SUCCESSION tax has been abolished in Catalunya, it was announced last week. Paul Whitelock looks at the detail of the decision and provides further information about this potentially punitive tax for residents and non-residents with assets in Spain.
Following in the footsteps of several other autonomous communities, the Canary Islands, the Balearics, Murcia, Madrid, and the Comunidad Valenciana, the tax on inheritances and gifts, Impuesto sobre Sucesiones y Donaciones (ISD), for first and second-degree relatives has effectively been abolished in the Catalan region. This change will be backdated to 1 January 2011.
Since only the national government is empowered to abolish taxes altogether, the Catalan Executive has set a fiscal bonus of 99% on the tax amount, which in practical terms corresponds to the almost total elimination of ISD in the region.
Whilst this is good news for married couples, parents and their children, and grandparents and grandchildren, others, such as siblings, nephews, cousins, other relatives or friends are excluded from this bonus and remain liable for the tax.
Despite being costly for the autonomous governments – for example the Catalan government will miss out on 150 million euros of revenue in 2011 and 102 million in 2012 as a result of this change – it is welcome news for residents of the Catalan provinces of Barcelona, Gerona, Lérida and Tarragona, both Catalans and foreigners alike.
Those of us who live in other parts of Spain can only hope that our regional governments follow suit, and quickly – we’re all getting older, after all!
It is perfectly permissible for the Autonomous Communities to vary the State rules in the taxpayer’s favour. Here in Andalucía, for example, spouses and children are exempt from inheritance tax where the taxable value of the inheritance received is no more than €175,000, and the wealth of the recipient does not exceed €402,678.
But be aware that, wherever you live in Spain, as a foreigner you must have been officially resident for the five years prior to your death for your estate to be dealt with under local rules. If not, your estate will be subject to the less favourable State rules.
For a press release, in English, from the Catalan government see:
INHERITANCE TAX IN SPAIN
Spanish succession tax or Impuesto sobre Sucesiones y Donaciones (ISD) is a tax on inheritance and gifts and is paid by the recipient of the inheritance or gift, not by the estate. It is due only if the recipient is resident in Spain or the asset being inherited or gifted is an asset located in Spain such as real estate or moveable property situated in Spain.
Allowances are available depending on the relationship with the deceased or donor. In the first instance the State rules apply but these can be varied by the different Autonomous Communities (ACs) providing conditions set by the relevant AC are met. The State rules always apply to non-residents owning assets in Spain.
There is currently no blanket exemption between a husband and wife under the State rules. Where a married couple are both resident in Spain and one spouse dies, the surviving spouse can be fully liable on the worldwide assets inherited from the deceased spouse, subject to the allowances and reliefs available. An unmarried couple can register as a pareja de hecho and benefit from the same reliefs given to a married couple providing they lived in one of the ACs which granted such concessions.
The worldwide estate of British expatriates who are UK domiciles on death will also be liable to UK inheritance tax, as well as to Spanish succession tax on chargeable Spanish assets. Any succession tax paid in Spain can be deducted from any UK inheritance tax liability on the same asset.
Beneficiaries are divided into four groups depending on the closeness of the relationship to the donor or the deceased. There are tax-free State allowances on inheritances (not life-time gifts) for members of the different groups. There are further reductions where the recipient is physically or mentally disabled depending on the degree of disability.
For full details, see http://spain.angloinfo.com/money/more-information/inheritance-tax/
Main home relief
There is a 95% allowance against the inherited value of the main home of the deceased up to €122,606 per inheritor, provided that the beneficiary is a natural or adopted child, a grandchild or a great-grandchild, a parent, a grandparent, a great-grandparent or a spouse. The property must be retained by the beneficiary for 10 years following the death, but it does not need to be the beneficiary’s main home.
Succession tax rates vary from 7.65% to 34%. The tax liability is subject to multipliers based on the pre-existing wealth of the recipient, which can take the highest effective rate of tax to just below 82%.
Autonomous Communities (AC)
The Autonomous Communities (ACs) may vary the State rules in the taxpayer’s favour. The State allowances and reductions apply in the first instance provided that the relevant conditions have been fulfilled. Any enhancement to the State allowances and reductions granted by the AC will then replace the State deductions, again providing any additional conditions imposed by the AC are fulfilled.
Other reliefs, such as the main home relief and relief for businesses may also be higher in certain ACs.
In many ACs, unmarried couples registered as a pareja de hecho are recognised as spouses.
Succession tax is paid under the AC’s rules if the deceased was habitually resident there, in the case of an inheritance; or, in the case of a gift of real estate, if the real estate is located in that AC; or, in the case of a gift of any other assets, in the AC where the recipient is habitually resident.
In the case of real estate in Spain owned by a non-Spanish resident, the State rules will always apply on the death of the non-resident owner.
To be classed as habitually resident in a particular AC, the deceased or donor must have been resident there for five continuous tax years, otherwise the State rules will apply.
Based on information provided by Blevins Franks Group