Thanks to our friends at TLA Corp in Albatera. They have produced an article for our clients to explain the recent changes to the inheritanace tax law in the Valencian region. For more information please contact TLA directly via their website www.tlacorp.es
MODIFICATION IN TAX REGULATIONS – AUGUST 2013-08-26
On the 2nd of August 2013, Valencian Government has modified determinate regulation in relation to:
- INHERITANCE TAX
- PURCHASE OF PROPERTIES
WE ARE COMENTING IN THIS ARTICLE THE MAIN ASPECTS AFFECTING INHERITANCE TAX
As explained in various articles on this site, there is a difference in Spanish Inheritance Tax for SPANISH TAX RESIDENTS, and for SPANISH NON RESIDENTS
This new regulation is AFFECTING ONLY to SPANISH TAX RESIDENTS WITH DOMICILE IN VALENCIA REGION (Alicante, Valencia and Castellon). So, this new regulation is NOT AFFECTING to those who are NON SPANISH RESIDENTS.
For Spanish Tax Residents, with domicile in Valencia Region, the new changes are the following:
REDUCTION ON THE TAX BASE
- Descendants, or adopted younger than 21 years old: 100.000 – 156.000 EUR
Before, the reduction on the tax base was from 40.000 to 96.000 EUR, depending on the age of the inheritor.
Now, the reduction on the tax base is from 100.000 – 156.000 EUR, depending on the age of the inheritor
- Descendants, or adopted older than 21 years old, surviving spouses, and ascendants: 100.000 EUR
Before, the reduction on the tax base was of 40.000 EUR
Now, the reduction on the tax base is of 100.000 EUR
- IN CASE OF PERMANENT RESIDENCE: REDUCTION 95 %
In case that the property inherited was the permanent residence of deceased, there will be a reduction on the tax base of the 95 %, with a maximum of 150.000 EUR, subjected to the following conditions:
Only when inheritors are descendants, ascendants, surviving spouse, or correlatives older than 65 years old (living with the family at least 2 years before the decease).
The property must be used as the permanent residence of the inheritors DURING, AT LEAST, 5 YEARS.
REDUCTION ON THE TAX RATE
Once the Tax base is calculated (in consideration with the eventual reductions obtained), then, the Tax base resultant will have also a reduction, when the inheritors are descendants, ascendants, or surviving spouse:
Before, the reduction on the tax rate was of 95 %
Now, the reduction on the tax rate is of 75 %
So, for example:
EXAMPLE 1: A+B own a property in Torrevieja (Alicante), Spain 50 % each for a tax value of 250.000 EUR. Both of them are Spanish Tax Residents. Both of them have “mirror wills” passing one each other the property in case of death. They are using the property as permanent residence.
A passes away, and B inherits the 50 % of the A part.
So, the Gross Tax Base from the A part to be inherited by B is : 125.000 EUR (50 % from 250.000 EUR).
- If B wants to be using the property as permanent residence with a minimum of 5 years, then, a reduction of the 95 % of the tax base can be obtained (with a maximum of 150.000 EUR). So, the Net Tax Base of the tax will be of 6.250 EUR.
Following the scale of the tax (not explained here), the tax rate to pay for a tax base of 6.250 EUR is around 478 EUR. This is the Gross Tax Rate.
Then, as B is surviving spouse from A, then, obtains a reduction of the 75 % of the Gross rate, so, the final Net Tax Rate to pay will be of around 120 EUR.
- If B does not want to use the property anymore, and wants to sell it, as surviving spouse, it can be obtained a reduction on the Gross Tax Base of 100.000 EUR. So, the Net Tax Base will be of 125.000 – 100.000 = 25.000 EUR.
Then, the Gross Tax Rate for 25.000 EUR will be of 2.200 EUR (following a scale). And, being the surviving spouse, B would have a reduction on the Gross Tax Rate of the 75 %. So, the final and Net Tax Rate to pay will be of 550 EUR.
EXAMPLE 2 : A+B have 2 sons: SON 1 and SON 2 older of 21 years old. They are also Spanish Tax Residents.
A passes away and leaves the property in Spain to B, SON 1 and SON 2 in equal parts:
So, from the A part inherited (125.000 EUR) here there is the Gross Tax Base received from the 3 inheritors:
B part: 83.333 EUR / SON 1 : 83.333 EUR / SON 2 : 83.333 EUR
- If the THREE of them want to be using the property as permanent residence with a minimum of 5 years, then:
Starting from B, as surviving spouse, it can be obtained a reduction on the 95 % of the Gross Tax Base. So, the Net Tax Base of the tax for B will be of around 4.160 EUR.
Also, for SON 1 and SON 2. They are A descendants so, they can obtain also a reduction on their Gross Tax Base of 95 %- So, they will have 4.160 EUR each.
Following the scale of the tax (not explained here), the tax rate to pay for a tax base of 4.160 EUR is of around 318 EUR. This is the Gross Tax Rate that each of the inheritors have to pay.
Then, as B is surviving spouse from A, and SON 1 and SON 2 are descendants, they obtain a reduction of the 75 % of the Gross rate, so, the final Net Tax Rate to pay will be of around 80 EUR each.
- If they do not want to use the property anymore, and want to sell it, as surviving spouse, and descendants, they can obtain a reduction on the Gross Tax Base of 100.000 EUR. So, the Net Tax Base will be of 83.333 – 100.000 = 0 EUR. As the result is “0”, no more reductions can be used in this case. So, in this case, the tax rate to be paid by each one of the inheritors will be “0”.
FOR AN AVERAGE OF PROPERTIES WITH A TAX VALUE 250.000 EUR OR LESS, THE SPANISH INHERITANCE TAX MAY BE VERY LOW, OR EVEN “0”, IF:
- THE INHERITORS ARE LIVING PERMANENTLY IN SPAIN-VALENCIA REGION- AS SPANISH TAX RESIDENTS
- THE INHERITORS ARE SURVINING SPOUSES, OR ASCENDANTS, OR DESCENDANTS