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Good News for Tax Residents of Andalucia

Posted in: Christopher's Blog
Author: Myra Cecilia Azzopardi
Tags: , ,

Author: Christopher Pickering.

New inheritance tax (IHT) rules, which have been implemented in the region of Andalucia in January of 2017, now mean that many people will no longer face a potentially hefty tax bill. The new rules apply specifically to those beneficiaries whose relationship to the deceased falls within either kinship group 1 (direct descendants under 21 years of age) or kinship group 2 (direct descendants over 21 years of age, spouses and ascendants).

 

For beneficiaries that fall within either of those 2 kinship groups they now have a complete exemption on inheritance tax so long as the following 2 points are met:-

  1. The value of the inheritance doesn’t exceed €250,000
  2. The pre-existing net wealth of the beneficiary doesn’t exceed €402,678.11

 

If the value of the inheritance exceeds €250,000 but is less than €350,000 then IHT will apply but the beneficiaries will now have an exemption on the first €200,000 of inheritance (assuming of course that their pre-existing net wealth is under €402,678.11. Example:-

 

Bill lives in Marbella, has a total wealth of €400,000 and he inherits €290,000 from his deceased father. Important points to note:-

  • Bill is resident in Andalucia
  • Bill has pre-existing net wealth inferior to €402,678.11
  • Bill’s relationship to the deceased falls within the first 2 kinship groups
  • The value of the inheritance is more than €250,000 but is less than €350,000

 

Bill’s taxable base is €290,000 minus the allowance of €200,000 means that Bill can expect to pay tax at the applicable rates on the remaining €90,000.

 

For beneficiaries that either have a pre-existing net wealth of more than €402,678.11 or receive an inheritance greater than €350,000 then neither of these new exemptions outlined above would apply.

 

Additionally, there is a new set of exemptions applicable to the main residence when it is inherited by either the spouse, direct descendents or a relative aged 65 or more. The exemptions basically dictate how much of the property value is added to the taxable base for the inheritance tax calculation. The exemptions work as follows:-

  • If the property is valued at €123,000 or lower then it is completely exempt from IHT
  • If the value is between €123,000.01 and €152,000 then 1% of the value will be added to the taxable base
  • If the value is between €152,000.01 and €182,000 then 2% of the value will be added to the taxable base
  • If the value is between €182,000.01 and €212,000 then 3% of the value will be added to the taxable base
  • If the value is between €212,000.01 and €242,000 then 4% of the value will be added to the taxable base
  • If the value is more than €242,000 then 5% of the value will be added to the taxable base

 

Two important points to note with regards to this set of exemptions is that the beneficiary must have been living in the residence for the 2 years prior to the owner’s death and the property being inherited must not be sold within the first 3 years of being inherited.

 

If you are concerned about IHT or would like any further information then please feel free to contact me. Chris Pickering – International Financial Adviser at:

christopher.pickering@citizensadvice.org.es

 

 

Please note: The information provided is based upon our understanding of current legislation. It is not legal advice but is provided freely to enable you to be properly informed. We recommend that if you are considering taking action, you should seek professional advice.

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