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Inheritance tax: get the right advice 


Q: I am resident in England but I have property in both England and in Tenerife. I have heard that there is no double-taxation treaty between the UK and Spain in respect of Inheritance Tax and I am therefore worried that my children will have to pay two lots of Inheritance Tax on the Tenerife assets. What is the legal position?


A: The rules governing payment of Inheritance Tax in each country are not particularly clear and numerous ‘experts’ appear to be giving incorrect advice.

The starting point for any estate following death is that Inheritance tax is payable in the country of residence / domicile. For a UK domiciled individual, the situation is as follows. As a general rule of thumb, residency will be established in the country that you spend more than 6 months of the year in (in this instance, the U.K.).

On your death, as you are U.K. resident, Inheritance tax will firstly be payable in the UK on your worldwide assets. In addition, Spain will also charge Inheritance tax, but only on the Spanish based assets because you are not resident in Spain.

Now most countries in Europe have ‘double taxation treaties’ in place, which state that if you pay the same type of tax in another country, your home country tax office will give you a credit for any amount of tax you have paid overseas. This basically avoids being taxed twice on the same asset(s).

For most of the important taxes, the above double taxation exemption is covered by a 1974 treaty between the UK and Spain. This covers income tax, corporation tax and capital gains tax, but it does not include inheritance tax. The reason for this is that Spain actually charges inheritance tax to each beneficiary receiving a gift, whereas the UK directly taxes the estate of the deceased before distribution is made to the beneficiaries. Hence, because the parties paying the tax are different in the UK and in Spain, the tax offset is not possible under the treaty.

However, there is a solution to this problem. Section 159 of the Inheritance Taxes Act 1984 contains a provision called ‘Unilateral Relief’. This states that where ANY tax is imposed on property passing by inheritance, and that tax is similar in nature to the UK inheritance or lifetime gift tax, then the UK Taxman will allow a credit in the amount already paid to the Spanish taxman on assets located in Spain against the tax also owed to the UK Taxman on those Spanish assets.

The principle here is that the tax credit is given in respect of the actual assets being taxed, regardless of who actually has to pay the tax.

It must also be remembered that the tax credit brought over from Spain can never exceed the tax amount payable in the UK on the Spanish assets (i.e. you could never claim a rebate).

For only 50.00 euros we offer a consultation to assess your circumstances, discuss making a Spanish or English Will and to assess your inheritance tax needs. To arrange an appointment, contact Tenerife Solicitors today on 922 717845 (0871 218 0063 from the UK) or email us at info@tenerifesolicitors.com