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IHT Planning

Spanish inheritance tax Inheritance tax in Spain (Impuesto sobre Sucesiones y Donaciones - ISD), unlike in the UK, is not based on the deceased's estate. Rather it is assessed on the recipient (the heir). Heirs are generally liable as follows;

  • Spanish resident heirs are taxable on everything received, irrespective of location.
  • Non-resident Spanish heirs are taxable only on Spanish located assets.

The following are the national inheritance tax rules. The Spanish central government grants each autonomy the power to amend the national rules, so if you are Spanish tax resident you will need to review any amendments in your region.

Allowances are available in Spain and are based on the relationship between the deceased person and their heirs. Here are the different groups:

  • Group I – children and other descendants under 21
  • Group II – descendants over 21, parents and other ascendants, spouses
  • Group III – siblings, cousins, aunts/uncles, nieces/nephews, in-laws, stepchildren
  • Group IV – everyone else, including unmarried partners even if registered as a 'pareja de hecho'. However the regions of Andalucía and Valenciana do grant these the same rights as spouses

Heirs in groups I to III are more likely to benefit from allowances. Important to note is that IHT in Spain only applies if you die as a Spanish tax resident and one or both of the following is true:

  • The asset being passed on is located in Spain - such as a property or investments.
  • The heir themselves are a Spanish resident

Remember, if you are still UK domiciled when you die your estate could still be liable to IHT even if you and your family are resident in Spain. Furthermore the dual tax treaty that exists between Spain and the UK does not cover inheritance and gifts. However this area is often addressed by something called a bilateral agreement.

Avoiding IHT Using A Life Policy

Passing on wealth to loved ones is a vital part of estate planning. You can avoid inheritance tax liabilities in Spain as well as probate issues by using Spanish Compliant Bonds as a 'tax wrapper' for your investments. Typically set up in joint names for spouses or legal partners, these platforms are an excellent tool for making sure your loved ones or beneficiaries receive maximum inheritance after your death.

There also exists an allowance for the transfer of the family business as well as a possible 95% reduction for the transfer of the main residence to the wife and children.

Patrick Macdonald Financial Adviser
Patrick Macdonald ASCI
International Financial Adviser


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