It’s important for UK nationals to review their estate planning and wills once they are living in Spain. You need to consider the impact of Spanish succession law and how succession tax works, as well as UK inheritance which continues to catch many British expatriates.
Estate planning is one of those tasks that is easy to keep putting off, but the longer you leave it, 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.
British expatriates living in Spain need to be aware of, and plan for, a number of inheritance issues.
Your last will and testament
If you live in Spain, it is advisable to make a Spanish will to deal with your Spanish assets. It is much easier to wind up an estate using a local will, rather than one established in another country.
A UK will may be effective in Spain, but a major disadvantage is that it will have to go through the UK probate process. This will inevitably create 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, to avoid the restrictive Spanish rules.
If you still have assets in the UK you can have two wills, one for each country. Be aware that it is the practice in the UK to include a provision to automatically revoke all earlier wills. If you make a Spanish will and subsequently change your UK one, make sure your solicitor does not inadvertently revoke the Spanish one.
Spanish succession law
In the UK you are generally free to distribute your estate as you wish (Scotland does have some restrictions). In Spain, however, Spanish succession law imposes ‘forced heirship’ rules. In general terms, children are entitled to receive two thirds of an estate’s assets, so under Spanish law you cannot, for example, leave everything to your spouse.
This Spanish succession law will apply 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. But you must specifically state this in your will, otherwise distribution of your estate will follow the law of your country of residence.
Brussels IV applies to all foreign nationals living in an EU country, it is not restricted to EU citizens, so it remains an option for British expatriates.
Note that Brussels IV only relates to succession law. You cannot use it to opt for UK inheritance tax instead of Spanish succession tax on death.
Spanish succession and gift tax
Inheritance tax in Spain works very differently to UK inheritance tax. Tax is paid by each recipient, not the estate, and tax rate varies depending on the kinship between the person passing the money and the person receiving the money. There is no blanket spouse to spouse exemption.
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 state 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 are some reductions and allowances but at state level they are low. Spouses, descendants and ascendants only receive a reduction of €15,957; it is lower (or nil) for everyone else. Also, there is a 95% reduction against the inherited value of the main home, but only for spouses or descendants who keep the property for at least 10 years. This deduction is capped at €122,606 per inheritor.
However, the autonomous communities can adjust the tax rates, allowances and reductions to make them more beneficial for residents in the different Spanish regions, so establish the rules for your area. Here are some examples:
In Southern Spain, the local Andalucía succession tax regime has been reformed in recent years to make it one of the most attractive regions in Spain for succession tax planning – in most cases spouses and children do not have to pay any tax (or relatively little) on inheritances (the rules are different for lifetime gifts).
In the Costa Blanca, Murcia is also attractive with its 99% relief for spouses, descendants and ascendants. Comunidad Valenciana has recently announced plans to introduce a similar 99% reduction.
Madrid is another region with a 99% relief for immediate family.
In the Balearic Islands, following recent new legislation, there is a 100% relief for close heirs and generous 50% or 25% reductions for other relatives.
The Canary Islands applies progressive tax reliefs to other family members, not just spouses and children.
UK inheritance tax
Many British expatriates remain liable to UK inheritance tax since it is based on domicile rather than residence. This means your estate could be liable to both UK and Spanish inheritance taxes, but a credit is given in Spain for the tax paid in the UK to avoid double taxation.
Depending on your circumstances and intentions, it may be possible to adopt a domicile of choice in Spain. This is a complex, specialist area so take professional advice.
Estate planning for UK nationals in Spain
The first step is to establish your estate planning goals:
- Who would you like to benefit from your estate?
- Do you want to control how and when they receive their inheritance?
- How quickly would they need to access the money?
- What can you do to make the inheritance process as easy and cost-effective as possible for them?
Then seek specialist cross-border estate planning advice on how you can achieve your wishes for your heirs, at the same time as keeping inheritance taxes as low as possible. Depending on your family situation, estate planning for Spain and the UK can get rather complex, but with careful planning and specialist advice from Blevins Franks you can get peace of mind that you have the most suitable approach in place, for yourself today and your family in future.
Contact Blevins Franks for an estate planning health check for Spain