I have been told if I formalize a mortgage on the property that we own, we can reduce the inheritance tax on my heirs. Is it legal?
On one hand, it is true that the heirs may deduct the outstanding capital at the date of death, which is a great advantage. But in turn, you have to have in mind that in the case of the death of the holder of a mortgage, ownership of the property passes to the heirs with corresponding debt (in this case the mortgage). And, according to the law, the debts of a person who dies does not extinguish and creditors can go against the heirs if they have accepted the inheritance on a “simply manner”. So in these cases, we must consider whether it is worth giving up the inheritance, to accept in a way that is called “beneficio de inventario” or renegotiate terms with the bank.
Note that if the amount obtained with your mortgage is intended for financial investments, if they are not successful, you or your heirs could find yourselves in a difficult situation by not being able to meet the conditions of the loan.
I have been told that the treatment in the inheritance tax is worse in the case of the deceased or their heirs or legatees are not resident in Spain. Is that true and why?
That is so, at least as of today. Because the heirs, legatees or beneficiaries of life insurance that are not regularly resident in Spain, or even if residents, if the deceased did not have their regular residence in Spain , the Tax Inheritance would be requested through “liability”. This means that the competent authority to settle the inheritance tax is the State and the applicable regulations of the state, unlike residents, in which case the competent authority is the Region or autonomy where the deceased had his regular residence and the applicable regulation such, if the latter has made use of its powers.
The fact that the regulation to be applied is of the state and not the region/or autonomy can harm the interests of non-residents, who may end up being taxed much more than their resident counterparts. This is because the inheritance tax, despite being a state tax, has been transferred to the regions and most of these have included exemptions and reductions that actually mitigate the fiscal impact of the tax.
However, we recommend that you contact a tax advisor specializing in the field as Abad & Asociados, as the European Commission brought on March 7, 2012 before the Court of Justice of the EU proceedings against Spain, considering that non-residents are being discriminated in the area of estate inheritance taxes.
Have in mind that the European Commission is likely to impose an adaptation of the regulation of inheritance taxation in the Spanish State, which would open the option to request a refund of overpaid tax to the competent authority provided that the claim had not prescribed, and that the amount paid in excess has not been deducted from the tax payable in the place of regular residence of those affected.
If you paid the inheritance tax to the state because you were non-resident, you may want to contact Abad & Asociados Abogados y Asesores Fiscales to keep you informed of developments that may occur in this area and exercise your potential right for a refund when possible.
I have thought of taking care myself of the procedures to settle the inheritance tax in Spain – it is complicated?
As any other tax regulation , many factors that may affect the result suggest that in order to obtain the maximum tax benefits, you consult before to a specialized firm as Abad & Asociados Lawyers and Tax Advisers, , as an important part of the procedure is to give a proper assessment of the estate and record exemptions, reductions and deductions applicable.
Is it possible that I have to pay a 30% of the inheritance tax in Spain?
It may happen. It will depend on the estate left by the deceased, of the pre-existing estate of the inheritor or legatee , as well as the family link with the deceased and his heirs or legatees. Furthermore, the fact that the deceased or the heir was not a resident in Spain can affect the amount payable in respect of Inheritance Tax.