Inheritance Law in the Canary Islands Last modified

Inheritance Law in the Canary Islands Last modified: 28 th July 2019 This presentation has been updated and is valid for 2019. * *Advocate Abroad does not accept responsibility for losses of any type consequent upon reliance on the information contained in this presentation. Please consult a lawyer before acting. 2

Inheritance Law in the Canary Islands In 2001 the Spanish government devolved the power to set inheritance tax rates and deductions o the regional parliaments. 3

Inheritance Law in the Canary Islands Most regions enacted tax laws that applied generous deductions only to those beneficiaries who were resident in the region over the balance of the previous five years. 4

Inheritance Law in the Canary Islands On September 3 rd 2014, the European Court of Justice ruled that such laws were discriminatory and contrary to European Law. 5

Inheritance Law in the Canary Islands Accordingly, the Spanish government has enacted new legislation (Ley 26/2014) which makes any deductions that may be applied to residents also available to non-residents who are EU citizens. 6

Inheritance Law in the Canary Islands The main impact of the new legislation is as follows: 1) If the deceased was a non-resident, living in another European country then the beneficiary may apply those deductions and exemptions provided by the regional government in which the majority of the inherited assets are located. 7

Inheritance Law in the Canary Islands 2) If none of the assets to be inherited are located in Spain, then the resident beneficiaries should apply the legislation enacted by the regional government where they are normally resident. 8

Inheritance Law in the Canary Islands 3) If the deceased was resident in one of the Spanish regions and the beneficiaries were non-resident, and living in another European Union country, then they may apply those deductions and exemptions available to residents of the region in which the deceased was resident. 9

Inheritance Tax Law in the Canary Islands The regional level deductions available in Canary Islands were enacted by the parliament in Santa Cruz and in their current form are specified in Legislative Decree 1/2009. The most important changes to State laws can be summarised as follows: 10

Personal Exemptions Spanish Inheritance law first assigns beneficiaries to groups according to the degree of kinship with the deceased: Group I Children, including adopted children, under the age of 21 Group II All other descendants, spouses and parents Group III Close relatives such as brothers and sisters, grandparents, aunts and uncles Group IV More distant relatives 11

Personal Exemptions – Children Under 21 Personal deductions as amended by Ley 04/2012: Deductions Under 10 years old Deduction of 100% up to a maximum of € 138, 650 < 15 years old < 18 years old Deduction of 100% up to a maximum of € 92, 150 < 21 years old Deduction of 100% up to a maximum of € 40, 400 Deduction of 100% up to a maximum of € 57, 650 12

Personal Exemptions – Other Relatives The following are the personal deductions as amended by regional law in the Canary Islands: Group II Deduction Group III For those children over the age of 21 including adopted children, the maximum deduction shall be € 23, 125 and for spouses the maximum deduction shall be € 40, 400. Other descendants & parents: € 18, 500 Deduction of € 9, 300. Group IV No deductions available 13

Special Discounts for Groups I, II & III ● Any inheritance tax that falls due to be paid under the Succession Tax rules in the Canary Islands, as laid out here shall be discounted by 99, 9%. 14

If the beneficiary has a disability: ● An exemption of € 72, 000 additional to any personal exemption if disability > 33% and < 66% (in addition to the amount provided at State level: € 47, 858) 15

If the beneficiary has a disability: ● If the disability is > 66% then the additional discount increased to € 400, 000 (in addition to the amount provided at State level: € 150, 253) 16

If the beneficiary is elderly: ● An exemption of € 125, 000 to any beneficiary more than 75 years old ● This exemption is not compatible with the deduction for disablity 17

Tax deductions on income from Life Insurance: ● Where the beneficiary is a descendant, spouse or parent of the deceased, an exemption of 100% of all income up to € 23, 150 may be applied. 18

Inheritance of the Family Home ● Deduction of 99% of value of the property up to a limit of 200, 000€ for children under the age of ● Property may not be sold for 5 years after inheritance 19

Inheritance of the Family Home ● The same deduction may be applied to those blood relatives over the age of 65 who have lived in the family home for two years prior to the date of death 20

Deductions in transfer of Family Business ● Tax deduction of 99% of the value of the business ● Must be children or spouse to inherit ● Alternatively a relative 'to third degree of sanguinity' may benefit from exemption of 95% 21

Deductions in transfer of Family Business ● The business may not be sold within a period 5 years ● The maximum value of the business may be € 3, 000 22

Other Deductions: As a general rule the following deductions may be made on any estate: ● Funeral Expenses ● Final Medical Expenses of the Deceased 23

Other Deductions Cntd: ● Debts held be the deceased that are evidenced by public documents e. g. a mortgage 24

Special Rules ● Where the same assets are subject to two or more processes of inheritance by Groups I & II beneficiaries within a period of 10 years, in the second any subsequent inheritance processes, the taxable amount shall be reduced by any amount of tax paid in previous inheritance processes. A scale is applied as follows: 25

Special Rules Reduction % When the inheritance takes place: 50 In the 12 months following the previous inheritance 30 Between 1 year and 5 years following the previous inheritance 10 More than 5 years since the previous inheritance 26

Tax Rates in the Canary Islands Taxable Sum Tax Payable On This Sum Any Remainder Up To Applicable Rate on Remainder (%) 0 0 7993, 46 7, 65 7993, 46 611, 5 7987, 45 8, 5 15980, 91 1290, 43 7987, 45 9, 35 23968, 36 2037, 26 7987, 45 10, 2 31955, 81 2851, 98 7987, 45 11, 05 39943, 26 3734, 59 7987, 46 11, 9 47930, 72 4685, 1 7987, 45 12, 75 55918, 17 5703, 5 7987, 45 13, 6 27

Tax Rates in the Canary Islands Cntd Taxable Sum Tax Payable On This Sum Any Remainder Up To Applicable Rate on Remainder (%) 63905, 62 6789, 79 7987, 45 14, 45 71893, 07 7943, 98 7987, 45 15, 3 79880, 52 9166, 06 39877, 15 16, 15 119757, 67 15606, 22 39877, 16 18, 7 159634, 83 23063, 25 79754, 3 21, 25 239389, 13 40011, 04 159388, 41 25, 5 398777, 54 80655, 08 398777, 54 29, 75 797555, 08 199291, 4 And Above 34 28

Existing Wealth Once the relevant tax rate has been applied the result is multiplied by a coefficient determined by the existing wealth of the beneficiary as well as the group to which they belong: Existing Wealth Groups (In Euros) I & II IV 0 to 390, 657 1 1. 5882 2 390, 657 to 1, 965, 309 1. 05 1. 6676 2. 1 1, 965, 309 to 3, 936, 629 1. 1 1. 7471 2. 2 More than 3, 936, 629 1. 2 1. 9059 2. 4 29

Existing Wealth The Groups referred to consist of the following beneficiaries: Group I Children, including adopted children, under the age of 21 Group II All other descendants, spouses and parents Group III Close relatives such as brothers and sisters, grandparents, aunts and uncles Group IV More distant relatives 30

Each year in Spain thousands of expats pay more tax on inheritance than they should – simply because they fail to follow some simple rules. 31

Expert Probate Services in the Canary Islands To find out where to get expert advice, in English, about how to reduce your liability for inheritance tax, go to: Probate Lawyers in the Canary Islands 32