Further to my concerns on Spanish Banks now linking a mortgage approval to taking life insurance it has come to light that taking life insurance in Spain does nothing to assist with payment of any Inheritance Tax (IHT) bill that the death of a client may instigate in Spain.
Unlike UK where the IHT bill is against the estate of the deceased IHT is the responsibility of the beneficiary. This means that IHT must be paid before any assets can be taken over and ability to sell assets to pay IHT is not possible.
As if this in itself does not cause enough problems when the beneficiary cannot pay the IHT without crystallising the assets you cannot be paid out on life insurance either until the IHT bill is paid.
Clearly, it would be far more beneficial for non-residents of Spain to take life cover outside Spain. Where life cover is taken outside Spain payment will be made and these payments could then be used to settle any IHT bills in Spain and enable beneficiary to take over assets.
None of this is explained by banks in Spain who have no regulatory requirement to undertake best advice and a code of conduct such as UK banks have to follow. It also tends to suggest that banks sell life insurance purely for the premium income it provides them rather than as protection for the individual and the bank where a Spanish mortgage is concerned.
The law as it stands seems to help no-one. Spain has many outstanding IHT bills where beneficiaries have to leave properties to eventually turn into ruins as the cost of actually inheriting property is not something that can be met without ability to use asset to pay the bill.
If taking a mortgage in Spain it is therefore important for people to consider how any IHT would be paid and not to rely on any insurance taken in Spain to resolve this.
