One of the principals of financial planning is to keep things as simple as possible. Often that is easier said than done. Often, trying to plan in the context of unknowns means we have to try to cover a number of options. Examples include what will future investment performance be, which country will you live in in the future, how many children and grandchildren will you have and indeed, how long will you live?
Viewing posts categorised under: BD IHT
Sensible Inheritance Tax Planning
By Barry Davys
This article is published on: 17th July 2023
17.07.23
One piece of planning that is quite straightforward is a piece of planning for passing wealth onto your children when one lives in the UK and the other in Spain. As an example let’s use the family called the “Sensibles”:
- Mr & Mrs Sensible live in the UK
- Child Sam Sensible lives in Spain
- Child Una Sensible lives in the UK
- In Spain there is gift tax if money is given to Sam during Mr & Mrs Sensible’s lifetime
- In the UK, there is no gift tax
- In Spain, the recipient of money from a Will has to pay Inheritance Tax (IHT)
- In the UK, it is the estate of the person who has died that pays the IHT
- Mr & Mrs Sensible wish to do some UK IHT planning and give money to their children now
The problem for Mr & Mrs Sensible is that if they give money to their children now, this will lead to Sam in Spain having to pay Gift Tax now. If they leave their money to Sam in their Will there are allowances and discounts available which means that he will pay less tax than in the event of receiving a gift.
The Solution
The solution is quite straightforward. Mr & Mrs Sensible should give the total amount of money they wish to give to Una in the UK now. This will reduce their future liability to UK IHT. To make sure Sam and Una are treated the same they should then deduct the amount given to Una from her half in their Will.
- Sam pays no gift tax and Una pays no gift tax
- Sam pays less tax on the death of his parents because of the discounts available on IHT for bequests from parents to children
- Mr and Mrs Sensible have reduced their UK IHT bill
What a sensible thing to do.
Inheritance Tax in Catalunya
By Barry Davys
This article is published on: 11th July 2022
11.07.22
Inheritance Tax in Catalunya – A Guide
Inheritance tax in Catalunya is calculated using the same basic principles as the national system in Spain. As in the national system, the taxable entity is the person RECEIVING the bequest, not the person who has passed away.
However, the allowances (deductions) and rates of tax are different in the Automonous Community Catalunya from the national rate. The law that sets these rates and allowances is Catalunya Ley19/2010 which was amended in February 2014.
Who’s this article for?
- People living in Catalonia
- People who have recently inherited or are about to inherit
- People whose parents are doing inheritance tax planning
Overview
Inheritance tax in Catalonia is calculated in a different way than in many other countries and even in other autonomous communities in Spain. The tax to be paid is not necessarily bad. The tax can be less than in the UK for example.
What you get?
This guide gives a reasonable understanding of how Catalan inheritance tax works and the possible amount to pay. You get access to an adviser who specialises in this area and an introduction to an English speaking lawyer who specialises in helping International people living here.
Your Investment
The time taken to read the guide, and perhaps a second read as Catalan IHT tax takes some getting used to. You will also need to book an initial telephone call if you want advice specific to your situation.
If you are resident in Catalunya these are the rules that will apply. Here we have produced a guide to Catalan Inheritance Tax. The most important deductions available are as follows:
Personal Deductions
The starting point in making the calculation is to work out which Group the person receiving the inheritance belongs to as follows:
Group I Children, including adopted children, under the age of 21
Group II Children over 21, spouses, parents and grandchildren
Group III Close relatives such as brothers and sisters, aunts and uncles
Group IV More distant relatives or unrelated
Allowances/deductions available in Catalunya are:
Group I
Deduction of €100,000 plus €12,000 for each year under 21 years of age up to €196,000
Group II
Spouse: €100,000; Child: €100,000; Other Descendants: €50,000; Parents: €30,000
Group III
€8,000
Group IV
No deductions available
Disabled Heir
In addition to any personal deductions applicable a beneficiary who is disabled may add an additional €275,000 deduction if the disability is determined to be greater than 33% or €650,000 where it is greater than 65% disability
Heir over 75 years old
A deduction of €275,000 may be applied where the heir is over 75 years of age who is a beneficiary within Group II though this deduction is applied instead of the other allowances.
Inheritance of the Family Home
Where a property inherited is the main family home then a reduction amounting to 95% of the value of the property up to €500,000 may be made where the beneficiaries are the spouse, child or parent of the deceased as well as collateral relatives, older than 65, that lived with the deceased during the 2 years previous to the decease . The property may not be sold for a period of 5 years if the reduction is claimed.
Allowances available for the Inheritance of the Family Business
A tax deduction of 95% of the value of the interest held by the deceased in the business This applies to all beneficiaries who were related to the deceased to the third level of blood relative and persons in the employ of the business for at least 10 years.
