Difference in Inheritance Taxes between Ireland and Spain

(England, Wales and Scotland will be dealt with separately regarding tax)

Wills

If you are in England, Wales, Scotland or Ireland and have a home country Will, you can choose who you wish to leave your assets to.

If you are English, Welsh, Scottish or Irish, and living in Spain you can also choose who you wish to leave your assets to, by way of a Spanish Will.  So, if you are any of these nationalities, you can choose, it is not dictated to you, like the Spanish.  

Gift and Inheritances in Spain

Spain has different regions and inheritance tax varies from region to region.

We can only give you a brief picture of the situation currently in the Valencian region, as each area independently dictates their tax, and we must stress that this can change at any time in the future.

The tax is calculated by adding up the assets of the person who has died (property, bank accounts, cars, investments etc).

Then

 1) Calculating the heirs´ tax free allowances (this differs for residents of Spain or

non residents).

2) Calculating the percentage tax applicable to the Inheritance

3) Calculating the final amount of tax an heir will pay.

Depending on the relationship between the deceased and the inheritor, there is a scale of tax allowances. There are four groups;

Group 1: Non Residents and Residents of Valencia Community: Children and grandchildren under 21 years of age –100,000€ to 156,000€ depending on age of the inheritor

Group 2: Non Residents and Residents of Valencia Community: Children and grandchildren over 21, Spouses: Each gets a tax allowance of 100,000€.

If the property was the permanent residence of the deceased, and the inheritors (who have to be close relatives) use the property as their permanent residence for at least 5 years, there is a reduction on the tax base of 95% of the property value (only on the family home), with a maximum of 150,000€.

Then there is a final further reduction of 75% if the inheritor is a surviving spouse, child or parent, but then not on the family home, only on the balance in bank accounts, cars, or other assets, even another property.

These large reductions are only applicable to Group 1 and 2, thus for the following groups the tax allowances are much smaller:-

Group 3: Non Residents and Residents of Valencia Community: Other relatives e.g. brother, sister, uncle, step-children, nephew, and niece: Each gets an allowance of 7,993,46€.

Group 4: Non Residents and Residents of Valencia Community -Remote family and unrelated persons, including common law partners. Nil

The worst Spanish inheritance tax cases are usually large estates to distant relatives or non-family members. These are the cases that may need some type of tax mitigation planning in advance and advice, but very few cases justify the cost of setting up corporate structures.

So how do you work out how much tax might be payable at the present time? The amount of tax allowance per kinship group is deducted from the sum to be received (which will have had allowable deductions and reliefs taken off), and the remaining figure is that which is subject to tax.

We can provide the current scale of national tax payable on request. This varies from 7.65% to 34% on each bracket.

On top of any inheritance tax would be the lawyer fees, Notary and other fees and minor taxes.

In Spain, unlike the UK or Ireland, the transfer of a property to the beneficiary always has to be done at the Notary.

3) The final calculation.

In the Valencia Community the tax liability is multiplied by the figure below based on the Groups above:

Group I & II: 1.0000

Group III: 1.5882

Group IV: 2.0000

One thing to mention is that heirs have 6 months from the time of death to pay the taxes, after the 6 months the tax office has 4 years to claim for the money. We suggest a meeting with us to discuss the possible inheritance tax payable by your beneficiaries and how best to write your Will.

So in summary, in the Valencia region, currently, spouses and children have a 100,000 euro tax free allowance each. Above this amount there is a sliding scale of tax applicable ranging up to 34% for above 800,000€ asset base. Unmarried partners are severely penalised.

Gift and Inheritances in Ireland

(Information kindly supplied by Tallans Solicitors, Co. Louth)

Capital Acquisitions Tax covers both Gift Tax and Inheritance Tax

In simple terms, where you receive a gift or inheritance, you may be taxable on that gift or inheritance. The current tax rate is 33%. There are a number of exemptions and reliefs, some of which are explained below.

Everyone is entitled to receive a tax free gift or inheritance. However, the amount of the tax free gift or inheritance available depends on:

(i)        the relationship between the person who provided the gift or inheritance and the person who received the gift or inheritance (Group Threshold), and

(ii)       the value of all prior gifts or inheritances since 5 December 1991 from people within the same threshold.

There are three tax free thresholds which apply. These are as follows:

1)         Group A – €280,000 where the recipient is a child, (or minor grandchild of the benefactor, if the parent has predeceased). In some cases this threshold can also apply to a parent, or a niece/nephew who have worked in the family business for a period of time and meet the relevant conditions.

