The inheritance and gift tax system currently in force in Ibiza
By Armin Gutschick & Anja Sämann-Gutschick
Following the ruling of the European Court of 3 September 2014, Spanish lawmakers equated non-residents to residents with regard to inheritance, with the move being hailed as a great success. Since 1 January 2015, following these changes to the law on inheritance and gift tax, the special tax regimens observed by the different Spanish Autonomous Communities in Spain also became applicable to EU citizens with residency in another member state.
Since 2015 therefore, if one received a property in Ibiza as inheritance or as a gift, it was subject to the tax regimens of the Balearic Islands even if the testator (the deceased) and the inheritors resided in another EU member state. As a result, up until 2016, even non-resident EU citizens could benefit from the Balearic’s regulation on inheritance tax, only needing to pay 1% in the case of direct heirs (father and son). The first degree inheritors of a finca in Ibiza would only need to pay 1% inheritance tax, regardless of the value of the inheritance. Inheritors with residency in Switzerland, USA or other countries outside the European Union however, would be subject to the Spanish tax rate which is very high compared to that of the Balearics. All cases of inheritance and gifts of non-residents are handled by the competent authority in Madrid. It is therefore necessary for all the relevant paperwork (acceptance of inheritance and a tax payment receipt) to be sent there to be revised, even in cases where the Balearic tax regimens are to be applied.
This advantageous tax system, however, was abolished on 1 January 2016 and was replaced by an inheritance tax which is calculated based on the value of the inherited item. Up to a value of €700,000, the 1% tax rate is maintained. For an inheritance between €700,000 and €1 million, 8% is charged, for an amount over €1 million it’s 11%, from €2 million it’s 15% and from €3 million it’s 20%. On an inheritance of €1 million, after deducting the tax-exempt amount, the tax burden is €30,000.
The inheritance tax regulation must also be applied to properties in Ibiza that are given as gifts. Gifts between immediate family (father and son) carry a 7% tax in the Balearics. In Ibiza, however, there is a legal concept called pacto sucesorio (an agreement as to succession) which allows the gift tax to be only 1%, resulting in a significant saving of 6%. Nevertheless, for the Ibicencan agreement as to succession to be valid for non-residents, this legal measure must also be established in the country of origin of the parties. This is the case, for example, under German civil law meaning that German citizens can also benefit from the Ibicencan agreement as to succession. There is, however, also a disadvantage to gifts which must be taken into account. If there is a considerable difference between the purchase value of the donated item and its value at the time of the gift, the donor will have to declare the profits and pay tax on them. If, for example, a finca was purchased in 1999 for a declared price of €100.000 and it is given as a gift when it has a value of €500,000, a non-resident donor will have to pay 19% tax on the €400,000.
What was overlooked under the changes of 1 January 2015, was the fiscal situation of the inheritors prior to the law being enforced. The Balearic inheritance tax law is also applicable to cases before this date. Beneficiaries will, therefore, be able to claim back any overpaid amounts at the Madrid Tax Agency but will only have a period of four years to do so. For example, on 5 December 2013, having filled out a model 650 form, a non-resident inheritor paid €7,500 on an inheritance of the value of €70,000. Said inheritor will have up until 5 December 2017 (four years after having paid the tax) to be able to claim €6,800 at the Spanish Tax Agency (€7,500 minus the 1%, €700) plus interest. It is advisable to consult a tax adviser or an expert lawyer for help with handling this claim. •