Inheritance tax reform in Catalunya

For years, Catalonian politicians have promised to significantly reduce the horrifically high rate of inheritance tax in this “comunidad autonoma” (autonomous community).  In the final months of 2009, the politicians finally reached an agreement and we will hopefully see the tax gradually decrease in Catalunya over the next few years.  However, assuming that we receive an inheritance before 1 July 2011, it is now particularly important to draw up a tax plan for the future transfer of ownership in order to make considerable savings in inheritance tax. 

Inheritance also has tax implications in Spain.  An heir must submit the required tax declaration in the comunidad autónoma in which the deceased resided.  However, where must the tax declaration be submitted if the deceased had no registered residence in Spain (or municipal registration or official domicile)?  If the inheritance includes real estate, the tax declaration must be submitted to the relevant authorities in the  comunidad autónoma in which the property is situated.  If the deceased owned more than one property in several comunidades autónomas (e.g. a house in Vinaroz in the Comunidad Autonoma Valencia and an apartment in Alcanar, a few kilometers away, in the Comunidad Autonoma Cataluña), the matter can become a lot more complicated!  In Catalunya, the inheritance tax allowance for close family has until now been extremely low.  For children over the age of 21 and spouses, the tax allowance was only €18,000.  The tax allowance is deducted from the net value of the inheritance: the net value of the inheritance is the value of the inventory (which can be determined by the tax authorities through provisions made in advance to be applied objectively) minus the substantiated funeral costs  and value of legacies and statutory shares which the heir must possibly pay to the beneficiaries.

Now, from 1 July 2011, a tax allowance of €500,000 will be available if the heir is the surviving spouse.  If the heir is an adult child of the deceased, the tax allowance will also be increased from 1 July 2011 to €275,000.  For other family members and inheritances occuring before 1 July 2011, these allowances will be considerably lower (note that until 2011, inheriting in Catalunya will remain very expensive!).  Despite this, the tax allowances will gradually increase in two stages: between 01.01.2010 and 30.06.2010, 25% of the tax allowances provided can be enjoyed, while between 01.07.2010 and 01.07.2011, up to 62.5% of the tax allowances provided will come into effect.  From 1 July 2011, the fiscal provision will become final. 

The tax rates are to be reduced from this year (2010).  The value of the settlement discussed above will be multiplied by between 7% for inheritances worth up to €50,000 and 32% for those worth up to €800,000.  The coefficient to be added to the previous sum, which was previously dependent on pre-existing assets, no longer applies but does however remain in place for distant relatives, irrespective of pre-existing assets.