Careful estate planning becomes even more imperative when you move to Spain. The Spanish inheritance regime imposes forced heirship and a complex succession tax. British expatriates also have UK inheritance tax to contend with.
As we get older, we tend to think more about our legacy and how it will pass on to our loved ones. You should already have a suitable will in place, but effective estate planning is about much more than just having a valid will, especially for expatriates.
You’ll want to ensure your wealth is transferred to your chosen beneficiaries in a timely and efficient manner, without large inheritance tax bills. Your estate plan needs to take account of tax and succession laws in both the UK and Spain, and more complex families (second marriages, children from previous relationships, etc.) require particularly strategic advance planning.
How much Spanish succession tax will your family pay?
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).
The tax is calculated on, and paid by, each recipient. Rates and allowances vary according to the level of kinship between yourself and your heirs, as well as which region of Spain you live in.
Under the state rules, tax rates start at 7.65% and rise to 34%. Multipliers based on the familial relationship and beneficiary’s net worth can take tax rates much higher. There is no blanket spouse-to-spouse exemption. Reductions and allowances are low. Spouses, descendants and ascendants receive a reduction of €15,957; it is lower (or nil) for everyone else. The main home can benefit from a 95% reduction, but only for spouses or descendants who keep the property for at least 10 years, and it is capped at €122,606 per inheritor.
Spain’s autonomous communities (regions) can adjust the tax rates, allowances and reductions to make them more beneficial for residents. Here are some examples of how your closest family members may be protected from this tax in many Spanish regions.
Andalucía
Spouses, children, grandchildren and parents (Group I and II beneficiaries) benefit from both a 99% tax relief and a €1 million tax-free allowance on inheritances (the rules are different for lifetime gifts). Unmarried couples registered as a pareja de hecho are treated the same as spouses.
Balearic Islands
Spouses, descendants and ascendants are effectively exempt from succession tax. In the absence of descendants, other relatives may benefit from a 50% or 25% reduction. Unmarried couples within an officially registered relationship (las parejas estables) are treated as spouses for tax purposes.
Canary Islands
Both succession and gift tax liabilities are reduced by 99.9% for spouses, children, grandchildren and parents. Siblings, cousins, aunts/uncles, nieces/nephews, in-laws and stepchildren get the same reduction, but only on inheritances. Registered pareja de hecho couples are treated as spouses.
Madrid
Group I and II beneficiaries get a 99% relief on inheritances and gifts, while Group III get 25%. Individuals within a unión de hecho are treated as married couples if they meet the conditions.
Murcia
Spouses, descendants and ascendants benefit from a 99% relief for inheritances and gifts.
Valenciana
A 99% succession reduction applies for spouses, descendants and ascendants, who also get a €100,000 tax-free allowance. This applies to both inheritances and gifts. Unmarried couples in a registered uniones de hecho have the same rights as married couples.
The tax rates and allowances for other beneficiaries, as well as the main home relief rules, can vary across regions. Contact Blevins Franks for detailed information on your autonomous community and family situation and for personalised advice.
Are you still liable for UK inheritance tax?
UK inheritance tax (IHT) liability has been determined by domicile rather than residence, an adhesive concept that meant most British expatriates remained liable on their worldwide assets. A new residence-based system will replace this from 6 April 2025.
On leaving the UK, you will remain liable for inheritance tax on worldwide assets for between 3 and 10 years (depending on how long you lived in the UK before relocating). If you return to the UK after living abroad, you will be assessed for inheritance tax on worldwide assets once you have been living there for 10 out of the last 20 years.
Remember that any assets you own in the UK always remain in the scope of UK inheritance tax. This will include pensions from April 2027, and the freeze on the IHT thresholds has been extended to April 2030. Both measures will increase inheritance tax bills. If you intend to continue living in Spain, now is the time to review your cross-border estate planning to take advantage of the new inheritance-based system, for example, by shedding UK assets.
Should you have a UK or Spanish will?
It is advisable to make a Spanish will to deal with your Spanish assets, since it is easier to wind up an estate using a local will. If you only have a UK will, it will need to go through the UK probate process, inevitably creating long delays and high costs, as well as having to be notarised and translated before being accepted in Spain.
In any case, you may wish to update your will to make the election for UK succession law to apply to your estate when you die.
You can have two wills, one for Spain and one for the UK if you retain assets there. If you make a Spanish will and subsequently change your UK one, make sure your solicitor does not inadvertently revoke the Spanish one.
Who can receive your assets and wealth?
Spanish succession law imposes ‘forced heirship’ rules. In general terms, children are entitled to receive two thirds of an estate’s assets. Under Spanish law, you cannot, for example, leave everything to your spouse. This regime applies to foreign nationals living in Spain by default.
You can, however, use the European Succession Regulation ‘Brussels IV’ to opt for the succession law of your country of nationality to apply on your death instead. You must specifically state this in your will; otherwise distribution of your estate will follow the law of your country of residence.
How will your wealth be transferred and spent?
Your heirs may face probate expenses and delays in Spain and the UK, depending on where you own assets. Take steps now to mitigate this stress for your family. For instance, some investment arrangements allow you to nominate beneficiaries in advance, facilitating the smooth transfer of funds without the need for probate.
You might also wish to control when and how your heirs use your wealth. It is possible to structure your capital in such a way as to provide tax-efficient benefits for you during your lifetime while also providing control and certainty after you are gone. You could, for example, delay the timing of an inheritance until your heirs reach an age where they are likely to be financially mature. Ask your adviser about suitable solutions for your objectives and family circumstances.
Setting up your estate planning in Spain
Estate planning is one of those tasks that’s easy to put off, but the longer you delay, the more you risk leaving it too late. Your estate may not be distributed as you wished and your heirs may pay more tax than they need have done. Take steps now so the right money passes to the right hands, at the right time, in the most tax-efficient way possible.
Blevins Franks offers specialist cross-border estate planning advice for UK nationals living in Spain. We help structure your estate to be transferred according to your wishes, in as straightforward a manner as possible, while minimising inheritance taxes. Our personalised solutions provide peace of mind, ensuring you have the most suitable approach in place for yourself today and your family in the future.
Contact Blevins Franks for an estate planning health check for Spain
