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TAXES

Five things Britons need to know about inheritance tax in Spain

Spain’s inheritance tax laws are complex and differ considerably from the UK’s and other countries’ legislation. Jeremy Scudamore, who runs an Anglo-Spanish law firm in Madrid, explains what Britons in Spain should be aware of when dealing with inheritance tax.

Published: 14 September 2020 10:16 CEST
Updated: 26 April 2022 11:47 CEST
Five things Britons need to know about inheritance tax in Spain
Spanish inheritance tax is divided into two parallel regimes. Photo: José Jordan/AFP

1. Spain now allows non-residents to have access to regional inheritance tax discounts

Until recently, Spanish law and many online tax declaration forms/platforms were set up so that inheritance tax deductions could only be claimed by residents in Spain. 

This was contrary to EU law on the basis that it contravenes the principle of free movement of capital within the EU and unfairly discriminates against non-Spanish residents who are tax residents in other EU states. 

In early 2020, the European Court of Justice pronounced that even non-residents from third (non-EU) states must be treated equally for inheritance tax (IHT) purposes in the same way as Spanish tax residents.

In December 2020, Spain’s General Directorate of Taxes announced that non-residents can apply the regional inheritance tax regulations, including deductions, either based on the deceased’s habitual address in Spain or where they have most of their assets.

2. There is no double taxation treaty between Spain and the UK regarding inheritance tax

However, in practice each country unilaterally sets off tax paid in the other country.

As it is the estate that pays inheritance tax (IHT) in the UK and each individual beneficiary/heir who pays Spanish IHT, a beneficiary who is a tax resident in Spain must justify to the Spanish tax administration the amount of tax paid on his or her behalf in the UK. 

To the extent that a beneficiary is tax resident in Spain and will receive his inheritance in Spain, English inheritance tax planning advice in respect of the tax position of the beneficiaries resident in the UK may well be detrimental to the Spanish tax resident beneficiary’s tax position and could result in additional and avoidable charges to Spanish IHT tax (“impuesto de sucesiones y donaciones” in Spanish) being paid. 

It is important to take advice from a Spanish IHT tax expert to coordinate the tax position between the UK and Spain to minimise any Spanish IHT payable by the beneficiary who is a tax resident in Spain.

3. The obligation to pay Spanish inheritance tax runs from the date of death of the deceased

Even though the estate assets may not be distributed to the beneficiary resident in Spain until sometime later (typically in the case of the sale of real estate), the delay in receiving the assets/proceeds will not affect the obligation in Spain to declare and pay IHT.

4. In Spain, it is not the estate that pays IHT as in the UK, but each individual who is liable according to the value of their inheritance. 

Heirs, unlike legatees (a person who receives a legacy), will inherit assets and debts and, if they accept the inheritance, will be responsible for these.

Beneficiaries should therefore exercise caution if any property they might stand to inherit is in negative equity.

READ ALSO: Why Brits in Spain should consider drafting a will now more than ever

5. Spanish inheritance tax is divided into two parallel regimes: the state IHT tax regime for non-residents and the regional IHT regimes for residents of those regions.

The regions vary significantly from one to another concerning the IHT tax payable and the various deductions and benefits which are applied. 

Moreover, the laws governing these regimes have not on the whole been adapted to the European case law concerning infractions by Spanish IHT laws of European law, thus creating a patchwork of law and obligations which can be difficult to navigate.

IHT tax in Spain is the subject of self-assessment tax returns so it is the taxpayer who declares the tax to the tax administration. 

If a taxpayer is unaware of any tax benefits or deductions that may be available to him and fails to claim these in his tax declaration, he/she cannot later claim this benefit. 

Similarly, he/she may find himself in the situation of paying excess tax and having to claim back the excess tax paid, which may take a considerable amount of time and is not without risk. It is important therefore that the taxpayer receives expert advice from a competent IHT tax advisor when declaring Spanish IHT.

Jeremy Scudamore is the founding partner of Scudamore Law , an Anglo-Spanish law firm based in Madrid with offices in London which has been providing services to English-speaking foreign investors in Spain for over 2 decades.

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For members

TAXES

Can you pay taxes in Spain with a foreign bank account?

Many foreigners have tax obligations in Spain but might not have a Spanish bank account to pay them from. Changes by Spain's tax authorities might just make it easier, depending on your circumstances.

Published: 3 May 2024 09:01 CEST
Can you pay taxes in Spain with a foreign bank account?

Navigating the ins and outs of the Spanish tax system can be a little daunting at times. That’s why many people choose to pay for a gestor to handle it all for them.

But for many foreigners in Spain, especially those with property in the country but who aren’t resident, figuring out when and how to pay your taxes can be extra complicated, especially if you don’t speak Spanish.

READ ALSO: What does a ‘gestor’ do in Spain and why you’ll need one

This was compounded by the fact that, for many years, you couldn’t pay Spanish taxes from a foreign bank account. As such, many people were forced to open a Spanish bank account for the sole purpose of paying tax.

Can you pay taxes in Spain with a foreign bank account?

Fortunately, it’s no longer like that. From February 1st 2024, the tax authorities in Spain started allowing tax payments via direct debit from any bank account within the SEPA area, removing the need for a Spanish bank account.

So, in short, yes, you can pay your Spanish taxes with a foreign bank account — depending on the country in which the account is based.

What is SEPA?

SEPA stands for Single Euro Payments Area is a basically an integrated bank transfer system. SEPA includes all the EU members states, plus those in the EFTA (Iceland, Norway, Liechtenstein and Switzerland). The UK is also still member of the SEPA area, despite Brexit.

Before the change, you could only pay your taxes in Spanish via banks approved by the tax authorities.

READ ALSO: Spanish tax returns: A handy guide for foreigners

VAT and tax experts Marosavat explain that under the previous rules, “direct debit [was] only available when the taxpayer’s bank account belongs to a bank entity cooperating with the Spanish tax authorities. This requirement impose[d] an important restriction when using direct debit as a payment method, especially for foreign taxpayers.”

But slowly, the Spanish tax authorities have eased the rules and made it easier for foreign businesses and tax payers to pay their tax from abroad. First, in March 2021, the rules were relaxed for foreign businesses with tax obligations in Spain. 

Then from July 2023 foreign accounts were approved for deferment and split applications of tax debt, and from February 2024 for regular tax payments.

Following the changes, Marosavat says, “the payments will still be processed through a cooperating bank entity, which communicates with the taxpayer’s bank entity. In consequence, all commissions and bank expenses related to the procedure will be passed on by the tax administration to the taxpayer.”

According to Spain’s Agencia Tributaria website, which you can find an English language version of here:

  • Payments are allowed for those who do not have an open account in any collaborating entity in state collection management.　

  • It is especially intended for use by those who pay their debts from abroad.　

  • It can be done by both natural persons and legal entities.　

  • The payment will have releasing effects on the date of receipt and entry of the transfer. 　

Non-resident property owners

This is particularly welcome news for second home owners in Spain, many of whom are non-resident and manage their properties from abroad for most of the year. 

According to IberianTax, by extending tax payments to the wider SEPA area, “property owners can now continue to use their home country’s bank accounts or accounts from other SEPA countries to make tax payments towards their taxes. This change simplifies the process and alleviates the burden of setting up a separate Spanish bank unnecessarily.”

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