The Lawbird Tribune

Some of you have probably recently read in the press that Spanish Inheritance Tax has been abolished, and have received the news with excitement! Well, I don’t believe that anyone is in a hurry to pass away to benefit from this supposed tax exemption, but it would indeed mean a relief for all of those concerned about the Inheritance Tax burden for our heirs when the time comes!

As our colleague Fernando Del Canto rightly points out in his excellent blog Tax Precision , the news is incorrect. Apparently, Spain’s Government has published in the English version of their site a press release in which they mistakenly claim that the abolishment of Inheritance Tax is to be approved.

The text, lost in translation, is as follows:

The Government approves the abolition of Inheritance Tax and 24 reforms aimed at economic recovery

Thursday, 14 August 2008

The president of the Government appeared after today’s extraordinary Cabinet Meeting to explain the economic reform programme that is focussed on six strategic sectors: finance for small and medium sized enterprises, housing, transport, energy, climatic change, telecommunications and the information society, and services. These reforms will take place during 2008 and 2009 with the aim of helping families and businesses, and preparing for economic recovery.
[...]
Adopted measures

The head of the Government announced that the Bill for abolishing inheritance tax, to come into effect from 1 January 2008, has been referred to Parliament. This represents a fiscal improvement of 1,800 million euros for approximately one million taxpayers.
[...]

We would like to confirm that, unfortunately, this is just an error due to a poor technical translation into English. What the Government meant to inform was that Property Wealth Tax, as already reported at large by the media, was to be abolished as from the 1st of January 2008.

Thirteen local councils in Málaga province will revise and update the cadastral values (valor catastral) of properties within their limits, translating into increases which range from 80% to 300%. It is expected that the increase for residential properties will be no more than an average of 150%.

The increase in cadastral value is quite significant, as this figure is a benchmark which is used in calculating various taxes in Spain, such as IBI Tax, IIVT (or Plusvalía Municipal Tax), Wealth and Income Tax and the dreaded Inheritance Tax.  The cadastral value, which is generally well below the true market value of real estate, is regularly updated every decade or so, as not to significantly detach the taxable values from those of the market. The single most important factor that raises or lowers the cadastral value is the appreciation or depreciation in value of the land.

In the Málaga province these updates were carried in general in the 80s and mid 90s. The municipalities of Alfarnate, Arenas, Atajate, Benamargosa, Benaoján, Cútar, El Burgo, Cuevas de San Marcos, Gaucín, Jubrique, Málaga (city) Totalán and Abdalajís Valley will all be updating the cadastral value of real estate in their territory.  In some of these towns the cadastral value hasn’t been updated since 1989 such as in El Burgo or Gaucín. IBI tax may well even triple in these municipalities as from next year.

Important cities in Málaga province such as Estepona or Vélez Málaga already updated their cadastral values last year. However many other towns will also have to update them soon, such as Marbella (unrevised since 1988), Alhaurín de la Torre (1996), Benahavís (1996), Campillos (1996), Cártama (2000), Manilva (1997), Rincón de la Victoria (1999), Ronda (1998) or Torrox (2000).

Most owners have IBI tax set as a standing order against their Spanish bank accounts. Make sure that you have enough funds in your bank account before this tax is due (normally between June and September). Regarding Property Income tax (Property Wealth Tax is due to disappear next year), your solicitor will let you know how much this figure is.