Inheriting a property in Spain can be challenging as the probate process in Spain is very different to that in England and Wales.
There are a few things that you will need to consider:
Time
Time is of the essence, there are strict deadlines to pay inheritance tax and ‘plusvalia tax’, a sum traditionally charged by the local townhall on the increase in the value of the property when it is sold or inherited.
You only have 6 months to file and pay these taxes from the date of death. However, it is possible to apply for an extension up to the fifth month of the anniversary of the death. Late payment penalties will apply if the deadline is missed.
Inheritance tax on a property in Spain and local plusvalia tax
You will need to pay these taxes if you are inheriting a property in Spain. The rates and allowances vary across the 17 regions. Your relationship to the deceased will also determine the allowances you will have in terms of Inheritance tax.
If you are a descendant or spouse, you will benefit from the highest allowances in that region. If you are a cousin or a friend of the deceased, you may pay a higher rate. You may also be liable for inheritance tax in the UK so consulting an expert in both Spanish and English law is imperative to avoid double taxation.
Transferring the property in your name
All beneficiaries will have to execute a deed of inheritance which will itemise the assets, their values, liabilities of the estate in Spain and the share each beneficiary is receiving. This document will have to be signed before a notary public in Spain. If you cannot travel to Spain, you will be able to grant a power of attorney in favour of your lawyer or legal representative for them to personally attend the Notary´s office on your behalf.
Once the Deed is signed, it will be sent to the tax authorities in Spain for the payment of the taxes. As soon as the taxes are paid, the document will be submitted to the land registry for registration.
Valuation
If you inherit real estate property, the Spanish tax authority follow different requirements than HMRC. Most properties have been allocated what is called “valor de referencia” or reference value. This valuation method is based on statistics and not necessarily on market value. In many cases, the reference value is lower than the market value and whilst it can be a saving on Inheritance tax, this may increase the Capital Gains Tax liability when selling. Please note that the Spanish tax authorities may not accept a higher value than the reference value if it is not supported by an official valuation. It is important to mention that the Spanish tax authorities will not accept an estate agent valuation and that the results of valuations carried out by official surveyor´s companies are uncertain. HMRC tend to accept the value declared in the Spanish inheritance tax return. The reference value has been if anything controversial since its inception in 2022.
Selling? Keeping the property?
Whether you wish to sell or keep the property, the first step would be for the inheritance deed to be registered at the land registry so you can then benefit from the protection granted by this Public registry against third parties.
Generally speaking, you are not allowed to sell the property if you are not the registered owner. However, in certain exceptional circumstances you may be permitted to sell the property and at the same time inherit it. This can prove to be problematic though, as contracts have a series of hefty penalties in should the vendor not be able to complete on time (there are no provisions for extensions of the contract). You can include provisions for the extension of the contracts
Non-Residents Income Tax
By the mere fact of owning property in Spain, you will have to file a return for the non-resident income tax even if you are not receiving any income from the property.
If you are not renting the property, you will have to file the return and pay it once a year. The deadline for payment is the 31st December. However, if you rent the property, then you will have to file and pay the returns quarterly. At present, this tax is charged at a rate of 24% for NON EU/EEA residents on the income received.
Local Authority
If you own a property in Spain, your local authority will issue an IBI bill which is similar to local council tax rates. This is payable by the owner of the property. It is important that you are up to date with the payment of this tax which also includes rubbish collection. If you fail to pay this tax, the local authority may issue proceedings.
Management fees
If you own an apartment or your property is in a condominium, you are likely to pay management fees. It would be sensible for you to check with the administrators the fees payable. If there are swimming pools or security service, these fees are likely to be far higher.
Suppliers
Should you wish to keep the property you’ve inherited, it would be advisable to open a bank account in Spain in order to set up direct debits for all the liabilities i.e. IBI bill, rubbish collection, management fees and the utility bills. Unfortunately, in most cases, it is not possible for Spanish suppliers/companies to set up direct debits from non-Spanish accounts.
It’s important to get legal counsel as soon as you receive notification of your inheritance, at Buckles we have specialists that can help with inheriting a house in Spain as well as inheriting property in other countries such as Italy, France and across the UK. Get in touch today to discuss your inheritance concerns or if you need help with contesting a will.
