About inheritance tax in Spain and the European inheritance law
In this article, we take a look at the importance of making a Spanish will, the new European Law and the Inheritance Tax. Since setting up our offices in the province of Alicante, we have been surprised by the number of people who have approached us, asking the same question: Do I need to make a Spanish will concerning my Spanish assets?
Spanish inheritance tax rules
Inheritance is a way of acquiring property, a means of obtaining wealth that can be taxed, that is to say, of constituting the chargeable event of a tax. The Spanish tax system includes a figure whose purpose is to tax the acquisition of wealth, free of charge, and therefore includes inheritance as a fundamental taxable event. This tax is called the Inheritance and Gift Tax (ISD), “Impuesto sobre Sucesiones y Donaciones” in Spanish.
Inheritance Tax can be taxed on the basis of personal obligation or real obligation:
- Personal obligation: If your habitual residence is in Spain, you are taxed on your personal liability, and on all assets and rights you acquire, regardless of where they are located, without prejudice to the deduction for international double taxation that may be applicable.
- Real obligation: If your tax residence is abroad you can be subject to the tax by real obligation and will be taxed in the following cases:
The acquisition of assets and rights, whatever their nature, which are situated in Spain, may be exercised or are to be exercised in Spanish territory.
The following are considered to be located in Spanish territory:
- Immovable property.
- Movable property permanently assigned to dwellings, farms or industrial holdings or establishments.
- The perception of quantities coming from life insurance contracts,when the contract has been taken out with a Spanish insurance company or has been concluded with a foreign company in Spain.
To sum up, a non-resident in Spain will only be liable to pay inheritance tax if they are to inherit property in Spain or receive quantities from a life insurance contract.
For example, if a person passes away in Spain, but his beneficiaries are residents of the UK and all of the assets from the inheritance are in the UK or a country outside of Spain, then they wouldn´t have to pay Inheritance Tax in Spain.
The inheritance tax scheme
A deceased resident or non-resident in Spain
1) with properties in Spain:
- Non-resident heirs pay for the value of the assets located in Spain.
- Resident heirs pay for the value of assets located all over the world.
2) without properties in Spain:
- Non-resident heirs are not liable to pay in Spain.
- Resident heirs pay for the value of assets located all over the world. The double taxation treaty between Spain and the other country involved must be checked carefully to apply the relevant deductions.
A lawyer for a will and inheritance tax
We are able to give you personalised advice on making your last will and testament. We will provide you with a standard will form, that is then adapted to your specific situation. Subsequently we will draw up a draft and on your agreement, we will organise an appointment at the Public Notary to sign the final document, which will make it public.
The information is sent to the Central Registry in Madrid, which will change if you amend your will again and make it public. This service is different to the UK, but has obvious benefits for all concerned.
If you would like to change your English will whilst you are in Spain, and you do not want to travel back to the UK for just this purpose, our recommendation is to draw up a international will, which will be valid for both, Spain and the UK. The will must be drawn up in English and Spanish, and will mention that it covers worldwide assets.
What document will you receive?
You will be given a certified copy (the original document is kept at the Notary) and our advice is that you inform your heirs and solicitor in the UK or home country (if you have one) where you will be keeping the certified copy.
Is a foreign will valid in Spain?
Yes, but you will have to go through a complicated, time-consuming and expensive process. Our advice is to have a Spanish will drawn up, disposing of your assets in Spain. It is a way to save a longer, more expensive and unnecessary process for the heirs.
Effects of the New European inheritance law
The new European Regulation No. 650/2012, which is now in force, relates to the contesting and challenging of Spanish Wills granted by British citizens in Spain.
We anticipate that there could be more contested Wills in the near future, due to the fact that the applicable law to the Inheritance process will be the law of the country where the decedent had his habitual residence. Under Article 22 of said regulation, the testator or testatrix can specify in their Will, or at the time of death, his or her national law.
If you decide to leave your assets to your wife, or anyone else (not your children), and you live in Spain, it is of extreme importance that, according to the new regulation, your national law is specified. Otherwise, if you pass away while living in Spain, the applicable law to the Inheritance will be the Spanish Succession Law, this means that your children, as forced heirs, would inherit at least 2/3 of your estate.
The new regulation shall apply to people who die on or after 17 August 2015, but if the testator or testatrix stated in his or her Will the applicable law for his or her succession, prior to this date the choice will be valid if it meets the conditions of the regulation, or of the rules of private international law which was in force at the time the Will was executed.
Important update on the inheritance tax changes
Spain, like most of the EU, has serious financial problems and consequently the Government is having to introduce new policies to help balance the deficit.
The problem varies across the 17 autonomous regions and so policies and levels of taxation change according to the individual laws applied by the regions.
The main objectives of the tax measures included in this Decree-Law for the region of Valencia are, on the one hand, that, in the current context of economic crisis and public deficit in our Region, those who have more should contribute more, and, on the other hand, to strengthen the legal instruments of the Valencian Tax Administration for the control and fight against tax fraud in the area of taxes ceded by the State to the Region of Valencia, at the same time encouraging spontaneous compliance by taxpayers with their tax obligations.
As highlighted above, one of the main taxes to have been revised is the Inheritance Tax – Impuesto Sobre Successions.
Many people are aware that this is more complicated and potentially more expensive than in the UK, however it doesn’t have to be, which is why we recommend hiring professional advice, to guarantee that everything is left the way you want it to.
Before the change, which came into effect on 6 August 2013, published Decree-Law 4/2013 of 2 August allowances of up to 99% were possible, this has now been reduced to 75% for disabled people and kinship group one and finally 50% for kinship group two.
However, the actual financial base figure has increased and so the final allowances are calculated using a number of complicated factors relating to relationship to deceased, age, residency etc. Meaning seeking professional advice to understand your potential exposure to this tax has become more important than ever.
Now is a good time to review your financial planning and this goes hand-in-hand with making your will.
Please do not hesitate to contact our specialists today for a one to one appointment.
Please note that this information is for general use only. For accurate advice and guidance, we highly recommend you book an appointment with an independent lawyer. Additionally, please see the following link: Taxes in Spain.
For more information or assistance, do not hesitate to contact Pellicer & Heredia on + 34 965 480 737 or email us at info@pellicerheredia.com.
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