For British expats living in Spain this is an important consideration, as Spanish inheritance law is much more complicated – and potentially far more punitive – than that of the UK. For instance, in the UK, assets left to your surviving spouse or civil partner are free from inheritance tax. However, in Spain, as there is no concept of a person’s ‘estate’, all beneficiaries are liable to Spanish inheritance tax in some form or other.
Furthermore, Spanish inheritance law recognises children in a different way than UK law, with two thirds of your possessions automatically going to your children. If this is not in line with your wishes, it is vital that you insert a clause in your will that states that your inheritance must be administered in accordance with the UK rules. Importantly, Spanish inheritance law includes the Succession Tax, which is both an inheritance tax and a gift tax on worldwide assets. However, the tax is NOT applicable if the assets are outside of Spain AND the beneficiary is not resident in Spain.
Complicating this, Spanish inheritance law also features different potentially applicable allowances:
- Those set by the State (this is usually a Spanish inheritance tax for non-residents or their beneficiaries)
- Those set by the autonomous region you live in
The State/Regional Spanish inheritance tax regulations classifies beneficiaries under a will into four categories:
|Group 1||Group 2||Group 3||Group 4|
|Natural and adopted children under 21||Children over the age of 21||In-laws and their ascendants or descendants||All others including unmarried partners not registered as pareja de hecho|
|Parents and grandparents||First cousins|
|Spouses||Nieces and nephews|
|Unmarried partners registered as pareja de hecho (domestic partner)||Aunts and uncles|
|Sisters and brothers|
|Main state allowance: *€15,956||Main state allowance: *€15,956||Main state allowance *€7,993||Main state allowance: Nil|
*Spanish inheritance tax allowance is increased €3,990 for each year the beneficiary is aged less than 21, up to a maximum allowance of €47,868.
The Spanish inheritance tax rate payable starts at 7.65% and is banded on the amount gifted up to a top rate of 36.5%. Further multipliers on the tax due apply depending on the beneficiaries pre-existing wealth and their relationship to the donor.
|Pre-existing wealth €||Groups 1 & 2||Group 3||Group 4|
|€0 – €402,678||1.0000||1.5882||2.0000|
|€402,678 – €2,007,380||1.0500||1.6676||2.1000|
|€2,007,380 – €4,020,771||1.1000||1.7471||2.2000|
There are three critical points to note about the State inheritance rules:
- In the UK a beneficiary in a will is not liable to pay tax on the first £325,000 of inheritance. Meanwhile, under Spanish Inheritance law, relatives falling into Group One are only granted relief on the first €15,956. This is a huge consideration when planning for your family’s future.
- Spanish inheritance law does not recognise common law partners. Unmarried partners, therefore, (unless registered as pareja de hecho – a status only available in some regions) fall into the fourth Group, which does not carry a tax-free allowance, meaning that they will be liable to pay Spanish inheritance tax on 100% of money left.
- The final point concerns the inheritance of property. Under Spanish inheritance law, a 95% tax reduction is applied to the value of the main residence (up to a maximum of €122,000). However, if the property is sold within ten years of death, the tax liability is recalculated, which will doubtless result in a much higher tax bill.
Valencians are afforded more generous Spanish inheritance tax allowances
In Valencia, the Spanish inheritance tax allowance for beneficiaries in the afforementioned Groups One and Two is €100,000 for each person, with a further 75% discount applied to any tax due. Additionally, investments can be structured in a simple and legal way to mitigate Succession Tax in Spain, between married couples and partners.
In terms of property, while there is still a 95% reduction on the value of the main residence, the value of the property has an allowance of up to €150,000 – and the lock-in period before it can be sold without incurring additional tax is just five years.
One way of circumventing this rule, at either State or regional level, is by leaving the property to your children/grandchildren (using multiple allowances) and granting the surviving spouse a Usufruct or ‘life interest’. So, while the children technically own the property, the remaining spouse is able to use the house for the remainder of their life, with the idea that full ownership will eventually pass to the children without further Spanish inheritance tax applied.
As a Brit, either living or owning property in Spain, there is a raft of considerations when it comes to succession planning. If you would like more information on avoiding the common pitfalls around Spanish inheritance tax for non-residents, or require advice on any of the issues raised, you can contact us at email@example.com, or get in touch through this form.
It can also help you track lost pensions, including personal pensions or occupational pensions and schemes used to “contract out”. If you have lost touch with a pension scheme since moving to Spain we can contact them on your behalf to find out what your pension entitlement may be.
Disclaimer: The above information was correct at the time of preparation and does not constitute investment advice. You should seek advice from a professional regulated adviser before embarking on any financial planning activity.