Double Taxation Agreement UK Spain Inheritance Tax: An Overview

Inheritance tax can be a complex issue, especially when it comes to cross-border estates. The UK and Spain have a double taxation agreement (DTA) in place to avoid double taxation on inheritance tax. This article aims to provide an overview of the DTA between the UK and Spain and how it affects inheritance tax.

What is a Double Taxation Agreement?

A Double Taxation Agreement is a treaty between two countries that aims to prevent double taxation of income or capital gains for individuals and businesses. This agreement also deals with other tax issues such as Inheritance Tax. The UK has signed DTAs with over 130 countries, including Spain.

Inheritance Tax in Spain

Spain has its own inheritance tax laws that apply to residents and non-residents alike. Inheritance tax is levied on any asset inherited from a deceased person, including property and investments. Unlike the UK, Spain has a different tax rate for each beneficiary, which can be up to 34% for non-residents.

Inheritance Tax in the UK

In the UK, inheritance tax is levied on estates valued over £325,000 (2021/22 tax year). This threshold increases to £500,000 if the estate includes a main residence, and the exemption can be transferred to a surviving spouse or civil partner.

The DTA Between the UK and Spain

The DTA between the UK and Spain was signed in 2013 and came into force on 12 June 2014. The agreement aims to prevent double taxation of income and capital gains, as well as inheritance tax. It applies to residents of both countries, including individuals, partnerships, and companies.

The DTA provides that if the deceased person was domiciled in Spain, Spain has the primary right to tax the inheritance. However, the UK will also tax the inheritance if the beneficiary is a UK resident. If the deceased person was domiciled in the UK, the UK has the primary right to tax the inheritance, but Spain will also tax the inheritance if the beneficiary is a Spanish resident.

The DTA also includes provisions to avoid double taxation by allowing residents of one country to offset the tax paid in the other country against their liability in their home country.

Conclusion

The DTA between the UK and Spain plays an important role in avoiding double taxation of inheritance tax. It is essential to seek professional advice to ensure that your estate is structured in a tax-efficient manner. It is also recommended to check the latest updates on the DTA, as it can change over time.