Form 720 Spain, inheritances abroad

We often look upon inheritances as a gift, but they come with important tax implications that lead to many people being forced to give up their inheritances. According to figures provided by the General Council of Notaries, as of 2007, there has been a 110% increase in people having to forego their inheritances. This is due to the high taxes to be paid when inheriting. This article explains Form 720 Spain and the implications it has on inheritances abroad.

What tax implications are behind an inheritance?

If you receive an inheritance, you must deal with several taxes:

• Inheritance and donation tax. This tax has been transferred to the Autonomous Communities, therefore the tax to be paid will depend on the last place of residence of the deceased.
• Municipal capital gains tax (Tax on the Increased Value of Land). You will have to pay this if you inherit urban properties or lands.
• Personal Income Tax (IRPF). In principle, if you inherit an apartment from your father you won’t pay IRPF because it is considered that you have already paid taxes through Inheritance Tax, but if you have received income from renting this apartment you must declare this capital gains in the IRPF return.
• Form 720 Spain. In addition to the above, if you receive assets or rights abroad you must submit Form 720, which is not a tax but an informative statement that is intended to prevent tax fraud.

What is declared in Form 720 Spain in relation to inheritances?

There are several situations in which you must declare inherited assets using Form 720 Spain, provided these meet a series of requirements. The most frequent assets and rights you’ll have to declare are:

• The money you inherit when it is located in credit institutions abroad. Such as an amount deposited in an account in France.
• Inherited shares in a company located abroad. For example, if you inherit shares in an Italian company.
• Apartments in another country that you inherit or the rights over these. Imagine your parents had a flat in Portugal and they leave it to you.

These are just a few of the most common examples, but there are many other cases of assets and rights abroad that must be declared.

Who is obliged to submit Form 720 Spain?

Those obliged to submit Form 720 Spain are:

• Individuals and legal entities that are Spanish residents.
• Permanent establishments in Spain that belong to non-resident individuals or legal entities.
• Entities regulated in Article 35.4 of the General Tax Law (recumbent inheritances and jointly owned estates). A recumbent inheritance is a legal entity used to name the inherited estate between the death of the testator and the acceptance of the inheritance by the beneficiaries.

The limit as of which Form 720 Spain must be submitted is 50,000 euros for each of the categories (accounts, securities and real estate abroad).

What is the deadline for submitting Form 720 Spain?

The period for submitting Form 720 Spain runs from 1 January to 31 March each year. If you have already submitted the form last year and there has been no increase in any of the three categories exceeding 20,000 euros, you aren’t required to submit it again the following year.

What happens if you inherit assets abroad and don’t submit Form 720 Spain?

One of the most controversial aspects of Form 720 Spain is that, despite it being an informative statement, the penalties imposed for not declaring can be exceedingly high.

If you have to submit Form 720 Spain on the three categories seen and you don’t do it within the deadline, you could be fined 30,000 euros and if the obligation is for only one category the fine would be 10,000 euros.

In addition to the above, bear in mind that it is one thing to submit the form voluntarily and another very different is if the Treasury Department demands that you submit it. In the second case, you’ll probably have to pay additional charges.

We must highlight that the EU has advised Spain Spain to amend the regulation for declaring assets and rights abroad (Form 720 Spain) since it violates one of the EU’s fundamental rights, i.e. the free movement of capital and also involves a disproportionate penalty system.

You may also be subject to penalties arising from IRPF for not having declared the capital gain if there is any.

Why is it so important to be guided by an expert tax consultant?

If you inherit assets, securities or rights abroad, you must consult with a tax advisor who will:

• Look into your specific case and the tax implications it may have.
• Advise you on the taxes to be paid.
• Prepare and submit the taxes (Inheritance and Donations, Capital Gains, Personal Income Tax) and Form 720 Spain.
• Meet the deadlines foreseen in the law.
• Informs you of all possible penalties to be paid for late submission of tax returns and Form 720 Spain.
• Manage the payment and appeal of any penalties you are to pay.

As seen, inheriting has important tax consequences and it is essential you analyse each case to decide whether or not you want to accept the inheritance and to know the amounts you’ll have to pay.