Spanish Inheritance Tax on Spanish & UK Assets: What You Need to Know
UK & Spanish Inheritance (death) Tax on Inherited Assets
Inheriting assets from a loved one can be a complex and emotional experience. The process can become even more complicated when the assets are located in Spain and the UK due to inheritance taxes in both countries.
According to recent data, more than 2 million people in the UK alone are estimated to own property abroad, and a significant portion of this is in Spain, one of the most popular destinations for expatriates and retirees.
Understanding how inheritance tax works across these borders is crucial, especially as Spain and the UK have different tax systems that may impact the value of an inheritance significantly.
The Impact of Spanish and UK Inheritance Taxes
Spain and the UK each have their own inheritance tax regimes, and the tax burden on heirs can vary greatly depending on where the assets are located, the relationship between the deceased and the heir, and the value of the estate. One of the most pressing concerns for those inheriting assets in Spain or from Spain-based relatives is the fact that Spain imposes inheritance tax not only on assets located in the country but also on foreign assets, including those in the UK.
As of recent estimates, the total value of UK assets inherited by heirs from Spain each year has been on the rise, with Spaniards owning over £30 billion worth of UK-based property and investments. This highlights the importance of understanding the intricacies of Spanish inheritance law, as heirs may face a double tax burden.
Example 1: Inheriting £5m from Parents in the UK while Living in Spain
Let’s say you moved from London to Madrid, and your parents passed away, leaving behind £5 million in assets. If your parents were UK residents, their estate would be subject to UK inheritance tax, which has a standard inheritance tax rate of 40% on assets above the £325,000 tax-free allowance (with the possibility of an additional £175,000 main residence exemption, depending on the circumstances). However, this inheritance tax is not the only hurdle.
As a resident of Spain, you will also be subject to Spanish inheritance tax, which, unlike the UK system, taxes both Spanish and foreign assets. Spain’s inheritance tax rates vary by region, and the exemption limits are often lower compared to the UK. In Madrid, for example, the tax-free allowance for children is lower than in other regions like the Basque Country, and the rates range from 7.65% to 34% depending on the value of the inheritance.
The key takeaway is that, even though your parents were UK residents, you could face inheritance tax in both countries, and the total tax burden could be substantial.
Actionable Steps:
UK Inheritance Tax: If your parents’ assets exceed the £325,000 threshold, UK inheritance tax will apply. Plan to pay the 40% tax rate on the estate’s value over this threshold unless exemptions apply. You can use our free online UK inheritance tax calculator to see how much tax will be paid.
Spanish Inheritance Tax: Report the inheritance to the Spanish tax authorities and determine your regional inheritance tax rate. You may be able to apply for exemptions based on your relationship with the deceased, but this will depend on your region.
Double Taxation Relief: Explore the possibility of claiming relief under the UK-Spain Double Taxation Treaty, which may help reduce the overall tax burden. This relief usually applies to assets located in the UK, but it requires careful legal planning.
Example 2: Inheriting €3m from Parents in Spain While Living in the UK
Imagine you’re living in Manchester, but your parents passed away in Marbella, Spain, and you’ve inherited €3 million in property and assets. Spanish inheritance tax will apply, and you must navigate national and regional tax rules.
Inheritance tax in Spain varies greatly by autonomous region. In Andalusia (where Marbella is located), there is a significant reduction in inheritance tax for direct descendants. For instance, children can receive up to €1 million tax-free, with taxes on amounts above that being levied at rates ranging from 7.65% to 34%. However, inheritance tax rates can be much higher in regions like Catalonia.
Given the high value of the inheritance, you may be facing a hefty tax bill in Spain, even though you’re a UK resident. If the estate includes UK-based assets, UK inheritance tax may also apply.
Actionable Steps:
Spanish Inheritance Tax: Submit a declaration of the inherited assets to the Spanish tax authorities. The Spanish inheritance tax will be based on the value of assets inherited in Spain, with potential allowances or reductions depending on your relationship with the deceased.
