Spanish Will & Inheritance Tax must be considered for spanish property and investments.
Spanish Will & Inheritance Tax must be considered together. A spanish will must be drafted considering your Inheritance Tax & Legal position.
Whether you have a single spanish will or two (one in England and one in Spain) you must reconsider your Inheritance Tax & Legal position. The EU Succession Regulation No 650/2012, also known as ‘Brussels IV’, has an important effect on any international wills in Spain.
Over the years, spanish advisers recommended to have a spanish will to include the spanish property and keep a separate UK one. However, from an Inheritance Tax & Legal perspective the choice to apply English law must be considered together with the UK’s applicable probate rules.
The chosen law, in accordance with Brussels IV becomes particularly important, although the choice does not apply to the court’s jurisdiction. This is of particular importance in the UK where the High Court is the only body able to issue grants of representation (probate) – a matter to be considered.
The rules in Spain demand that a will must be signed by a Notary and submitted to the Central Registry of Wills. Therefore, professional advice should be taken by a qualified lawyer and tax adviser in both countries to decide the best course of action.
Draft a will to avoid “forced heirship”
On any Spanish will the “forced heirship rule” applies, as in Spain there is no testamentary freedom. It is important to have a will with a choice of english law as the law applicable to the succession. This is the only way to avoid the “forced heirship rule”. If there is no will the spanish intestacy rules applies and all the assets are inherited by the children.
Inheritance Tax considerations
The first point to consider is that Inheritance Tax is not included in the Double Tax Treaty between the UK and Spain. Therefore, when drafting a will, the Spanish Inheritance and Gift Tax (ISD) must be considered together with the UK’s inheritance tax rules (IHT).
The Spanish ISD is an acquisition tax – not a transfer tax like its UK equivalent. The acquisition by inheritance or gift of a property situated in Spain carries a real obligation to ISD payable by the inheritors or the receiver of the gift. The beneficiary’s position – and not the transferor’s estate – should be considered for tax planning purposes.
Upon death, the British domiciled, if resident or an owner of assets in Spain, will also be taxed in the UK on their Spanish property, as part of their worldwide assets. The legatees or recipients (whether resident in Spain or not) will be liable to taxes on their Spanish property and assets.
For tax purposes, spouses are not exempt beneficiaries and the tax-free allowance applicable to some registered charities is also very limited. There are some allowances applicable to spouses and other family members, and applicable rules may vary depending on the Spanish territory (Comunidad Autónoma) where the recipients or the assets are located.
It should be noted that Lifetime gifts (Donaciones inter vivos) are also taxed. Finally, traditional estate or tax planning schemes, such as using an offshore trust or company to hold the property, should also be reconsidered under the new tax and legal rules.
Communication with the Spanish Tax Agency (Agencia Estatal de Administración Tributaria (AEAT) must take place in the six months following death. Non-residents need a tax reference number (NIE), and a Spanish tax representative (Representante Fiscal) should be appointed for the sake of efficiency. The Spanish Tax Agency website is www.aeat.es.
Del Canto Chambers counts with Specialist in International Private Law and execution of wills with broad experience in multilateral jurisdictions