IN LIGHT of the news that four regions have axed inheritance and gift tax – either entirely, or for first-degree relatives – residents in Spain who have not had to deal with these as yet may not be clear on when it is payable, how much, or by whom.
Inheritance tax can be confusing - at a time when you least need the hassle. Several regions have reduced or eliminated it, in full or in part (photo: iStock)
Confusion is sure to arise among expatriates in particular – those who inherit property or money from relatives or friends in their home countries, or who are unsure whom to include in their wills in case their loved ones in their nation of origin are hit with a huge bill.
They may also be wondering whether it is best, when they become very elderly or if ever they are gravely ill, to sign over their home and cash to their chosen beneficiaries before they die, in order to reduce the workload for their executors when the time comes.
We checked in with one of Spain's largest high-street banks, the BBVA, which gave us the lowdown on how inheritance and gift tax works, and why it is such a big issue leading to some regional governments' decisions to reduce or axe it.
What is inheritance and gift tax?
A proportion of assets or funds inherited from a person who has died, or transferred to you when the owner is still alive, is paid to the regional government of whichever of Spain's 19 autonomous communities the original owner lived in – 15 regions on the mainland, plus Ceuta, Melilla, the Balearic and the Canary Islands.
How much inheritance tax is payable depends upon the value of the assets, closeness of family ties, and the rates set by the government of the region in Spain where it is payable (photo: Canvas)
'Gift tax' relates to when a property, investment, land or other significant part of someone's estate is transferred to them without payment – perhaps if the owner is very elderly or knows they are terminally ill, and wants to save the beneficiaries of their will the time and paperwork involved in the transmission after their death.
'Inheritance tax' is paid when the transmission happens after the owner's death, at their request or, in the absence of a will, to their next of kin.
There is no set percentage charged on this type of tax; the figure depends upon individual regional governments' criteria, and rises in line with the value of the inheritance or donation in vivo.
Typically, it can be as low as 7.65%, or as high as 34%, and the figure decreases in line with closeness of family ties between the original owner and the beneficiary, through discounts applied.
Can I pay inheritance or gift tax out of the assets I receive?
You cannot usually pay inheritance tax out of the funds inherited – as in, if someone leaves you their house in their will, you cannot sell or remortgage the property to pay the tax. This has to be paid first, although it may be possible to acquire an unsecured bank loan to do so, then pay it back through a remortgage or sale.Read more at thinkSPAIN.com