UK Tax Considerations: If the inheritance includes UK-based assets, there may also be UK inheritance tax considerations, particularly if the total value exceeds the £325,000 threshold.
Example 3: Parents in Marbella with €3m Estate, UK Domiciled
Let’s consider another scenario where your parents have lived in Marbella, Spain, for several years, but they are still UK-domiciled. They pass away, and you, as their child, inherit their estate valued at €3 million (equivalent to £2.5 million at the exchange rate of €1 = £1.20). Since they are UK-domiciled, their estate will be subject to both Spanish and UK inheritance taxes.
UK Inheritance Tax
Since your parents are UK-domiciled, UK inheritance tax rules apply to the entire estate, regardless of where the assets are located. In the UK, a £650,000 joint lifetime allowance for married couples can be combined to increase the tax-free threshold. However, anything above this amount is subject to a 40% inheritance tax rate.
In this case, the total estate is £2.5 million. After applying the £650,000 exemption, the taxable value of the estate is £1.85 million (£2.5 million – £650,000). The inheritance tax payable in the UK will be:
1-Taxable amount: £1.85 million
2-UK inheritance tax rate: 40%
3-Tax payable: £740,000 (£1.85 million X 40%)
Spanish Inheritance Tax
In addition to UK inheritance tax, the assets located in Spain, including property and investments in Marbella, will be subject to Spanish inheritance tax. Since you are inheriting from non-Spanish domiciled parents, the Spanish tax authorities will levy a tax based on the value of the Spanish assets, and the tax rates will depend on the region (in this case, Marbella is in Andalusia).
In Andalusia, direct descendants (children) enjoy a reduction of up to €1 million (approximately £833,333). Beyond that, inheritance tax rates range from 7.65% to 34%. Let’s assume that €1 million of the estate is exempt, and the remaining €2 million of the Spanish estate will be subject to tax.
The €2 million will be taxed according to the regional rates. The first portion of the estate (up to €400,000) is taxed at 7.65%, and anything above that is taxed at a higher rate. Here’s a simplified breakdown:
-Exemption for direct descendants: €1 million
-Taxable amount: €2 million – €1 million = €1 million
-Spanish inheritance tax rate (approx.): 7.65% on the first €400,000, 8.5% on the next portion
-Tax payable:
€400,000 X 7.65% = €30,600
€600,000 X 8.5% = €51,000
Total Spanish inheritance tax: €81,600 (approximately £68,000)
Double Taxation Treaty Between the UK and Spain
Both the UK and Spain are signatories to a Double Taxation Treaty, which helps prevent double taxation on assets located in both countries. In the case of inheritance tax, the treaty typically allows for relief, meaning that you can apply the taxes paid in one country (in this case, the UK) against the taxes due in the other country (Spain).
Since inheritance tax is paid in both countries, you may be eligible to claim relief on the Spanish inheritance tax due to the UK taxes already paid. However, the specifics of this relief depend on the exact nature of the inheritance and the local Spanish tax rules. Typically, the Spanish tax authorities may allow a credit for the UK inheritance tax paid, effectively reducing the amount of Spanish inheritance tax due.
Actionable Steps:
UK Inheritance Tax: After applying the £650,000 exemption, you will owe £740,000 in UK inheritance tax, which must be paid within six months of your parent’s death.
Spanish Inheritance Tax: You must file a declaration with the Spanish tax authorities for the Spanish assets. The tax payable will be €81,600, and payment is generally due within six months of inheritance.
Claiming Double Taxation Relief: To avoid double taxation, consult with tax professionals who can help you apply the UK-Spain Double Taxation Treaty to offset the taxes paid in the UK against your Spanish tax liability. This will reduce the overall tax burden.
Conclusion
When parents are UK-domiciled but live in Spain, their heirs face a complex situation, with inheritance tax obligations in both countries. The combined UK inheritance tax on the total estate and Spanish inheritance tax on Spanish assets can result in a significant tax burden. However, understanding the reliefs available through both countries’ tax systems, including the UK-Spain Double Taxation Treaty, is crucial for minimizing taxes and ensuring the process is as efficient as possible.
