It is important for UK nationals who have moved to Spain to review their estate planning.
You need to consider the local succession law and succession tax, and how they will affect your family and heirs. UK inheritance tax also remains a factor.
Besides the tax aspect, there are some questions that you need to consider. Who are your heirs and how do you want to distribute your estate among them? Do you want them to have control over the money? How soon will they need access to the funds? How much will probate slow things down, can you avoid it for some of your assets?
Succession law in Spain is quite different from the UK. It dictates that a certain percentage of an estate must go to certain people. This applies to UK nationals living here, unless they have a will. A new EU legislation from August 2015 now also allows you to opt out of Spanish succession law – but not Spanish succession tax.
Spanish succession tax is also very different from the UK’s inheritance tax. Tax is paid by each recipient, rather than by the estate, and there is no blanket exemption between spouses. The rate of succession tax also increases depending on the relationship between you and the beneficiary, ie, whether they are your spouse, children, nephew/niece, friend etc.
The tax is due on death when the asset being inherited is located in Spain, or if the recipient is resident in Spain. So if you leave your Spanish property to children who live in the UK, they will 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 from 0% to 34%. Then multipliers, depending on the beneficiary’s relationship to you and their net worth, can take tax much higher – possibly up to 82%.
Under state rules, descendants, ascendants and spouses receive an allowance of €15,956. Relatives like siblings, cousins, 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.
Local autonomous communities can adjust the state rules. In the Balearic Islands, the allowance for spouses, descendants and ascendants is increased to €25,000. The main home relief is 100%, maximum of €180,000, provided the recipient is a spouse or child and keeps the home for 10 years.
UK nationals also remain liable to UK inheritance tax, unless they establish a non-UK domicile.
Don’t risk leaving your estate planning too late. At Blevins Franks we aim to make the inheritance process as easy and tax efficient for your heirs as possible. Please contact me for a ‘succession planning health check.’
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.advice.
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