Estate planning in Spain

It is not uncommon to hear of very wealthy people who fail to put in place plans for their estate before they pass away, leaving their families to try and deal with the succession and inheritance tax issues left behind. And you do not need to be uber-wealthy for this to be an administrative nightmare and potentially, a very costly experience. 

Accepted, death is a worst-case scenario, but you will need to understand the succession tax effect of relocating to Spain, what the impact of a movement in assets from the UK to Spain (mainly signified by perhaps a sale of the main home in the UK and the purchase of the same in Spain) will have and the fact beneficiaries are likely to be living in both Spain and the UK.

‘Forced heirship’

In the UK, you are generally free to distribute your estate as you wish. In Spain, however, Spanish succession law imposes ‘forced heirship’ rules. In general terms, this means that a certain percentage of a deceased’s assets in Spain must be transferred to their next of kin and/or children.

This Spanish succession law will apply to foreign nationals living in Spain by default.

The EU introduced a new Succession Regulation in August 2015, which is also known as ‘Brussels IV’. Whilst the UK did not sign up to this legislation, and the UK is no longer a member of the EU, it remains relevant where a UK national owns Spanish property and/or moves to Spain.

The law confirms the default position as the succession law of your country of residence, but where you possess the freedom to nominate the relevant national law – in this case the ‘home’ country of the UK you are national of – and override Spanish forced heirship.  This needs to be expressly stated in your will or similar legal document.

Whilst Brussels IV may get around forced heirship and allow you to bequeath your assets as you please, it has no impact on the succession taxes payable.

Your last will and testament

If you live in Spain, it is advisable to make a Spanish will to deal with your Spanish assets. It is much easier to wind up an estate using a local will, rather than one established in another country.

A UK will may be effective in Spain, but a major disadvantage is that it will have to go through the UK probate process. This will inevitably create long delays and high costs, as well as having to be notarised and translated before being accepted in Spain. 

If you still have assets in the UK, then you can have two wills: one for each country. Be aware that it is possible to revoke an earlier UK will in writing a new Spanish will.  It is the practice in the UK to include a provision to automatically revoke all earlier wills, so if you change your UK will subsequent to making a Spanish will, make sure your solicitor does not inadvertently revoke the Spanish will in the process.

Spanish succession and gift tax

Inheritance tax in Spain works very differently to UK inheritance tax.  Tax is paid by each beneficiary/recipient, rather than the estate as it is in the UK, and the tax rate applicable varies depending on the relationship between the deceased and the recipient. There is no blanket ‘spouse to spouse exemption’ as there is in the UK.

The state succession and gift tax rates start at 7.65% and rise to 34%, but multipliers of up to 2.4 times (based on the familial relationship and a beneficiary’s net worth) can take tax rates significantly higher.  To add further complication, the 17 autonomous regions each have considerable local control over rate setting and reliefs with some applying 99% discounts on the rates.

Spanish succession and gift tax is due if the asset being inherited or gifted is located in Spain (regardless of where the recipient lives), or if the recipient is resident in Spain (regardless of where the assets are located).

UK inheritance tax

British expatriates will generally remain liable to UK inheritance tax since it is based on domicile rather than residence and UK domicile is difficult to lose. This means your estate could be liable to both UK and Spanish inheritance taxes. Here, credit is given in Spain for the tax paid in the UK to avoid double taxation.

There is a lot to take in and be aware of and these are really only examples. Good planning can ensure you minimise the tax that impacts you and your family and it helps to do so with specialists in this area. 

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.