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Spanish Inheritance Tax & Wills

Spanish Wills and Inheritance Tax are both important considerations if you have Spanish property and/ or investments. It is normally recommended that you draft a Spanish Will to cover assets located in Spain and a foreign Will to cover any assets in other countries. It is important that there are no legal or tax conflicts between the application of the Spanish Will and the international Will.

Spanish Wills for non-residents

Spanish Wills and Inheritance Tax must be considered together, and legal and tax planning incorporated when a Spanish Will is drafted. Whether you have a single Spanish Will or two Wills (one in England and one in Spain) you must consider your Inheritance Tax and Legal position. The EU Succession Regulation No 650/2012, also known as ‘Brussels IV’, has had an important effect on international Wills in Spain.

Spanish Wills, Brexit and Brussels IV

Over the years, Spanish advisers have recommended having a Spanish Will which covers Spanish property and assets and a separate UK Will. However, from an Inheritance Tax and legal perspective, the choice to apply English law must be considered together with the UK’s applicable probate rules.

English citizens may specify that they want English law to apply to their Spanish assets allowing them to avoid having property pass under Spanish laws and instead refer back to English law, allowing for it to pass on in the proportions they specify in their English Will. Should a person decide English law will apply to their Spanish Will, this will need to be clearly expressed.

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).

The rules in Spain dictate that a Will must be signed by a notary and submitted to the Central Registry of Wills. Professional advice should therefore be sought by a qualified lawyer and tax adviser in both countries to decide the best course of action.

It is important to obtain advice on what you should or should not include in your Spanish Will. Remember that although the estate may be distributed under English law, it will be subject to the Spanish rules and taxes. This can sometimes mean that it will cost less in tax to apply Spanish law rather than English law. It is therefore often recommended that a Spanish Will should be drafted to deal with Spanish assets and the remaining worldwide assets should be separated and covered in an English Will.

Spanish Inheritance Tax

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.

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 a 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. 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.

Forced Heirship Spain

Forced heirship refers to the fact the Spanish regulations state that the children or other descendants must be included in the inheritance, irrespective of the intention of the person that has died. In Spanish regulations, this is called “legítima”. In the case that there are no descendants, the parents or other ascendants will be considered as forced heirs. The main consequence is that the widow of the deceased cannot receive more than one-third of the inheritance.

Under Spanish Law, the “forced heirship rule” applies to Spanish Wills, 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 apply, and all the assets are inherited by the children.

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