Help is at hand, either from your tax adviser or from the tax office in the form of an innovative computer programme called the Personal Income Tax Return Help Progamme ( Programa de Ayuda a la Declaración del Impuesto sobre la Renta de las Personas Fisicas/PADRE), which is the result of a major effort on the part of the tax authorities to help you declare your tax correctly.
To use the PADRE system, you can go to the tax office, where staff will help you to enter your information into the computer programme, which runs on the Windows operating system. Because the tax office is keen to promote the system, if you use it for your declaration, you will be first to receive any refunds that are owing to you. You must phone 901 223 344 and make an appointment to see a specific member of staff. In areas where there are large numbers of foreign residents, there may be a member of staff who speaks English.
When you go to the tax office for your appointment, you should take along your bank statements showing interest received and your average balance; any papers relating to stocks, shares, bonds and any property that you own in Spain or abroad; any declarations and receipts for taxes paid in another country; and, of course, those vital documents, your passport, residence permit and NIE certificate.
You may also find that your bank has the PADRE programme and can enter your information via their computer, in which case a member of their staff should help you to make your declaration. However, if your tax position is complicated or if you prefer expert and independent help, it’s best to consult a tax adviser. Many of them have access to the PADRE programme and charge around €35 for a simple tax return and around €60 for a more complicated one.
Spanish Succession Tax(SST)
• SST is payable on inheritance between spouses on the death of the first spouse (unlike in the UK, in relation to Inheritance Tax (IHT)).
• SST is charged on each individual beneficiary (unlike in the UK, where IHT is levied on the Estate).
• Individual SST tax-free allowances are not very generous, typically less that 16,000€ per inheritor.
• Unlike UK IHT, which is usually extremely straightforward to calculate, the amount of SST ultimately payable is influenced by a number of criteria. These include: relationship between deceased and beneficiary; value of inheritance; age of beneficiary; pre-existing wealth of beneficiary; location of assets; class of assets; existence of mortgages; residential status of deceased and beneficiary; and how quickly the SST liability is settled.
• The percentage rate of SST (calculated by reference to the principles above) can range from just under 8% to well over 80% (but the latter is only in the most extreme of cases, specifically in the case of non-related, already wealthy beneficiaries of very large estates). But still – losing 80% of your inheritance in tax even if you’re wealthy is not pleasant!
• To avoid interest and penalties, SST must be settled in full, prior to the expiry of the period of 6 months from the date of death.
• Generally, it is not possible to use inherited assets (or inherited property as security) in order to pay SST. In other words, arrangements must be made for SST to be paid before a beneficiary has access to the inherited assets – which can make life very difficult if you do not have the funds to pay, and actually need the inheritance to enable you to pay!
• There is a Unilateral Relief Treaty in place between the UK and Spain. This means that you should not have to pay tax twice (i.e. in the UK and in Spain) on the same inherited asset. Thus the total (combined) tax payable is, in effect, equal to the higher of the two. However unfortunately, this relief is only available as a credit against ‘equivalent’ taxes. A spouse-to-spouse inheritance, for example, is exempt from UK IHT. Therefore, relief is not available in the UK for any SST paid by a spouse by reason of inheriting Spanish assets from their deceased spouse. There is also an argument which undermines the general effect of the Unilateral Relief Treaty, as IHT is chargeable on the Estate, whereas SST is levied on the individual beneficiary - so are they really equivalent taxes in any event? A clear ruling on the point is awaited.