| Inheritance Tax in itself is something that we all want | | | | then the equitable value of what is being inherited and |
| to avoid for our beneficiaries and there are some very | | | | therefore liable for tax is reduced to 50.000 euros. |
| weird and wonderful ways to do that, both | | | | Now lets say, we add the 2.2 children to the purchase |
| hypothetically or with actual structures that I have | | | | structure! OK, just the two kids then, therefore we |
| seen. Most of us fall outside these structures simply | | | | have 4 owners each with an equal 25% share in the |
| because the cost of setting these up is prohibitive and | | | | property. In this case, if as before there is a 400.000 |
| for most of us, would cost more than the tax they are | | | | euro mortgage and the prime beneficiary is the |
| set up to try and avoid. | | | | spouse, then the inheritance tax liability is now reduced |
| Nevertheless, there are some simple things to bear in | | | | to 25.000 euros. |
| mind when buying real estate in Majorca and how you | | | | Note: Please note the above figures give the |
| both structure and finance the purchase that will | | | | Inheritance Tax Liability NOT the amount of Tax to be |
| ensure that your beneficiaries pay as little tax as | | | | paid! For the mortgage to be considered against the |
| possible. | | | | property, it must be a Spanish Mortgage listed in the |
| Spanish Inheritance Tax is applied to the equitable | | | | Property Registrar with the Property in question. |
| value of the asset that is being inherited and to the | | | | So, to minimize the Inheritance Tax to be paid by your |
| proportional amount of that asset that is being inherited. | | | | beneficiaries, put them on the title deed, mortgage and |
| Although there are many values that can be | | | | remortgage the property in Spain (remember if your |
| considered, for real estate, the real market value of | | | | property price is significantly revalued, so is the |
| the property is the one that is used (as opposed to | | | | inheritance tax liability) to the highest amount possible. |
| municipal land values for example). | | | | Even if you don't need the extra capital, take it and |
| Therefore, if a husband and wife own a property | | | | use the capital released by the mortgage for other |
| jointly, unless otherwise specified, they each own equal | | | | investments, there is an additional benefit by reducing |
| share, therefore 50%, of the property. If either should | | | | your annual wealth tax liability: Could Financing save |
| decease, and name the spouse as the benefactor, | | | | you Money |
| then the proportional amount of the property that is | | | | One final piece of advice. As a non-resident owning |
| being inherited is 50%. | | | | property in Spain, it is imperative that all title deed |
| This means that you only pay tax on HALF of the | | | | holders have a Spanish Will / Testament. The reason |
| taxable value of the property. So, for a 500.000 euro | | | | for this is fairly simple, it ensures smooth and |
| property, the beneficiary would be liable for inheritance | | | | inexpensive probate of the Spanish assets that it |
| tax on 250.000 euros. | | | | covers (and it can be written to only covers the |
| Now, consider the case where there is a mortgage | | | | Spanish assets). Although foreign wills are accepted |
| against the property. This means that the equitable | | | | and can be executed in Spain, the associated process |
| value of what is being inherited is the market value | | | | of translating, notarizing and legalising is a nightmare, to |
| less the mortgage. Consider the above example of a | | | | say nothing of the expense. |
| 500.000 euro property with a 400.000 euro mortgage, | | | | |