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Andalusian Inheritance Tax Allowance Changes

Oct 5, 2022 | Tax

Andalusian Inheritance Tax Allowance Changes

Oct 5, 2022 | Tax

Did you know that the Andalusian government made changes to the inheritance tax allowance in January?

If you have assets in this region of Spain, it’s worth taking a closer look at the new allowances to see how they could impact you. Keep reading to find out more!

Previously, Andalusia used a basic tax allowance to avoid inheritance tax on the first million euros. A new law passed on 11 April by the Andalusian government adds a 99% exemption for assets valued over a million euros, almost eliminating inheritance tax.  

Whether you are Spanish or not, your heirs will be obliged to declare these assets as part of their inheritance. This formality is an obligation regardless of whether the person is a citizen or not and whether they live in this country.

Heirs will be exempt from paying inheritance tax if the inherited estate or assets are below the €1 million threshold. Those who inherit assets worth more than a million in Andalusia will be subject to a 1% inheritance tax (also known as “Inheritance and Gift Tax”). As a matter of fact, inheritance tax applies to all types of property, shares and bank accounts located in the region of Andalusia.

Who benefits from the changes in Andalusian inheritance tax?

A spouse and children are the only third- and fourth-degree relatives that are eligible for the inheritance tax allowance (Group I and II). Therefore, siblings, uncles, nephews, and “odd heirs” are not considered. Moreover, this law applies to de facto couples following the same rules as married couples regarding inheritance tax allowances, but only if they register in the Andalusian Registry of De Facto Couples (Registro de Parejas de Facto). This means that the inheriting spouse will not have to pay inheritance tax if its estate is less than a million or 2% if it exceeds that amount.

Examples:

  • The owner of a villa worth €1,500,000 in Mijas dies. Under this new law, he will only be required to pay €4,742.60 in inheritance tax in Spain, although UK IHT may be applicable depending on the domiciled status of the individual who has passed away. Regardless, declaring these assets in Spain does not relieve you of the legal obligation to inform your home country’s tax authorities. Both countries must have a double taxation agreement in place to determine tax distribution. It is always wise to maintain transparency to avoid any formal requests from either country. This new tax law could be interpreted as a way of attracting foreign investment, therefore stopping capital outflow, and stimulating economic activity.
  • An unmarried British couple living together in Andalusia makes a last will for the other. It is estimated that the inherited estate is worth €160,000. An heir will pay €46,281.68 if the couple isn’t listed at the Andalusian Registry, whereas a registered couple won’t have to pay anything. This allowance will only be accepted if the origin of the estate can be clearly demonstrated and is specifically mentioned in the will.

When it comes to estate planning, don’t wait until the last minute. It can be a difficult and emotional process, but having everything in order will make things easier for your loved ones during a difficult time. Contact SJB to get started on your estate plan and avoid any potential headaches down the road. We’re here to help you protect what’s important.

This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

 

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By scheduling an appointment with an adviser they will reach out to you at your requested time. 
Personal advice, whenever it suits you.