Allowances available for income from Life Insurance Policies
A deduction of 100% is applicable on any income from a life insurance policy held by the deceased up to a maximum of €25,000 where the beneficiary is the spouse, descendant or parent of the deceased.
Inheritance Tax Rates in Catalunya:
Once all deductions have been applied the final amount of tax payable is determined then it is necessary to apply the relevant rate:
| Taxable Sum | Tax Payable on this Sum | Any Reminder up to | Applicable Rate on Remainder % |
| 0 | 0 | 50,000 | 7% |
| 50,000 | 3,500 | 150,000 | 11% |
| 150,000 | 14,500 | 400,000 | 17% |
| 400,000 | 57,000 | 800,000 | 24% |
| 800,000 | 153,000 | Above 800,000 | 32% |
Existing Wealth:
Once the relevant tax has been calculated the result is multiplied by a coefficient determined by the existing wealth of the beneficiary as well as the group to which they belong:
Existing Wealth Multiplier Coefficien
| Existing Wealth in Euros | Group 1 & 2 | Group 3 | Group 4 |
| From 0 a 500.000 | 1,0000 | 1,5882 | 2,0000 |
| From 500.000, 01 to 2.000.000 | 1,1000 | 1,5882 | 2,0000 |
| From 2.000.000, 01 to 4.000.000 | 1,1500 | 1,5882 | 2,0000 |
| More than 4.000.000, 00 | 1,2000 | 1,5882 | 2,0000 |
As a reminder the Groups referred to consist of the following beneficiaries:
Group I Children, including adopted children, under the age of 21
Group II All other descendants, spouses, parents and grandchildren
Group III Close relatives such as brothers and sisters, aunts and uncles
Group IV Distant relatives and unrelated
Special Deductions – Spouse
After applying the tax rates and coefficients above a discount of 99% shall be applied to any tax payable.
Special Deductions – Other Relatives Groups I & II
For Group I & II beneficiaries, apart from the spouse, the following discounts may be applied to the calculated amount of tax due, depending on the amount inherited:
Group 1
| Bottom of Taxable Band Euros |
Total discount to this level % |
Top of Taxable Band Euros |
Discount for this band % |
| 0,00 | 0,00 | 100.000,00 | 99,00 |
| 100,000 | 99,00 | 100.000,00 | 97,00 |
| 200,000 | 98 | 100.000,00 | 95,00 |
| 300,000 | 97 | 200.000,00 | 90,00 |
| 500,000 | 94.20 | 250.000,00 | 80,00 |
| 750,000 | 89.47 | 250.000,00 | 70,00 |
| 1,000,000 | 84.60 | 500.000,00 | 60,00 |
| 1,500,000 | 76.40 | 500.000,00 | 50,00 |
| 2,000,000 | 69.80 | 500.000,00 | 40,00 |
| 2,500,000 | 63.84 | 500.000,00 | 25,00 |
| 3,000,000 | 57.37 | upwards | 20,00 |
Group II:
| Bottom of Taxable Band Euros | Total discount to this level % |
Top of Taxable Band Euros |
Discount for this band % |
| 0,00 | 0,00 | 100.000,00 | 60,00 |
| 100,000 | 60,00 | 100.000,00 | 55,00 |
| 200,000 | 57,50 | 100.000,00 | 50,00 |
| 300,000 | 55,00 | 200.000,00 | 45,00 |
| 500,000 | 51,00 | 250.000,00 | 40,00 |
| 750,000 | 47,33 | 250.000,00 | 35,00 |
| 1,000,000 | 44,25 | 500.000,00 | 30,00 |
| 1,500,000 | 39,50 | 500.000,00 | 25,00 |
| 2,000,000 | 35,88 | 500.000,00 | 20,00 |
| 2,500,000 | 32,70 | 500.000,00 | 10,00 |
| 3,000,000 | 28,92 | upwards | 00,00 |
Special Deductions – Other Relatives Groups I & II
The discount shall be reduced by 50% should the beneficiary apply any of the following deductions:
- Family Business
- Any other deduction to the amount of tax payable except the deduction applicable to the family home.
Many expats pay more tax on their inheritance than they should because they fail to follow some simple rules.
To discuss how to pay only the appropriate amount, please click the button below to get in touch with us.
This information is intended as a guide only. It is based on the current legislation for Inheritance tax in Catalunya as at August 2017. A suitable qualified tax lawyer should always be used to calculate a specific liability. If you require the assistance of a tax lawyer please contact barry.davys@spectrum-ifa.com who will introduce you to an appropriate lawyer. Please also note that this guide does not apply to Gifts (donaciónes) which have their own rules.