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It is amongst the regions with the highest inheritance tax liabilities. Other regions’ reductions almost eliminate the total payable amount
25.07.13 - 16:12 -
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As the saying goes, the only sure thing in life is death. However, in Spain there is no ‘sure thing’ about the legacy you can leave behind to loved ones, due to the inheritance tax ‘postcode lottery’.
The amount of inheritance tax (IHT) paid in Andalucía differs greatly from that of other autonomous regions, such as Valencia, Madrid or the Balearics.
As such, it is becoming increasingly apparent, say some observers, that many people, often with hundreds of thousands of euros at stake, are opting to move to a neighbouring part of the country, to avoid having the majority of their assets seized by the state when they pass away.
The ‘29/1987’ law passed on 18th December states that the amount of inheritance tax paid is determined by the region where the deceased was a tax resident (where he or she lived for more than 183 days per year), regardless of where their assets are located or where their heirs live. So, despite IHT being set by central government since 1997, each autonomous region still retains the rights on how the tax is implemented and managed.
Juan José Hinojosa, a tax law professor from Malaga University, explains: “Even though autonomous regions of Spain are unable to repeal such tax laws set by government, many regions choose to apply reductions and exemptions which could, in effect, absorb the majority of the inheritance tax [liability] payable.”
However, this is not the case here in Andalucía, which is amongst the most expensive regions of Spain when it comes to inheritance tax, because along with other regions, including Extremadura, Castilla y León and the Canary Islands, it only applies minimal IHT reductions.
One such reduction is applied if an heir is left an estate valued under 175,000 euros, before any tax bonuses or reductions are applied, they are exempt from paying inheritance tax. This applies to ‘group one’ heirs (children and adopted children, under 21 years of age) and ‘group two’ heirs (children, adopted children with a minimum age of 21, spouses, parents or adopted parents).
To illustrate how costly death in southern Spain can be, consultancy and auditing firm, UHY Fay & Co, estimates that should a widow living in Andalucía with assets worth 500,000 euros, inherit six million euros on the death of her husband, she would need to pay 2,100,000 euros inheritance tax. Whereas had the couple lived in the Balearics, she would be liable for an IHT bill of just over 40,000 euros.
As the firm underscores, if Andalucía were a country in its own right, in this regard [IHT], it would be in the top five most expensive nations in the world.
The organisation’s Bernard Fay, a foreign investment expert, believes that if Andalucía’s IHT was reduced, it might be primarily high-net-worth individuals who benefit “but that how it is now, none of us benefit at all.”
He thinks in order to attract such individuals to the region, who would boost tax revenues and the wider economy through their consumption, the matter of higher, some would argue ‘uncompetitive’ IHT needs to be addressed.
“High-net-worth individuals, say over 50 years of age, are attracted to the Andalusian way of life, but the costly inheritance tax could weigh heavily on their decision to relocate, not wanting to cause future problems for their heirs,” he explains.
Property and IHT
One of the main IHT reductions is driven by property. Here inAndalucía it is 99.9 per cent, however there is a property value limit of 122,606 euros and the heir (eldest son or daughter over 21) must be resident in the property. Whereas in Cataluña, the maximum reduction is 180,000 euros for each taxpayer, as long as the property is less than 500,000 euros.
Lawyer Jessica Morente from MCA Abogados y Asesores explains: “If the property is valued at 600,000 euros, and there is just one heir, there can only be a tax reduction of 180,000 euros, providing the heir has been resident there for at least two years before, and promises to remain there for at least five years.”
In the Balearics, the reduction would be 100 per cent if the property was not valued at more than 180,000 euros; whilst in Madrid it is 95 per cent with a limit of 123,000 euros.


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