IN today’s article we are going to discuss double taxation on inheritance tax, giving you some basic legal advice.
Double taxation on inheritance tax is regulated in the Law on inheritance and gift tax (IHT), article 23 and in regulation, article 46.
They basically say that:
When a person is obliged to pay inheritance tax due to a personal obligation in Spain, the lower of the following amounts, may be deducted from the tax bill to be paid;
1. The amount paid abroad, for inheritance tax (or similar). In relation to assets located outside Spain.
2. Or, the result of applying to assets located abroad, the effective average rate.
Who can deduct what was paid in another country?
Only those who pay in Spain by a personal obligation, that is, the beneficiaries of an inheritance, who are tax residents in Spain.
This means therefore, they must pay tax in Spain in respect of the entire inheritance, even for the assets that are outside of Spain.
It must be remembered that nationality is irrelevant as for the purposes of inheritance and gift tax, only tax residence is relevant.
A person, who is tax resident in Spain, inherits from her father, properties or assets in the United Kingdom and Ireland.
For properties and assets in the UK and Ireland, she paid the equivalent of inheritance tax in those countries.
But, being a tax resident in Spain, she must pay in Spain for the entire inheritance and therefore, also and again, for the assets located outside of Spain.
In this case, we would be facing a case of double taxation. That is, two amounts of inheritance tax would be paid in two different countries in respect of the same assets.
According to Spanish regulations, the amount to be paid in Spain for IHT may be reduced by what was paid abroad or the effective average rate.
Calculation of the effective average rate
According to the aforementioned articles, the effective average rate is calculated by dividing the tax rate by the taxable base and multiplying the result by 100.
If you are a tax resident in Spain and inherit assets outside of Spain, you must pay inheritance tax here for the entire estate.
But, according to the regulations on double taxation on inheritance tax, part or all of the amount paid could be deducted.
It is equally important to know that Spain has signed some double tax treaties with several countries in this matter.
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The information provided in this article is not intended to be legal advice, it merely conveys information related to legal issues.
Carlos Baos (Lawyer)
White & Baos
Tel: +34 966 426 185
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2 thoughts on “Double taxation in inheritance tax. If you inherit abroad and are a tax resident in Spain. Do not pay inheritance tax twice.”
Hello, can you advise me? I am 80 years old, a resident and tax resident in Alicante province. I have been resident for 15 years. I have a house.
My sister-in-law who is 94 and living in London is leaving me half her estate when she dies. This could come to£1-1.5 million.
I don’t want to give up my residencia, but realise that inheritance tax on the inheritance could be heavy. Under double tax agreement, would the tax paid in the UK be deducted from any Spanish tax? Would that help, or would I have to go non-resident and live in the UK again to be exempt? Thank you for your help.
If you are tax resident in Spain you will need to pay taxes in Spain for the inheritance you receive worldwide.
The Spanish IHT law foreseen a possibility of a reduction if you have been already taxed abroad.
If you inherit, being non tax resident in Spain and are assets outside Spain, you will not need to pay IHT in Spain.
In any case, contact our office and we will assist you.