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Property and inheritance tax increases in the Valencian Community

By John Hayward
This article is published on: 11th August 2013

As of 7th August 2013, the Valencian government has increased Stamp Duty (ITP – Impuesto de transmisiones patrimoniales) and Inheritance Tax (ISD – Impuesto sobre sucesiones y donaciones). The ITP is more obvious an increase as it will increase from 8% to 10%.

The ISD is a little more complicated. Up until this point, residents of the Valencian Community benefited from a 99% reduction on whatever the tax bill was. Therefore, very little was due. Now spouses, descendants and ascendants will have their personal allowances on receipt of benefits increased from €40,000 to €100,000. However, the reduction is being lowered to 75%.

Example. Property owned in joint names and deemed to be owned 50/50. Spouse dies leaving 50% to the surviving spouse. There is no inter-spouse exemption in Spain. Property valued at €400,000. €200,000 (50%) inherited. Deduct allowance of €100,000 which, based on current rates, leaves a tax bill of €12,415. Reduce this by 75% and the tax due will be €3,103*. This needs to be paid within 6 months of the death. Under the old system, the tax bill would have been based on €200,000 less €40,000 allowance. This would result in a tax bill of €23,141 which, although higher than the figure above, would then be reduced by 99%, leaving a tax bill of €231*. (* Subject to personal circumstances and specific assets)

As one can see, many tax residents on the Costa Blanca can look forward to sizeable tax increases. A concern is that bank accounts can be frozen on death which could mean the money to pay this tax might not be available within the 6 months stipulated. Simply becoming non-resident, which has been seen as a solution to the recent asset declaration ‘problem’, wouldn’t work here as the inheritance tax due for non-residents is even worse.

A solution could be to have money in a low risk insurance bond, recognised by Spain for tax purposes but not based in Spain and, importantly, not frozen on the death of a policyholder. Apart from being far more tax efficient than a bank account, it could provide the money at a time when there is plenty of other expense, as well as at a time when there is the human aspect of grief.

(Detailed Valencian and Castilian versions of the law can be found on the Valencian government’s website. Click here to view them.)

Article by John Hayward

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