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Home arrow Finance arrow Substantial reduction for succession tax in Andalucía
Substantial reduction for succession tax in Andalucía
Thursday, 19 October 2017

Andalucía is about to become an even more attractiveregion to live in.  Once confirmed in the2018 regional budget, in the majority of cases spouses, children and parentswill escape this unpopular tax completely.

Who payssuccession and gift tax in Spain?

If you are resident in Spain, you are liableto succession and gift tax on any inheritance or gift you receive, whether theassets are in Spain or abroad.

All assets located in Spain (property, bankaccounts, etc.) are liable to this tax when passed on death or as a gift,regardless of whether the owner and/or beneficiary are resident in Spain. 

The allowances and tax rates vary accordingto who the beneficiary is, as well as per region. 

In Spain, beneficiaries are categorised asfollows:

Group I - children (natural and adopted) andother descendants (grandchildren etc.) under 21.

Group II - children and other descendantsaged 21 and over; parents and other ascendants (e.g. grandparents) and spouses.

Group III - Brothers and sisters, nephews andnieces, stepchildren, cousins, aunts and uncles, in-laws and theirascendants/descendants, etc. (some of them can sometimes be treated as Group IVrelatives).       

Group IV - everyone else, including unmarriedpartners even those registered as a ‘parejade hecho', unless the region recognises them as married - which Andalucía does.

What ischanging in Andalucía?

Provided this is confirmed in the 2018 Andalusian budget,all inheritances of up to €1 million within Groups I and II beneficiaries wouldbe exempt from succession tax in Andalucía.  Anything over €1 million will be liable to successiontax at the usual rates.

This threshold is per beneficiary, not per estate.

This is dependent on the pre-existing wealth of thebeneficiary.  If, at the time of theinheritance, the beneficiary has an existing wealth of over €1 million, thenthey will not benefit from this allowance.

The allowance also applies to gifts.  In this case there is a condition that thegift is used to create business and employment in Andalucía, and the company or business must be retained for atleast five years follow the date of the public deed.

This is likely to apply with effect from 1stJanuary 2018.

How has this comeabout?

The announcement was made following an agreement reachedbetween the PSOE and Ciudadanos political parties in theregion.

The Ciudadanosregional leader described it as "the biggest tax reform in Andalucía in 35 years".  They estimate that around 95% of local residents will not pay successiontax once the law is approved.

What next?

So far, only the highlights of the future new rules havebeen announced and no further details have been provided. We have to wait untilthe Andalusian 2018 budget is approved and the new law is finalised andpublished in the official gazette for more details.

We also need to monitor how the Spanish nationalgovernment decides to proceed with the tax harmonisation recommendations madeby the tax experts' committee with regard to succession and gift tax in Spain.

Succession taxplanning

This is very good news for expatriates who have madetheir home in Andalucía, especiallyconsidering it is currently one of the most expensive regions from a successiontax point of view.

If you or your heirs have wealth over the €1 millionthreshold, seek personalised advice on how you may be able to lower the taxliability.

If you plan to leave assets to heirs other than yourspouse, descendants or ascendants, succession tax will apply as usual.  The allowance for Group III beneficiaries isjust €7,993, while Group IV does notreceive any allowance at all.  Regional taxrates range from 7.65% to 36.5%. Multipliers between 1.0 and 2.4 could also be applied, depending on the circumstances.

Regional or state rules?

This new €1 million threshold only applies to those whoare eligible to benefit from the regional Andalusian rules. 

Whether the state or Autonomous Community rules applydepends on where the beneficiary and the donor are resident and where theassets inherited/gifted are located. Since a rule change in 2015 more peoplenow benefit from the regional rules, but if you or your heirs do not, thenstate rules will apply instead - and the tax payable will be much higher, withno exemption between spouses.

It is important to understand how the Spanish tax rules apply to yoursituation and how they may affect your UK liability. This is a specialist area,so take professional, personalised advice to maximise your legacy and save yourheirs from paying more tax than necessary.

Tax rates, scope and reliefs may change. Anystatements concerning taxation are based upon our understanding of currenttaxation laws and practices which are subject to change. Tax information hasbeen summarised; an individual is advised to seek personalised advice.

David Bowern, Partner, Blevins Franks

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Tel: 952 809 212

 

You can findother financial advisory articles by visiting our website www.blevinsfranks.com 

 

 

 

 

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