Editor’s note: This article was first published in April 2014. It cites 2014 data, including the rise in renounced inheritances reported by El País, the regional tax rates and the German allowances. Spanish regional inheritance tax rules have changed considerably since then.
The trouble with being poor is that even strokes of luck can turn against you. I was reading in El País this weekend that the number of people renouncing inheritances has risen considerably in Spain. And no wonder: if you are the “winner” of an inheritance in property, what you receive is less an inheritance than a financial burden that you will probably have to turn down because of the abusive inheritance and gift tax we have in Spain.
This rise in renounced inheritances has reopened the debate about state abuse that neither distinguishes between degrees of kinship among heirs nor relies on tax brackets with a minimum exemption to protect middle-class and poor people, instead of forcing them to turn down a property they probably need. Until now, if a parent dies and leaves a home as an inheritance, depending on where in Spain it happens, for a home worth 180,000 euros the heir could have to pay up to 42,000 euros in inheritance tax. And what if you don’t have that 42,000 euros?
If you don’t have that money, you have only two options: 1. turn down the inheritance, or 2. take out a bank loan and put up the home as collateral. Most middle-class and poor people usually choose the second option, since obviously not everyone can afford a payment like that. Of course, in the current situation many unemployed people would struggle to get a loan, or would get one on fairly harsh terms, so they might well end up unable to repay it and lose the home anyway. Outside Spain… how does inheritance tax work?
I don’t know how it works in most countries, but since we like to compare ourselves with Germany, we do know that in Germany this tax has different brackets and exemptions; for example, the family home is free of tax.
Then there is a series of brackets: a spouse is exempt up to 500,000 euros. In other words, if the inheritance does not exceed 500,000 euros, that person can inherit without paying any tax at all.
Likewise, children are exempt up to 400,000 euros, and grandchildren inheriting from a grandparent are tax-free up to 200,000 euros.
The odd thing in Spain is that we don’t distinguish between degrees of kinship and tax brackets (yet), but we do distinguish between regions, according to El País. Andalusia, Asturias and Murcia would be the regions with the heaviest burden, at 36.5%, while in Navarre the rate would be 0.8%.
How constitutional is inheritance tax?
We won’t get into the debate about something I personally believe is yet another form of abusive tax collection, one that makes things very hard for those who have least, forcing them to pay again for something that has already been paid for and on which a series of taxes has been paid over the years.
Much of the world’s wealth is obtained through inheritance: an heir from a rich family can afford to pay the tax and inherit the deceased’s fortune, while an heir from a family without means is forced to turn down the inheritance or go into debt to receive it.
In my personal opinion, there should be exemptions for close relatives or for the main home, as I’m sure there are in many other countries, including Germany.
Things like this show once again how hard it is for a poor person to stop being poor.
Further reading
- Why are the poor getting poorer and the rich getting richer?
- Financial education for our children: the sooner the better
- The difference between starting to save at 25 and at 35
Featured image: Photo by Szilas in München, Public domain, via Wikimedia Commons.
