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Spanish Inheritance Tax - FAQ's : Part 7

By Mark Roach - Fri 27th Nov 2009

18.) When to pay Plusvalia Tax and whos responsible for paying? When is it paid?

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Payment of the Plusvalia Tax needs to be addressed in every single Spanish house purchase transaction and is commonly overlooked or misunderstood. The amount payable can vary significantly and can run into thousands of euros, particularly if the tax has not been paid, or if a property has not changed hands, for a number of years. The local Town Hall of each municipality calculates the tax payable using a formula which takes into account different variables such as the catastral value (rateable value) of the property and the number of years since the last conveyance or transfer of the property. The Plusvalia Tax should not be confused with Capital Gains Tax.

In order to calculate the Plusvalia Tax payable in advance of completion, you need to make enquiries at the local Town Hall where the property is located. They will usually request the following:

A. Escritura showing the date of the previous purchase.

B. The most recent IBI receipt for that property.

C. The proposed completion date upon which the new Escritura will be signed.

The Town Hall will then be able to tell you the Tax accrued if the property is to be sold on that date.

Who pays?

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The Plusvalia Tax is usually paid by the vendor. This makes sense since the sum payable will be higher in situations where the vendor has owned the property for a long time. Under normal circumstances, the purchaser should not be penalised for this. However there are occasions where a purchaser signs a private contract, in advance of signing the Escritura, which states that the purchaser will pay the Plusvalia Tax. Unfortunately, there have been examples where an unscrupulous vendor has taken advantage of a purchaser by returning to their home Country without paying the Tax.

If, at the completion, provision has not been made to pay the Plusvalia Tax, then it will become the responsibility of the purchaser to pay this, to prevent the unpaid tax from becoming a debt registered against the property.

19.) Please explain a Usufruct.

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A usufruct is a formal agreement and gives permission by the owner of a property to other person(s) to live in that property for a specified period of time. It is often used by families in Spain to reduce the effects of gift or inheritance tax between generations.

Beneficiaries

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The beneficiaries of a usufruct have the right to live in the property without becoming the owner of the property, but cannot sell, rent out, damage or undermine the value of a property other than through fair wear and tear. They are expected to carry out normal repairs and maintenance and look after the property as if it were their own. They are also responsible for the payment of annual taxes and other fees, and property insurance (as a joint responsibility with the property owners).

Property Owners

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The property owners cannot use the property while a usufruct is active, but are responsible for all more extensive repairs and maintenance. In addition, the owners are responsible for paying any mortgage on the property and have a joint responsibility with the owners of the usufruct to pay property insurance. Its worth noting that if the property is repossessed, or becomes subject to an embargo, the property owners are obliged to compensate the owners of the usufruct.

Disadvantages

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Be prepared for disagreements regarding rights and responsibilities between the property owner and the owner of the usufruct. In extreme circumstance this could lead to serious family disputes. These rights and responsibilities can, however, be regulated by a written agreement between the property and usufruct owners. If the usufruct is still active when the property owner dies (ie the period granted has not yet expired), the beneficiaries of that Will must honour the remaining period of the usufruct. In this circumstance the new owners of the property are prevented from living in the property by the ongoing usufruct.

Ending a Usufruct

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A usufruct ends when the last beneficiary dies, or the period granted expires, or the property is destroyed or damaged beyond repair.

Is This A Solution?

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No. Whoever is the rightful owner of the property will still leave inheritance tax to be paid by their beneficiaries when he or she dies. In addition the beneficiaries may be prevented from living in the property they have inherited by the fact that the usufruct is still active. This could lead to further disputes particularly if the new property owners and existing usufruct owner do not see eye to eye.

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