2)         Group B – €30,150 where the recipient is a parent, brother, sister niece, nephew or linear ancestor/descendent of the benefactor.

3)         Group C – €15,075 in all other cases

If a parent takes an absolute inheritance from a child, that parent has a Group A threshold i.e. €280,000.

However, if in the previous five years that child had received a non-exempt gift (in excess of €1,270/€3,000) or inheritance from either parent, the inheritance taken by the parent will be exempt if it is taken on the death of that child.

Inheritance tax is paid at a rate of 33% amounts in excess of these thresholds.

Exemptions:

Any inheritance or gifts made between spouses
The first €3,000 of all gifts received from a disponer in any calendar year
Irish Government stock – see note below.
A gift or inheritance of a dwelling house where the beneficiary has been living in the house for 3 years immediately prior to the gift or inheritance, and remains for a further 6 years is exempt from CAT. The beneficiary cannot have any interest in any other residential premises. The exemption will not apply in the case of a gift if the disponer lived in the house during the 3 year period prior to the gift, subject to certain exceptions.

Exemption from Irish Securities

Government securities and securities issued by certain local authorities and statutory bodies are exempt from CAT when taken by a beneficiary who is neither domiciled nor ordinarily resident in the State at the date of the benefit.

The exemption also applies to units held in certain unit trust schemes provided the assets in these schemes are confined to securities within the exemption. The exemption applies to mainstream CAT only and does not apply to discretionary trust tax.

Certain conditions have to be fulfilled in order to obtain the exemption:

the securities or units must be comprised in the disposition continuously for a period of 15 years immediately before the date of the benefit where the stocks or securities were acquired after 26 February 2003.
Where the stocks or securities were acquired after 15 February 2001 and before 26 February 2003 they must have been in the possession of the disponer for at least 6 years. Where the stocks or securities were acquired after 14 April 1978 and before 15 February 2001 they must have been in the possession of the disponer for at least 3 years. Prior to this there was no condition of ownership for any period by the disponer prior to transfer but they had to be held by the beneficiary for at least one year.
The relief applies regardless of the period of ownership if the disponer is not domiciled or ordinarily resident in Ireland.
The security or units must be comprised in the benefit both at the date of the benefit and at the valuation date.

The requirement that the securities or units be comprised in the disposition for the 6 or 15-year period will not apply where the disponer was neither domiciled nor ordinarily resident in the State at the date of the disposition (or, in the case of securities or units purchased before 26 March 1997, where the disponer was neither domiciled nor ordinarily resident in the State at the date of the gift or inheritance).

A benefit taken by a beneficiary who is neither domiciled nor ordinarily resident in the State from a disponer who was neither domiciled nor ordinarily resident in the State at the date of the disposition will obtain the exemption regardless of whether the 15-year condition applies or not (subsection (3)).

For example:

In January 2001, Orla purchased a government security and in February 2004, she transferred that security to her cousin Paul in Australia. As the security was purchased prior to 15 February 2001 the 3-year ownership period is applicable and Paul as a non-resident beneficiary does not pay CAT. If Orla purchased the Government Security in March 2001 she would have to wait until April 2007 (6 years) before transferring the security tax free. If she purchased the security in March 2003, she would have to wait until April 2018 (15 years) before transferring the security tax free.

Point to Note:

This exemption of certain securities should be considered where one or more of the beneficiaries are foreign as a personal representative can use his power of appropriation under S55 of the Succession Act 1965 to direct securities towards foreign beneficiaries if they will be exempt from Irish CAT.

There are three tax free thresholds which apply. These amounts are as follows :

1) €225,000 where the recipient is a child, or minor grandchild of the benefactor, if the parent is dead. In some cases this threshold can also apply to a parent, niece or nephew who has worked in the family business for a period of time.

2) €30,150 where the recipient is a parent, brother, sister niece, nephew or linear ancestor/descendent of the benefactor.

3) €15,075 in all other cases

Inheritance tax is paid at 33% above these amounts.

Exemptions:

Any inheritance or gifts made between spouses
The first €3,000 of all gifts received from a benefactor in any calendar year
Irish Government stock given to a non-Irish domiciled beneficiary, as long as it had been held by the beneficiary for at least 6 years previously.
Any Inheritance received from a deceased child which had been given to the child as a gift by the parent
A family home, provided the following conditions are met :
1) It is the principal private residence of the recipient.

2) The house must be owned by the deceased during the 3 years prior to the gift.

3) The recipient had been living in the home for the three years immediately proceeding the transfer.

4) The recipient does not have an interest in any other residential property.