Inheritance Tax Allowances for Andalucia have increased with effect on the 1st of January 2018. This is the biggest tax reform made in Andalucia in the past 35 years whereby 95% of the inheritances will be tax exempt.
Most expats coming to Andalucia to live their dream of retiring under the sunshine have the dilemma of buying a property in first place or rent as per the rates of Inheritance Tax. Another big decision at the very beginning which will be affected by inheritance tax is whether to live full time in Andalucia or just try to expend less than 183 days (including temporary absences) in Andalucia not to become Spanish tax residents automatically.
When the beneficiary is “resident” in Andalucia, there is a personal responsibility on world-wide assets whereas a “non-resident” has a real responsibility and therefore the tax will be calculated on assets allocated or rights that can be exercised in Spain.
Andalucia has been one of the worse places to die within Spain for a very long time. Statistics show it very well, over 15% of the inheritances processed in 2016 ended up being disclaimed by their rightful beneficiaries.
Who will be exempt from IHT in Andalucia?
From January 2018, somebody who inherits less than one million euros will not be liable for Inheritance Tax in Andalucia as when the beneficiary belongs to either Group I or II. This is, the relationship between beneficiary and the deceased person was either spouse, children, grandchildren or ancestors.
Bear in mind the one million euros is per beneficiary, not per inheritance.
A very normal situation, is a couple living together for the past 20 years and not married. In this case, the surviving “spouse” will be allocated into Group IV (other family member and all third parties) and therefore cannot access the one million allowance and will be liable for full payment on inheritance tax. In order to be in Group II (children over 21, spouse and ancestors) couple has to be legally registered.
Not always is a bad idea to get married when it goes down to save money in the future.
Do we need to continue taking into consideration pre-existing beneficiary´s wealth?
Yes, we do. In order to get the exemption from the IHT payment, the beneficiary has to have a total pre-existing wealth of under one million euros. Until the 31st of December 2017, this figure was 402.678,11 euros.
A simple example will be a father who passes away and leaves two-million euros inheritance to his two children, neither of them has to pay any IHT in Andalucia as long as each individual wealth does not exceed one million euros. Another example could be, a mother who passes away and leaves 1.000.001 euros to her sole child, the calculation for IHT in Andalucia will be only based on 1 euro.
Who will keep on paying IHT in Andalucia?
Any beneficiary that fell into Group III and IV, brothers, nephews, uncles, cousins, other family members and all third parties will carry on paying the same inheritance tax in Andalucia as it has been up until now. Allowance of 7.993,46 euros will continue for beneficiaries of Group III. Another allowance of 95% has been introduced for brothers over 65 years-old who inherit main residency.
Will Gift Tax be affected?
Andalucia has introduced a 99% Gift Tax exemption only when parents give money to their children or descendants under the age of 35 for buying their main residency in Andalucia. This allowance will be considered as well when children or descendants have a disability of more than 33%.
Also will be considered a one million allowance when the gift is used to create a new company or to enlarge it, but only if the gift is between parents and children. There are certain conditions on this as well: the gift has to get registered in a Notary through a deed and the company has to continue the activity for over 5 years after the gift unless the person who has gifted pass away during this period.
Finally, the cliché Andalucia has had for the past 35 years of being the most expensive place where to die in Spain, has ben removed. For expatriates, the dilemma of becoming full time residents in Andalucia or not will disappear in most cases. Always make sure you talk to the experts to have the last update.
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