INHERITANCE TAX IN SPAIN

Inheritance Tax can affect anyone with an interest in Spain.

Over 500,000 British people have an interest in a holiday home in Spain and more than 4,000,000 take holidays in Spain each year. When they die, if assets are left in Spain they would need to be transferred to their heirs according to Spanish Law.

The procedure for dealing with Inheritance Tax

The basic approach involving assets in Spain is as follows:

Establish what assets exist in Spain
Establish which law is applicable
Establish whether a valid Spanish will exists
Establish whether a valid foreign will exists covering the Spanish assets
If no valid will exists, establish the rightful heirs
Complete the documentation needed to transfer title of the assets to the heirs
Pay the necessary taxes
Register the title of the new owner.

Thus the procedures to be followed will depend upon whether or not the person who has died has a valid will, either in Spain or anywhere else.

Which law should apply?

To establish the applicable law is not quite so straight forward, for the following reasons:-

Spanish law recognizes that, in the case of a British person, English law is to be applied in order to decide what should happen to their estate on their death.

Unfortunately, English law in turn states that in the case of real property (land and buildings) in Spain then it is the local law - i.e. Spanish law - which is to determine what should happen to it on death.

Of course, for most British people their only substantial asset in Spain is their home. Spanish law should therefore, on the face of it, determine what happens to that home.

Spanish Inheritance Tax Law

Spanish law provides only limited freedom of testamentary disposition. A person making a will may specify how he would like to distribute his assets, however certain groups of people, mainly the spouse and children, have priority rights which if not reflected in the will, can be challenged.

In a typical case of a husband with a wife and children, the husband will only have total freedom to dispose of one third of his estate, since Spanish law determines that a third must pass to his children in equal shares, and a third is subject to an automatic life interest in favour of his wife and can also only be distributed after her death amongst his children - but in such proportions as he considers fit.

However Spanish law also states that an inheritance should be dealt with as a whole and thus this rule conflicts with the above.

In practice, the Spanish accept that English law should apply to both land and other assets located in Spain, and that British people can dispose of the assets as freely as they could in England.

Did the person who died make a Spanish will?

Even if you think you know that there is no Spanish will, we are required to make a check with the Spanish central wills registry to ensure that this is the case.

If there is a Spanish will: Provided it is valid and has not been revoked it is likely that the contents of this will shall determine what is to happen to any assets in Spain
If there is no Spanish will: Is there a valid English or other will covering the assets in Spain it will be accepted as valid in Spain
If there is a valid non-Spanish will: Subject once again to the possible rights of the wife and children the assets are likely to be distributed in accordance with the provisions of that will.

If There Is a Spanish Will

If the will is to be used in Spain then various steps will need to be taken:

It will need to be translated by an official translator into Spanish
We will need to obtain official copies of the Grant of Probate of the will and of the death certificate. In certain cases, official copies of birth and marriage certificates may be needed. These all need to be translated into Spanish
All of the documents for use in Spain need to be certified by the Foreign & Commonwealth Office for use in Spain
We may need to prepare a certificate of law to confirm to the Spanish authorities that the dispositions in the will are lawful
We will need to prepare powers of attorney authorising one of our lawyers to pay the appropriate taxes and to sign all of the inheritance documentation in Spain on behalf of the beneficiaries
The money needed to pay the taxes has to be collected and sent to Spain
Once this has been done we will pay the taxes and sign the paperwork and the register any land or buildings in the name of the new owners.

If there is neither a Spanish nor any other will

We will need to explain to the Spanish authorities who is - under the combined rules of Spanish & English law - entitled to the inheritance. This will need to be supported by the appropriate documentation, duly translated into Spanish & authenticated. We may also need to produce a certificate of law for presentation in Spain.

We then arrange for the payment of the taxes, the signing of the inheritance documentation and the registration of title as described above.

Paying the Inheritance Taxes

Taxes due on an estate are calculated very differently in Spain from the way they are calculated in England. The amount to be paid is calculated by reference to each beneficiary rather than on the basis of the estate as a whole. Each may have his or her own tax free allowance and will pay tax at a rate which will vary according to their relationship to the deceased. A return has to be made to the Spanish tax office and the necessary taxes paid. This should be done within six months of the date of the death as otherwise a surcharge and interest may become payable.

Preparing the documentation to accept the inheritance

This is done by a Spanish notary after consultation with us as the notary will ultimately sign the documents.

Registering the beneficiaries title

Where part of the inheritance is a house or apartment the title in the name of the new owner will need to be registered at the Land Registry.

Other matters

It is in the nature of dealing with inheritances that the unexpected often occurs. Perhaps the deceased's title to his home was defective and needs rectification before it can be conveyed to the beneficiaries. Perhaps there are unpaid taxes. Sometimes the family cannot agree as to what should happen to the assets or unexpected claimants or assets may turn up. These problems need to be dealt with as they occur.

The new owners should consider making a Spanish will. If they have inherited from someone who did not do so they seldom need much persuasion as to the wisdom of doing so.

The beneficiaries may want advice as to investing the money inherited or about selling the assets for which they may have no personal use. We are happy to assist with all such matters.

What does this all cost?

A typical simple estate may cost in the order of £1,000 to £2,000, plus VAT, Spanish Inheritance Tax and the various sums which we have to pay out on your behalf.

However each case can be very different and it is impossible at the outset to give a definitive estimate of the costs and fees in dealing with an estate.

As the matter unfolds we are able to give you increasingly accurate estimates of the sums involved.

For more information on inheritance tax in Spain please do not hesitate to contact us.