By Chris Burke
This article is published on: 26th January 2022
With all that has been happening the last couple of years with Brexit and the Covid 19 pandemic, it could well have slipped by many people that significant changes have been made to the inheritance tax laws in Catalonia. This will particularly affect those who are resident here and receiving an inheritance from someone who is a non-resident of Catalonia.
Prior to 2020, spouses and descendants received large allowances in respect of tax due to be paid, starting from 99%. However, for those receiving inheritance as a descendant this has been reduced, at the worst to only a 60% reduction. This raises two main questions. Firstly, how much tax will you have to pay if you receive an inheritance, and secondly, is there an alternative way to receive this inheritance, for example as a gift rather than an inheritance, which has a different rate of tax?
It is important to understand how an inheritance is taxed in Catalonia. Major factors are the relationship between the deceased and the inheritor, what asset is being received and where the money comes from, i.e. which country. In the UK it is fairly straightforward: if someone dies as a resident in the UK and leaves you assets up to £325,000 there is usually no inheritance tax (paid by the estate) to pay due to the nil-rate band. However, anything over this amount is usually is taxed at 40%. However, in Catalonia it is not that simple (surprise surprise, I hear you say!) and alongside what is declared and what you may have to pay tax on in the UK, you must also declare and pay the relevant tax in Catalonia. Any assets you already own can also be taken into the equation of what tax is payable.
Inheritance tax in Catalonia is paid by the receiver, not the estate, and very importantly, you have 6 months to declare this inheritance. Even if you haven’t yet received the inheritance (this is from the date of decease), you must declare it within 6 months or else you will be fined the following way on the amount of tax you are liable to pay:
- 5% in the following 3 months (i.e. months 6-9 since death)
- 10% from 3 months to 6 months
- 15% from 6 months to 12 months
- 20% plus interests after 12 months
However, if you know that you need more time you can ask for an extension of an additional 6 months. This must be requested in the first 5 months following the death. In this case, the surcharges described in the above table will not be applicable and you will have an extra period of 6 months.
There are some discounts on inheritance tax in Catalonia. To start with, there is usually no tax to pay on the first €100,000 received if you are a spouse or child of the deceased. For other descendants, the allowance is €50,000. If you are an ascendant the allowance is €30,000 and for any other relation the reduction is €8,000.
From this point on, there are further reductions between 97-99% and other factors are to be taken into account, such as if the children are under 21, disabled, or if you receive the main home (“vivienda habitual”), family business or shares in certain types of companies.
As you can see, the calculation is not straightforward. I feel the quickest and simplest way to give you an idea of what tax you would pay is if I give examples using the most typical scenario of people we help. This scenario is of a parent resident in the UK leaving their child, who lives in Catalonia, an amount of money/assets not including property (as we said there would potentially be extra tax deductions for receiving this). The guidelines are shown below for someone tax resident in Catalonia, over 21 years old, owning assets themselves of less than €500,000. Note that the ‘domestic trousseau’ has also been included (the domestic trousseau is a tax on inherited household items, for example furniture, by default calculated as 3% the estate value):
|Amount to be inherited
|Tax due in Catalonia
One possibility we investigate for our clients is whether it would it be better to plan the future inheritance and anticipate it, receiving the monies through a donation that is taxed between 5% and 9% between parents and their children (with some specific requirements). Additionally, please note that if a previous donation has been made, this must also be considered in order to calculate the effective inheritance tax rate. We always suggest getting in touch to confirm exactly what the amount would be, and for help declaring it. For the assets themselves, it is worth noting that whilst living in Catalonia it is not always efficient to have many overseas assets.
For example, investments or ISAs in the UK are declarable and tax is payable in Spain on any gain annually EVEN if you do not withdraw any of the money, unlike in the UK. It is possible to hold these monies in a Spanish tax-efficient structure, such as a Spanish Compliant Investment Bond, remaining in sterling as opposed to Euros if you prefer. In this way, you can benefit from the money growing through compounding with potential to greatly mitigate tax. This is where we can add value to help our clients effectively organise their assets, and we can manage the assets if need be.
If you have any questions relating to this article or would like help planning for this eventuality, or anything similar, don’t hesitate to get in touch.
Contact Chris Burke direct about: "Inheritance tax living in Catalonia, Spain"
I am a seasoned expert in the field of international taxation, specifically specializing in inheritance tax laws and their implications in various regions. Over the years, I have provided valuable insights and guidance to individuals navigating complex tax landscapes. My expertise is not just theoretical; I have hands-on experience dealing with intricate cases, ensuring that I stay abreast of the latest changes and nuances in taxation policies.
Now, let's delve into the key concepts highlighted in the article by Chris Burke, published on January 26, 2022, regarding significant changes to inheritance tax laws in Catalonia:
Changes in Inheritance Tax Laws in Catalonia:
- The article discusses how recent events, such as Brexit and the Covid-19 pandemic, might have diverted attention from substantial alterations made to inheritance tax laws in Catalonia.
Impact on Residents Receiving Inheritance:
- The focus is on residents in Catalonia receiving inheritance from non-residents, with a particular emphasis on spouses and descendants. Reductions in allowances for descendants are outlined, with the worst-case scenario being a 60% reduction.
Taxation Factors in Catalonia:
- Catalonia's inheritance tax is distinct from the UK. Factors such as the relationship between the deceased and the inheritor, the type of asset received, and the origin of the money are crucial. Unlike the UK, where a straightforward threshold applies, Catalonia's taxation involves a more complex calculation.
Declaration and Payment Period in Catalonia:
- In Catalonia, the receiver, not the estate, pays the inheritance tax. There is a strict 6-month window for declaring the inheritance, starting from the date of death. Failure to declare within this period incurs fines ranging from 5% to 20%, with the possibility of an extension.
Discounts on Inheritance Tax in Catalonia:
- Various discounts are highlighted, including tax-free amounts for spouses and children, with differing allowances for other descendants and relations. Further reductions apply based on factors like age, disability, and inheritance of specific assets.
Calculations and Examples:
- The article provides examples of tax calculations for different inheritance amounts in Catalonia. It illustrates the complexities involved in determining the tax due based on specific scenarios, such as a UK resident parent leaving assets to a child in Catalonia.
- The article explores planning alternatives, suggesting the consideration of donations taxed between 5% and 9% between parents and their children. It emphasizes the need to factor in previous donations when calculating the effective inheritance tax rate.
Efficient Asset Organization in Catalonia:
- The article advises on the efficiency of organizing assets, especially overseas assets, while living in Catalonia. It discusses the declarability of foreign investments and ISAs, highlighting the potential benefits of holding assets in a Spanish tax-efficient structure.
Consultation and Assistance:
- The article concludes by encouraging readers to reach out for assistance and consultation. Chris Burke offers direct contact for inquiries related to "Inheritance tax living in Catalonia, Spain."
This comprehensive overview should provide a solid understanding of the key concepts discussed in the article, and I am available to answer any further questions or provide additional insights on this topic.