Inheritance tax and IBI

A little forethought and planning can ensure that your family don’t have to suffer through complicated legal procedures should you die in Spain. Thinking ahead can also ensure that, should your spouse die, you are not left with disastrously high tax bills.

Making a will is the first step to making sure that your Spanish assets go where you want them to. Without a Spanish version of this document, beneficiaries must undergo a time consuming and expensive legal process, which could include translating and certifying the validity of a foreign will. And if you have no will at all, the process could be nearly as difficult.

Spanish inheritance law, which is designed to protect the family structure, requires that children inherit most of their parents’ estate. However, foreigners are often able to get around these requirements, bequeathing their assets as they see fit.

To estimate how much inheritance tax you or your beneficiaries might have to pay in the event of death, it is first necessary to calculate how much the inheritance would be worth and then make the deductions allowed by law.

The amount a beneficiary is allowed to deduct depends on his/her relation to the deceased. Those with the highest deductions are children under the age of 21 who can subtract anywhere between approximately 12,200 and 42,000 euros depending on their age. In the next category are children over 21, spouses and parents, who are all allowed to deduct 12,200 euros. Relatives such as siblings, Aunts, Uncles and cousins receive the substantially smaller deduction of 6,100 euros, while in the last category more distant relatives and non/family heirs get no deduction at all.

If you feel this penalizes non/family beneficiaries, you’re right. And that is exactly how the system has been designed to work – in favor of families looking out for their own.

Once the value of the inheritance after deductions has been determined, your own wealth will be taken into account. And here is where you will meet with another aspect of ‘the system’- that which is clearly designed to favor the poor and make the rich pay. For, while at the lower end of the wealth scale you might be required to pay around 8% on your inheritance, at the highest end, you might have to give up to 85 percent of what you receive – directly to the government.

How to avoid excessive inheritance tax
There are ways around paying excessive inheritance taxes, however, and some of them are even legal. The creation of a family trust or offshore company might work for you, but these and other options involve legal and financial complexities best worked out with the help of a financial advisor or lawyer specializing in this area.

IBI
The IBI is the ‘Impuesto sobre Bienes Inmuebles’, which could be translated as ‘property tax’. This is a municipally levied tax and varies widely from one municipally to another and from one type of property to another. You might for instance pay as little as 50 euros per year for a simple property in a rural area. While a luxury home on a prime lot in an expensive urban neighborhood might cost as much as 1,500 – 2000 euros per year.

If you are not in Spain during much of the year, it is best to arrange a standing order at the bank to pay this tax. However, if you do live here, you might get a discount by going in person to make an early payment. In any case, don’t until the town hall chooses to notify you of the tax as, by then, you might owe late fees.

This is a tax on all of your assets and includes your property. There is a difference between residents and non-residents, in that residents are required to declare their world-wide assets, while non-residents are only required to declare their property and other assets they own within Spanish territory.

Check with your professional advisor to see if you are exempt from this tax as it is only charged on assets totaling more than approximately 100,000 euros (per person in the case of a couple).

As a non-resident property owner you must be aware of two things. First, you need to obtain an official identification number that will allow you to pay taxes. This is called an N.I.E. and is available by filling out a form at your local National Police commissary.

Secondly, if you own more than one property, you are required by Spanish law to get someone to represent you in a financial capacity. This can be any official resident, whether native or foreign. Many people choose to have their lawyer do this for them. Not having a representative can result in heavy fines.

‘Gestor’ is the Spanish term for a person who basically makes your life easier by taking care of all kinds of paper work and transactions. These are people who are very good at maneuvering the system, and they can save you loads of frustration in every area of your life. Some ‘gestors specialize in accounting, others in law. Some form agencies and employ other people with a variety specialties, all of whom work together to resolve clients’ problems.