In this case, the inheritance tax bill would be substantial: £740,000 in the UK and €81,600 (approximately £68,000) in Spain. However, with proper tax planning and expert advice, you can potentially reduce this tax burden, especially by applying double taxation relief.
Rates and Exemptions by Region
Spain’s inheritance tax rates and exemptions vary greatly depending on the region. Below is a table outlining the different inheritance tax rates in Spain by region.
| Region | Tax Rate on Inheritance | Exemptions/Allowances |
| Andalusia | 7.65% – 34% | Exemption for direct relatives (spouse, children) up to €1,000,000 (increases for closer relationships) |
| Aragon | 7.65% – 34% | Exemption for direct descendants and spouses up to €100,000 (increases for closer relationships) |
| Asturias | 7.65% – 34% | Exemption for direct relatives (spouse, children) up to €200,000; larger exemptions for closer relationships |
| Cantabria | 7.65% – 34% | Exemption for direct relatives up to €150,000 (increases for closer relationships) |
| Castilla y Leon | 7.65% – 34% | Exemption for direct descendants and spouses up to €300,000 (additional deductions for closer relatives) |
| Castilla-La Mancha | 7.65% – 34% | Exemption for direct family members (spouse, children) up to €200,000 |
| Catalonia | 7% – 32% | Exemption for direct descendants and spouses up to €100,000 |
| Extremadura | 7.65% – 34% | Exemption for children and spouses up to €250,000 |
| Galicia | 7.65% – 34% | Exemption for direct descendants and spouses up to €400,000 |
| Madrid | 7.65% – 34% | Exemption for direct relatives (spouse, children) up to €300,000 |
| Murcia | 7.65% – 34% | Exemption for direct relatives (spouse, children) up to €150,000 |
| Navarre | 7.65% – 34% | Exemption for direct descendants and spouses up to €100,000 |
| La Rioja | 7.65% – 34% | Exemption for direct relatives (spouse, children) up to €150,000 |
| Valencia | 7% – 34% | Exemption for direct family members up to €150,000 |
| Baleares (Balearic Islands) | 7.65% – 34% | Exemption for children and spouses up to €300,000 |
| Canary Islands | 7.65% – 34% | Exemption for direct relatives up to €300,000 |
| Basque Country | 7.65% – 34% | Exemption for direct relatives (spouse, children) up to €500,000 |
| Ceuta and Melilla | 7.65% – 34% | Exemption for direct relatives up to €200,000 |
The table shows that Andalusia offers some of the best tax relief for heirs, but other regions may have less favourable exemptions. Be sure to consult local tax experts to understand the specific tax implications for your situation.
Conclusion
Inheritance tax can be daunting, especially when dealing with assets in multiple countries. With Spain’s complex tax laws and regional variations, it is essential to be fully informed and take proactive steps to minimize the impact on your inheritance. The key is understanding the tax obligations in both Spain and the UK and utilizing double taxation treaties and local exemptions to your advantage.
Frequently Asked Questions (FAQ)
Will I pay inheritance tax on Spanish property if I live in the UK?
Yes, if you inherit Spanish property, you may be subject to Spanish inheritance tax, regardless of your residence status in the UK.
Can I claim relief on inheritance tax in Spain if I am not a Spanish resident?
Reliefs and exemptions may apply to non-residents, but they vary by region. It’s important to consult a tax professional familiar with both UK and Spanish tax laws.
How does the UK-Spain Double Taxation Treaty work for inheritance tax?
The treaty allows for relief to avoid double taxation on assets inherited in Spain by UK residents, but it requires specific filings to apply for the relief.
What is the inheritance tax rate in Marbella, Andalusia?
In Andalusia, inheritance tax rates range from 7.65% to 34%, but direct descendants have significant exemptions.
How can I reduce my inheritance tax burden in Spain?
Strategic estate planning, understanding regional exemptions, and consulting with a tax professional can help you minimize your inheritance tax burden in Spain.