Estate planning is a high priority for many of us. Living in Spain makes this more complicated, as you have to deal with foreign rules and also the interaction of two countries’ succession laws and tax regimes. So how will the UK’s decision to leave the EU affect estate planning in Spain?
Estate planning is a high priority for many of us. Living in Spain makes this more complicated, as you have to deal with foreign rules and also the interaction of two countries’ succession laws and tax regimes. So how will the UK’s decision to leave the EU affect estate planning in Spain?
Estate planning is a high priority for many expatriates in Spain. They want to ensure that their wealth is passed down to their family and heirs according to their wishes, that the inheritance process is as straightforward as possible, and that their heirs are not faced with high tax bills.
Living in Spain makes this more complicated, as you have to deal with foreign rules and also the interaction of two countries’ succession laws and tax regimes (if your heirs are in the UK and/or you have assets in more than one country).
So how will the UK’s decision to leave the EU affect estate planning in Spain?
Brussels IV and Brexit
Last year the new EU succession law, “Brussels IV” came into effect. Under this regulation, the succession law of country of residence will apply to your assets when you die ¬¬– and Spanish succession law is restrictive – but you can override this by stating in your will that you want the succession law of your country of nationality to apply instead.
The good news is that although Brussels IV is an EU regulation, it applies to third party countries as well. Brexit therefore has no effect on the ability for British expatriates to elect to use UK succession law.
Spanish succession tax and Brexit
In Spain the local autonomous regions are able to adjust the state succession and gift tax rates and allowances, and in some cases the local regime is much more beneficial than the state one.
For example, under the state rules the tax free allowance is just €15,957 for spouses, descendants over 21 and ascendants, €7,993 for other close relatives and nil for everyone else.
In Comunidad Valenciana, however, spouses and children receive an allowance of €100,000 each and they can also benefit from a 75% reduction in the amount of succession tax payable.
In Murcia, the taxable inheritance for children under 21 is reduced by 99%, while older children and spouses get a 50% reduction.
In Andalucía, spouses and children can benefit from a 100% exemption for inheritances up to €175,000, provided they are not worth more than €402,268. Under the proposed new rules, this tax free allowance will increase to €250,000, with reductions for inheritances between €250,000 and €350,000. This is expected to apply from January 2017.
In Islas Baleares the allowance for spouses and children increases to €25,000 and the tax rates for inheritances under €700,000 is just 1%.
Other regions have their local tax rates and rules.
Until last year the local regional rules could only be applied if the deceased was habitually resident in the region. The EU ruled that this discriminatory tax treatment was an obstacle to the free movement of people and capital, and Spain changed it rules so that now the local rules also apply to those who reside in an EU/EEA country.
The rules are as follows –
- If you are not resident in Spain when you die, but are resident in another EU/EEA country, your Spanish assets benefit from the rules of the autonomous region where most of your assets are located.
- If you are not resident in Spain, and also not resident in an EU/EEA country, the state rules will apply to your Spanish assets.
- If you are resident in Spain when you die, and your beneficiaries are also resident in Spain or in an EU/EEA country, the local regional rules apply.
- If you are resident in Spain but your beneficiaries are not resident in Spain or the EU/EEA, the state succession tax rates and rules will apply.
So it is possible that UK residents, or those who have heirs who live in the UK, will be affected if the UK ends up outside both the EU and EEA.
However it is still early days and it is likely to be an issue that is negotiated between the two countries. In the meantime though, the UK has yet to invoke Article 50 and the exit process will take at least two years, so the rules remain the same for now. There is plenty of time for you to review your succession tax planning if necessary and take advice on how to protect your heirs.
UK inheritance tax and Brexit
UK domiciles in Spain are liable to both Spanish succession tax and UK inheritance tax. Although there is no specific double tax treaty on inheritance between Spain and the UK, taxes already paid in one country can be deducted against taxes due in the other. There is no reason for this to change with Brexit.
Prior to the June referendum the then Chancellor George Osborne had warned that taxes would probably have to rise if the UK left the EU and mentioned higher income taxes and an increase in inheritance tax from 40% to 45%. It appears that this idea may be completely shelved under the new Chancellor.
In conclusion, Brexit will have a very limited effect on your estate planning in Spain.
Cross-border estate planning is complex, and needs to take multi-jurisdictional succession law, inheritance taxes and probate into account. There are compliant opportunities available in Spain that allow you to do all this, and which provide significant tax advantages. This is a specialist area, so take professional, personalised advice to get it right.
Any questions? Ask our financial advisers for help.
The 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; an individual should take personalised advice.
