The Spanish Property Inheritance Tax Time Bomb

Non-Domiciled property owners in Spain are sitting on a ticking IHT time bomb. Most owners do not understand that their heirs and their Estate may pay IHT in two jurisdictions, Spain and their Country of Domicile. The reason for this is that in Spain the individual inheritor is taxed whereas in other countries, like the UK , it is the estate that is taxed. This could mean that on the death of an owner the surviving partner, or the owner's beneficiaries, could have a tax bill that virtually wipes out the entire Spanish inheritance. Added to this is the cost of Probate in both countries for the inheritors. Most Lawyers in Spain recommend to owners that having a Spanish Will deals with the problem; this is incorrect as a Will only deals with the issue when there is a death and does not remove taxation in Spain. This further shows why Florida and United States is a better choice!

Other advice given is that Double Taxation Treaties between Spain and the UK will help with the tax being reduced, this is true in identical taxes but these taxes are not, as in the UK it is the Estate which is taxed and in Spain it is the beneficiaries who are taxed. It therefore should not be assumed that one tax can be offset against the other as they are both totally different taxes on totally different entities. Many owners are advised to re-finance the property as ISD is not charged on the property amount if there is an outstanding mortgage or loan, but this may end up leaving the beneficiaries with a huge debt they cannot pay off and many lenders will only finance the ownership if suitable life insurance is taken out, so the property is paid for on death and the tax still becomes due.  

Owning a property with your children is a favourite, this is not a good idea either as their share of the property may end being at risk through financial or marital issues and if they die before the parents then the parents have to pay Taxes to get the property back. Why not invest in Florida?! 

 In recent years we have seen a significant increase in the number of people who are concerned about ISD in Spain and are now looking to address the situation to protect their Beneficiaries. Forget Spain, come to the United States of America!!