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Spain’s New Inheritance Tax Law for Non-Residents of Spain

02/18/2015 Rafael Guerrero

Spain has responded to the European Court of Justice’s ruling of 3 September 2014 condemning Spain’s inheritance law as “discriminatory” against non-residents of Spain.

On 27 November 2014, Spain’s new inheritance tax law was passed. Read on to learn about these recent changes to Spanish inheritance tax rules and how they could affect you.

Spain’s Previous Inheritance Tax Law

Under the previous Spanish inheritance tax law, each of Spain’s 17 autonomous communities was free to amend the State rules, thus setting its own particular fiscal reductions on Spanish inheritance tax. However, these tax reductions were only applicable to Spanish residents. Non-residents of Spain were subject to the Spanish State’s much less favourable inheritance tax rates. This resulted in discrepancies, at times very large, between the inheritance tax residents and non-residents of Spain were liable to pay.

Read Andalucía Lawyers’ article The EU Court Rules that Non-Resident Inheritance Tax in Spain Is Illegal to find out more about the ECJ’s ruling and its implications.

Spain’s New Inheritance Tax Law

Coming into effect on 1 January 2015, Spain’s new inheritance tax law includes four important changes:

If the deceased was a Spanish resident and the beneficiary is a non-Spanish resident, but an EU or EEA national, the beneficiary will be obliged to pay inheritance tax according to the tax rates of the autonomous community in which the deceased resided.
If the deceased was a non-resident of Spain living in the EU or EEA with assets in Spain, the beneficiary will pay inheritance tax according to the tax rates of the autonomous community where the deceased’s highest valued assets in Spain are located.
If an EU or EEA national who is a non-resident of Spain acquires property in Spain as a gift or inter vivos gift, the beneficiary will pay tax according to the inheritance tax laws of the autonomous community where the property is located.
If a Spanish resident acquires property in a Member State outside of Spain as a gift or inter vivos gift, then the beneficiary will pay tax according to the inheritance tax laws of the autonomous community where they reside.

Am I a Spanish resident?

You are considered a Spanish tax resident if:

You spend a total of 183 days a year in Spain.
Your “centre of vital interests” is in Spain. In other words, if your spouse is a Spanish resident and you’re not legally separated, you’re considered a Spanish resident.

Determining Place of Residence for Spanish Inheritance Tax

Place of residence in Spain is considered to be the autonomous community where the deceased lived for the longest period of time during the five years prior to their passing.

Obtaining a Tax Refund

Non-residents of Spain who are EU or EEA nationals and have paid the “discriminatory” Spanish inheritance or gift tax during the past four years now have the option of applying for a tax rebate. This involves claiming back the difference between the tax they paid and the amount they would have paid had it been calculated according to the relevant autonomous community’s tax regulations, as determined by Spain’s new inheritance tax law. The Spanish treasury may also be obliged to pay interest of 15% – 20% on the amount due.

However, there is a time limit on claims; you have only five years to make a claim from the time of the inheritance. Furthermore, you can only apply for a refund once.

Contact Us

If you think you may be affected by these changes to Spain’s inheritance tax law, it is essential you consult an experienced Spanish tax expert. Contact us at Andalucía Lawyers to arrange an in-person consultation in one of our offices in Granada or Marbella, over email or telephone, to discuss how Spain’s new inheritance tax law could apply to your situation.

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Pensioners with a Foreign Pension in Spain Have Until 30 June 2015 to Regulate Their Taxes

02/13/2015 Marina Rodriguez

Are you an expat retiree or a Spanish pensioner receiving a foreign pension in Spain? If so, you have until 30 June 2015 to make sure your taxes are correct and up to date or you risk facing a hefty penalty.

What is this due to?

A greater exchange of information between international tax authorities has alerted the Spanish Treasury to the fact that a great number of foreign pensioners, and Spanish retirees who have returned to Spain after working abroad, are not abiding by Spain’s tax laws when it comes to declaring the income they receive from their overseas pensions. It appears a lot of pensioners erroneously believe they can receive a foreign pension in Spain and not declare it. If you are resident in Spain then you are also considered a Spanish tax resident and, as such, must declare all your worldwide income, including pensions.

Am I a Spanish tax resident?

You are considered a Spanish tax resident if:

You spend a total of 183 days a year in Spain.
Your “centre of vital interests” is in Spain. In other words, if your spouse is a Spanish resident and you’re not legally separated, you’re considered a Spanish resident.

Am I required to declare income tax?

If you’re a Spanish tax resident and your total income exceeds €11,200 you are required to declare income tax in Spain, regardless of your pension’s value.

It is worth noting that even if you receive less than the minimum threshold income, making an annual tax declaration is still recommended. If there is no record of you as a Spanish tax resident, legal matters such as inheritance or selling a property could become a lot more complicated. Additionally, if you are thinking of applying for a residence certificate, you will have to provide proof that your pension is being paid into a Spanish bank account.

Exceptions

Civil servant pensions are taxed in their country of origin.

