INHERITANCE TAXES AND DONATIONS BRITISH NON-RESIDENTS. ARE DONATIONS FROM PARENTS TO CHILDREN FREE OF TAXES?

There are many non-resident British clients who come to my office asking me about the best way of saving taxes in an Inheritance and especially if it is true that in a Donation from parents to children no taxes have to be paid.

There is a not a lot of information on these issues. With the new Regulation within the Andalusian Decree-Law 1/2019 of the 9th of April by which reductions were established in the Inheritance and Donation taxes for this Community, there has been a boom in the granting and signing of Deeds of Donations from parents in favor of their children, without having complete information on the fiscal implications that this type of donations may cause to the donor.

It is convenient to clarify that according to the current Regulation of Junta de Andalucía, inheritances and donations are taxed by applying a reduction in the tax on Inheritance and Donations of  a 99%, as long as it is formalized through a  public deed.

But, in the case of DONATIONS, this is not only the tax to be paid in a Donation, but there are other taxes that must be taken into account such as:

  1. a) Income Taxes for the Capital Gain caused by the donation to be paid by the donor. Although it seems incredible when a father donates a real property to his son, he must pay taxes on the capital gain obtained with the referred transfer for the purposes of income taxes. This tax will be reduced if the real property has been acquired before 1994. Likewise, the Law establishes exemptions in some cases that may be free from paying this tax. The most frequent when it comes to a transmission of habitual residence by people over 65 years old.
  2. b) Tax on the Increase in the Value of Urban Land (local tax of plusvalía). This tax will have to be paid to the corresponding Town-Hall in the case of donation of urban real estate. It is calculated based on the catastro/rates value of the land and will increase according to the years that the donor has had the property in his possession.

 

In relation to the inheritance of a non-resident in Spain or a British resident and to residents or non-resident heirs, it is necessary to consider when it is a Non-Resident Inheritance, first of all, which Regulations must be applied in each case.

In the case of INHERITANCES of NON-RESIDENTS in Spain if the heirs are residents in countries of the European Union, the Regulation of the Andalusian Community will be applied, which establishes as we have previously mentioned tax reductions up to the limit of 1.000.000 euros, which means that in most of the cases the assets do not exceed this figure and the heirs do not have to pay inheritance taxes.

In the case of INHERITANCES of NON-RESIDENTS in Spain if the heirs are residents in countries OUTSIDE the European Union, the State Regulation will be applied which does not establish such fiscal reductions and therefore, they will not be able to avail themselves to the tax benefits approved by the AC of Andalusia.

For this reason, it must be taken into account that once Brexit is effective, a Non-Resident in Spain but resident in the UK (a country outside the European Union) who has inherited a home in Spain will be applied the State Regulations for the effects of Inheritances and Donations and the tax benefits of the Autonomous Community of Andalusia will not be applied.

In conclusion, it is necessary to be well advised when planning the inheritance for both residents and non-residents and when deciding to make a donation between family members in order not to lead to tax problems that are difficult to be sorted out. For this, this Firm, experts in International Inheritance, offers you free advice at first consultation when planning your inheritance.

María José Arroyo, Lawyer and founding partner of the Lawyer Firm

MAR Consultores Jurídicos, expert in International Inheritance.

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