from the date of death.

How to pay the tax:

It is possible and advisable to pay the tax using the self-assessment Form 652 Inheritance Tax Simplified Return.

A Tax Identification Number (NIF) and tax identification labels provided by the Tax Agency are necessary. Before requesting them, Non-resident foreign national taxpayers must apply for a Foreign National’s Identity Number (N.I.E.).

Main documents to be presented

Deed of Acceptance of the Inheritance (certified and simple copy), or, failing this, an Inventory of Assets and Heirs, in duplicate. Death Certificate. Certificate from the General Registry of Wills and Testaments. Copy of the Will or the Declaration of Heirs. Copy of the IBI (Property Tax) bill besides any other relevant document about the inheritance assets (insurance, bank statement, car documentation etc.)

How high can be the Inheritance Tax?

It is not as high as most people imagine. It depends mainly on the value of the estate and the degree of relationship with the deceased, and accessorily on the previous fortune of the inheritors too. The rate is progressive and varies from 7,65 % up to a maximum of 34% applicable to an estate over 800.000 Euros approximately, though in the case of remote relatives (cousins or similar) or non-relatives at all, the final amount could be multiplied by 2 or more (up to 2,4). The tax is calculated on each inheritance share, which means that if one person only inherits the whole of the estate, he/she will pay a higher rate than if several persons share the inheritance.

Regretfully the tax free amount for next of kin (spouse, children) is quite low (not quite 16.000 Euros) and has not been updated for a number of years. Hopefully it will be increased in the near future.

A practical example:

A father leaves to his 3 children a house worth 200.000 Euros and 3.000 Euros in the bank. Each child will pay approx. 5.426 Euros inheritance tax. The total tax amount (3 shares) will be approx. 16.280 Euros, which means an average rate of 8,02% on the total value of the estate. If the same person leaves only one child to inherit, the inheritance tax to be paid will be approx. 30.180 Euros, which means a rate of 14,87%.

There are Agreements to avoid double taxation between Spain and many countries, and according to those, Inheritance tax to be paid in Spain for assets situated on Spanish territory is liable to be deductible in the country of residence. Non-resident Inheritance taxpayers must appoint a tax representative.

It is most important to choose a serious and experienced person or legal person. Cardenas Real Estate has a large experience in dealing with inheritance matters and will provide you with a professional assistance and help, from the very first moment, providing exact information as to the documentation (including from foreign authorities) required, helping to obtain the NIE and NIF, assisting you with the signature of the Deed of Acceptance of Inheritance at a Spanish Notary public, preparing the tax returns and generally taking care of all necessary steps until the inherited assets including real estate are effectively transferred to the inheritors. By Daniel García Chagrin (Lawyer & Tax Advisor) at Cardenas Real Estate.