A Six Month Grace Period

The Spanish Tax Office recognises that many pensioners are elderly, with modest incomes, and are simply not aware of Spanish tax legislation. For this reason, the Spanish Treasury has granted a grace period of six months, from 1 January 2015 to 30 June 2015, during which pensioners can put their tax affairs in order without risking sanctions.

What does this mean?

It is important you ensure your previous Spanish Income Tax declarations from 2010-2014 were correct, and you declared all your taxable income, including any overseas pensions.
If any changes need to be made, you must file an amended declaration.
If there is any tax owed you will have to pay 100% of the outstanding sum to the Spanish Treasury. Delayed payment and installment plans have been set up for this purpose.
Any surcharges, interest charges for late payment, and penalties will be waived if you update your tax situation within the six month grace period beginning 1 January 2015.
If the Spanish Treasury has already checked an income tax return and found you to be guilty of not declaring your overseas pension, you may be able to take advantage of the grace period to claim back any sanctions and penalties already paid. Contact us to see if you are eligible for a refund of this type.

How can I be sure my Spanish taxes are up to date?

Very simply, contact us! Due to the complexity of Spanish tax laws, it is important you employ an experienced Spanish tax expert to ensure your taxes are in order before the grace period expires. We will manage all the paperwork for you according to your personal tax situation, and make sure you understand any steps that need to be taken.

Do it now!

After the six month grace period is up, it is highly likely that the Spanish tax authorities will carry out an inspection campaign. Those pensioners found to be in breach of the Spanish tax laws may face hefty financial penalties. Don’t let it slide, get your taxed checked now for your own peace of mind and the good of your pocket!

Important Changes to Spanish Inheritance for Expats

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QROPS Spain: Everything You Need to Know About QROPS in Spain

01/08/2015 Rafael Guerrero

Are you thinking of retiring to Spain from the UK? If so, you might consider transferring your UK pension to a QROPS. Find out more!

What is a QROPS?

QROPS stands for Qualifying Recognised Overseas Pension Scheme. It is an overseas pension that meets certain requirements set by the HMRC, and is eligible to receive transfers from registered UK pension funds without incurring an unauthorised payment sanction.

Who is eligible for a QROPS in Spain?

Anyone currently residing in Spain or who can demonstrate clear intention to retire to Spain and make it their main country of residence for five years or more.

Can my pension be transferred to a QROPS if I decide to retire to Spain?

The following British pensions can be transferred to a QROPS:

Former employers’ occupational schemes.
Money purchase or defined contribution company schemes.
Superannuation schemes.
Final salary schemes or defined benefit schemes (as long as the payments have not commenced).
Executive pension schemes.
Self-invested personal pension schemes (SIPPS).
Small self-administered schemes (SSAS).
Schemes contracted out of SERPS (protected rights).
Section 226 personal pension schemes.
Section 32 pension transfers and personal pensions.
Public sector service schemes (e.g. NHS, police, local government and civil service, armed forces and teachers).

The following British pensions cannot be transferred to a QROPS:

Final salary schemes or defined benefit schemes under payment.
British State pensions.
Pensions for which an annuity has been purchased.

What are the advantages of a QROPS for my retirement in Spain?

Investment Flexibility

When the holder of the QROPS has been resident in Spain (spending 183 days or more in Spain per tax year) for five complete and consecutive fiscal years, HMRC restrictions on how income and capital are spent no longer apply.

Tax Advantages

Residents in Spain are taxed on worldwide income; therefore all earnings have to be declared, regardless of where they come from. In Spain, the tax rate varies according to the yield type.

Depending on how a QROPS in Spain is implemented, the resulting income could fall into one of several yield categories. For example, if the income is categorised as pension payments (earned income), in Spain the tax levied could be between 20% and 47% for 2015, and from 19% to 45% from 2016 onwards.

If the income is considered to be capital gains, it would be subject to the following tax rates:

Tax base	2015	2016
€0 – €6,000	20%	19%
€6,000 – €50,000	22%	21%
more than € 50,000	24%	23%

The rates above would also apply to income resulting from dividends and interest.

Income falling into the category of capital repayment would be tax-free.

Tax Allowances and Deductions

Tax allowances and deductions are available, whatever the income source. These are applicable prior to the above tax rates from the minimum taxable income threshold of €5,151. This threshold increases according to age and personal circumstances, such as incapacity.

Deductions are also available in certain situations, for example the cost of a main residence with a mortgage, and donations. Where applicable, these all reduce the final tax to pay.

QROPSs in Spain are exempt from UK Death Tax

Upon your death, all remaining assets will be passed on to your chosen beneficiaries, without being subject to British inheritance tax.

Is transfer to a QROPS in Spain subject to taxation?

Transfer to a QROPS for your retirement in Spain is not subject to tax unless it exceeds an individual’s lifetime allowance. In the UK, the lifetime allowance is currently set at £1.25 million (2014-2015 tax year). If your pension exceeds this amount, you would need to discuss your options with our tax experts at Andalucía Lawyers.