A few years back I was made aware of the financial hardship that could occur when someone owning property in Spain dies and their dependants have to pay the resulting inheritance tax. An international firm of chartered accountants had demonstrated to me how the tax was assessed and gave me specific examples as to how much would be payable on differing levels of inheritance. The amounts payable were much higher than I had ever imagined. This led me to look into ways in which this potential liability could be reduced and ultimately I believed that I had found a possible solution.

I decided to discuss my idea with the taxation partner in the firm of chartered accountants and he agreed that my idea had justifiable merit and could assist in reducing inheritance tax bills for individuals owning property in Spain.

The next step was to get potential clients to use the scheme and I visited numerous local lawyers whom I was sure would praise the scheme and recommend it to all their clients. Nothing could have been further from the truth as I was told that very few of their clients paid inheritance tax and if they did the amounts payable were negligible.

When I told them I had very different advice from the accountants they told me "The accountants may tell you what the tax laws state but we can show you how these laws can be avoided."

Feeling deflated and somewhat sorry for myself I asked the question "HOW?"

The lawyer said "Don't declare the death!" There is a statute of limitation of four years for the collection of tax debt and if the beneficiary lives for these four years they can inherit without paying any inheritance tax. "If they die in Spain and you want to be safe, take the body into Gibraltar and declare the death there!"

After expressing a degree of shock at what had to be an illegal act I was told that if this was unpalatable then beneficiaries could always "Under-declare the true value of the property" or simply "Use the Valor Catastral."

On the death of anyone owning property in Spain it is the duty of the beneficiaries to complete an Inheritance Tax declaration within six months of the death and any property should be valued at "a fair market value." Non completion of such a declaration may be seen as an illegal act and would be punished accordingly.

Inheritance tax is a problem in Spain so take advice and plan accordingly.

Allan Graydon
Graydon & Associates

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