Unilateral relief application

We recently acted for a high value estate of a UK domiciled deceased who left substantial assets in England and Spain.

As the deceased was UK-domiciled for inheritance tax, the worldwide estate was subject to UK inheritance tax at a rate of 40% over and above the standard nil rate band.  This resulted in the value of the Spanish assets being subject to UK inheritance tax.

The Spanish assets were also subject to Spanish tax.  In Spain, the tax system works differently to the UK and, as a very brief summary, the individuals benefitting from the estate each become exposed to the Spanish equivalent of inheritance tax (rather than the estate as in the UK).  The rate of tax in Spain depends upon the amount of the bequest and the relationship of the recipient to the deceased.

In this case, the deceased’s Spanish estate was split amongst various beneficiaries of different relations.

As there is no double tax treaty between England and Spain, the executors of the English estate had to rely on the application of unilateral relief to avoid the Spanish assets becoming burden to both Spanish and English tax i.e being double taxed.

We assisted the executors in putting together the application for unilateral relief alongside the standard IHT reporting and calculating the amount of relief due which involved a number of exchange rates, payment dates and amounts to get the overall net relief.  There was still a balancing payment of UK inheritance tax payable however, the overall amount was substantially reduced as a result of our unilateral relief application.

Unilateral relief is only available if the foreign jurisdiction has a tax equivalent to the UK inheritance tax.  In addition to the tax paid by the beneficiaries personally in Spain, additional expenses to the local town hall became payable on the Spanish properties and we were able to secure this within one of the allowances within the Inheritance Tax Act 1984 to further limit the estates exposure to double taxation.