You need to plan to ensure that the right people benefit from your estate, and to reduce the amount of tax your loved ones will have to pay.
Succession planning is one of those tasks that is easy to keep putting off, but do not risk leaving it too late. If you do your estate may not be distributed as you wish, and your heirs could end up paying much more tax than they need have.
You need to plan to ensure that the people you want to benefit, benefit, and to reduce the amount the government takes from your loved ones in tax.
Spanish succession law
Did you know that –
- Spanish succession law dictates that a certain percentage of an estate must go to certain people
- The default position is for Spanish succession law to apply to foreign nationals living here, unless they have a will
- New EU legislation from August 2015 will formalise your choice to opt out of Spanish succession law
- The new EU law does not mean that you can opt out of Spanish succession tax.
Spanish succession tax
Did you know that –
- There is no blanket spouse to spouse exemption
- Tax is paid by each recipient, not by the estate
- It also applies to pension funds
- The rate of succession tax increases depending on the relationship between the person passing the money and the person receiving the money
- Local autonomous communities can adjust the state rules to make them more beneficial
- UK inheritance tax may still apply for UK nationals.
Spanish succession tax is due on death if the asset being inherited is located in Spain (regardless of where the recipient lives), or if the recipient is resident in Spain (regardless of where the asset is located).
So if you leave your Spanish property to UK resident children, they will have to pay succession tax on it. If you leave your UK pension fund to your spouse who lives in Spain, they will pay tax on it.
Tax is applied at progressive rates, ranging from 0% for assets under €7,993 to 34% for assets over €797,555. However there are also multipliers depending on the beneficiary’s relationship to you and their net worth, which can take tax much higher – up to 82% in some circumstances.
Under state rules, descendants, ascendants and spouses receive an allowance of €15,956. Relatives like siblings, cousin, nephew and nieces and step-children receive €7,993. Anyone else does not receive an allowance.
There is a 95% allowance against the inherited value of the main home of the deceased, but only if a spouse or descendant keeps the property for 10 years. Even then there is a maximum deduction of €122,606 per inheritor.
There are 17 Autonomous Communities in Spain, and each has the right to amend the state rules to make them more beneficial.
The allowances in the Andalucía region are broadly similar to the state allowances above, but there is also a 100% exemption on inheritances to spouses and children of up to €175,000, provided the wealth of the recipient is no more than €402,678.
In the Valenciana region, spouses, descendants and ascendants receive a €100,000 allowance, which is much better than the state one. They also benefit from a 75% reduction in the succession tax payable
In Murcia, the taxable inheritance is reduced by 99% for spouses, descendants and ascendants, if the inheritance is less than €300,000 per beneficiary.
In the Balearics region, the allowance for spouses, descendants and ascendants is increased from €16,000 under the state rules to €25,000, which is not as beneficial as some other regions; your spouse could still have substantial tax to pay. The main home relief is also increased to 100%, up to a maximum of £180,000.
In the Canary Islands, the allowance for spouses is increased from €16,000 to €40,400 and for children over 21 years to €23,125, which is not as beneficial as some other regions; your spouse could still have substantial tax to pay. The main home relief increases to 99%, up to a maximum of £200,000, and the property only needs to be kept for five years (rather than 10 years per state rules).
The first step is to establish your goals –
- Who would you like to benefit from your estate?
- Do you want them to have control over the money or not?
- How quickly would they need to be able to access the money?
- What impact will tax have?
- Would you like to try and avoid probate on some of your assets?
The next step is to take specialist advice; it is the only way to ensure you get it right.
Blevins Franks structure our clients’ estates to achieve their goals, both in terms of who receives the assets and how, and in lowering the tax bill – which can be considerable for some – for your heirs. In some cases we have lowered a succession tax bill by hundreds of thousands of Euros. We aim to make the inheritance process as easy and cost effective for your heirs as possible.
14 April 2015
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.