How Brexit could increase Spanish succession tax for your heirs

As things stand, British nationals inheriting assets from Spain could attract a much higher succession tax bill once the UK leaves the EU/EEA.

News update: In March 2018, a Spanish Supreme Court ruling potentially changed the situation for non-EEA residents – Read ‘Good news for UK nationals about Spanish Succession Tax and Brexit’

The new year brought welcome succession and gift tax reforms to some Spanish regions. This has virtually eliminated this unpopular tax for close family in regions such as Murcia and Andalucía, so is good news for expatriates owning assets or living there. However, the situation is likely to change for British nationals after Brexit. 

The main issue is if Britain ceases to be part of the European Economic Area (EEA) when it leaves the EU. As things stand, if Britain leaves both the EU and the EEA after Brexit, Britons resident in Spain receiving inheritances could face a much higher succession tax bill. The same will apply to UK residents inheriting Spanish assets.

What will change with Brexit?

Spain treats non-EU/EEA residents differently for succession and gift tax purposes. Currently, if you are Spanish resident and leave Spanish assets to someone living in the UK, as EU residents they are usually taxed according to the rules of the region where you are resident. Post-Brexit, however, once they become non-EU/EEA residents, UK beneficiaries will be subject to the less favourable Spanish state rules instead. 

What about if you are UK resident with Spanish assets? Today, your heirs (regardless of where they are resident) attract the rules of the Spanish region in which most of the assets are located, but after Brexit, once you become non-EU/EEA resident, the state rules will apply. 

Spanish regional rates, reductions and allowances are generally far more generous than the state rules. The highest reduction under state rules, for example, is just €15,956 for spouses and descendants, whereas some regions offer a 99% succession tax relief and even exemptions for the same family members. 

As a result, wherever you are resident, your UK heirs could potentially pay significantly more tax after Brexit when inheriting Spanish assets. 

What can you do?

While your Spanish home will always be subject to Spanish succession tax, irrespective of who inherits it, it may be possible to restructure other assets and wealth to reduce succession tax liability. A locally-based adviser with understanding of both the Spanish and UK tax regimes will be best placed to recommend the most suitable options for your particular circumstances and goals. 

As for other taxes, if you have secured permanent residency in Spain before the Brexit cut-off date – due on 29th March 2019 – you should receive the same treatment as you do today. However, if you are not resident in Spain but earn Spanish-sourced income or own Spanish assets post-Brexit, as a non-EU/EEA resident you could face higher income and wealth taxes. Also, note that non-Spanish residents who sell a Spanish main home and reinvest the proceeds into a new main home in the UK will no longer be able to receive capital gains tax relief in Spain once Britain is outside the EU/EEA. 

While much is uncertain about the final Brexit deal – and we do not know what may change during negotiations – it is a good idea to be as prepared as you can be. With only months left to go, now is the time to review your residency, estate planning, investments, pensions and tax planning to secure your position in Spain in the most tax-efficient way possible. Cross-border tax planning is a complex, specialist area, so take professional, personalised advice for the best results and to save your heirs from paying more tax than necessary.

See more about how expatriates in Spain can prepare for Brexit

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 is advised to seek personalised advice.