Tuesday 26 September 2017

Your questions: Will I have to pay Spanish or Irish inheritance tax on the holiday home my father left me?

'In general terms, the tax scale on inheritance tax is progressive, so that the larger the estate, the higher the percentage tax'
'In general terms, the tax scale on inheritance tax is progressive, so that the larger the estate, the higher the percentage tax'

Tom McGrath

Q. My father passed away recently and left me a Spanish holiday home in his will. It's an expensive property - worth about €500,000. Will I have to pay Spanish or Irish inheritance tax on this property and if so, how high could those taxes be? I live in Ireland - and my late father did too - Jean, Newbridge, Co Kildare

A. You would pay inheritance tax at the appropriate rate in Spain, and then pay tax in Ireland. Inheritance tax in Ireland would be calculated on the entire global inheritance - with credit given for tax already paid in Spain.

In Spain, inheritance and gift tax (known as succession tax) is governed by both the State and Spain's 17 autonomous regional governments.

Many of these regional governments had amended the State rules to make them more beneficial to the taxpayer - but only for residents. In order to be classed as a resident, you must have lived in Spain for five years. Non-residents had to pay the national rate of tax which was far less favourable.

There are significant differences on the tax that applies, depending on where exactly the property of the deceased is situated.

In general terms, the tax scale on inheritance tax is progressive, so that the larger the estate, the higher the percentage tax. In principle, tax of 25.5pc would normally be paid on an estate worth €500,000. The applicable tax rate must then be multiplied by a multiplier (depending on which group a beneficiary is classified in) as well as the beneficiary's pre-existing net wealth (in Spain). This multiplier may vary from 1 to 2.4 .

There are allowances for those inheriting properties in Spain and the threshold depends upon the relationship between the inheritor and the person bequeathing the property.

The deadline to file and pay Spanish inheritance tax (IHT) is six months from the date of death of the testator. Payment after this will attract fines, penalties and surcharges (which can become significant over time).

Finally, the European Court of Justice ruled in 2014 that the Spanish authorities cannot charge different rates of inheritance tax for residents and non-residents. So there are a significant amount of claims currently before the authorities for the return of overpayments of tax. The regional governments are applying the ECJ ruling (not very happily). Consequently, there are no different rates of inheritance tax if you are resident or not.

Q. I holiday in Spain for one or two months a year and am considering buying a holiday home over there. I have no plans to live in Spain - but plan to continue holidaying there for a couple of months a year. Do I need to have a resident visa to buy a property there and if so, do I qualify for such a visa - and how easy is it to get one?

Tommy, Dun Laoghaire, Co Dublin

A. In order to buy a property in Spain, you will need to obtain an 'Número de Identidad de Extranjero' (NIE). This is an official document issued to non-residents and there is a personalised number attached to it. You will need this number in order to complete the purchase. The NIE is your tax number in Spain and you will also need it to pay utilities and taxes and to open bank accounts.

There are three ways to apply for a Spanish NIE number. First: You may apply in person in Spain by visiting the local police station, filling out an application form and paying a fee of around €10. The NIE is normally issued in a matter of days, depending on the demand at the time.

Second: An NIE can also be applied for at the Spanish embassy. You will have to visit the embassy in person with your passport, complete the required forms, and pay the application fee. It can take up to a number of months for the document to be obtained if you apply in this way however.

Third: If you have someone you can trust living in Spain, they can apply for the NIE on your behalf - without you having to travel to Spain. You must provide that individual with a notarised power of attorney and notarised copy of your passport should you pursue this route.

In all cases, you must provide a written statement explaining why you need the NIE.

Q. I have just returned from holiday in Spain where I stayed in a Spanish villa with a pool. I was badly injured when I slipped while by the pool one day. I required emergency hospital care and I had to give my credit card to the hospital when I was admitted. The medical bill was very high. Can I sue the owner of the villa to recoup some of those costs? If so, how would I go about it?

Diarmuid, Donnybrook, Dublin 4

A. The simple answer to this question is yes. As a person injured due to an accident in Spain, you have a constitutional right of access to the courts. You have an absolute right to sue the owner of the villa for damages - as long as you comply with the relevant time limits and meet the rules of the territorial jurisdiction in question. A perhaps more pertinent question is your chances of succeeding in your action and enforcing a court judgment favourable to you. The prospects of establishing the negligence or breach of contract by the villa owner must be studied carefully. In this regard, one should know that Spanish courts are less "plaintiff-friendly" than some other countries. So the courts will demand a lot of evidence from you proving that the slip by the pool was due to the negligence or breach of duty of the defendant villa owner.

When it comes to enforcing any successful judgment, given that there should be an identifiable asset to enforce against (that is, the villa), enforcement should be more straightforward as the property could ultimately be sold to meet the judgment. Enforcement in Spain is more efficient than in Ireland.

One word of caution. Generally speaking, general damages for accidents such as yours are assessed in accordance with the Spanish book of quantum for road traffic accidents. So special damages (such as hospital expenses) are not normally awarded because hospital treatment is generally provided under the Spanish social security system. This would make recovery of hospital expenses more difficult (but not impossible). Obviously if you had any travel insurance (especially if the booking for the apartment was paid for using certain credit cards), you could consider making a claim under your travel insurance policy.

To recoup the costs/seek damages for the injury, a letter should be sent to the villa owner claiming compensation and asking for details of their insurer (if any). If no reply is received, a power of attorney will have to be granted to a court agent ('procurador') and lawyer ('abogado') to bring the corresponding claim in the criminal or civil courts within the same territorial circumscription as the location of the accident.

Insurance is a big issue. Regulation differs in this regard from one autonomous community to another. In the Basque country, an owner of a tourist property must have third party insurance - in Cataluña, this is not required. If there is a policy of third party insurance, you have a right of direct action against the insurer. This, due to the provisions of EU law, means that you could sue the insurer of the property in Ireland - and so avoid the inconvenience of litigating in Spain.

Email your questions to lmcbride@independent.ie or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

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