Brexit and Inheritance & Gift Tax in Andalusia

Marbella-based lawyer Raymundo Larraín keeps us abreast of the sweeping changes in Inheritance & Gift tax law in Andalusia. The following taxation article is intended only for UK residents beneficiaries of an inheritance or gift in the region of Andalusia.

Marbella-based Larraín Nesbitt Lawyers has over 16 years’ taxation & conveyancing experience at your service. We offer a wide range of 40 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain. You can review here our client’s testimonials.

The following taxation article has been summarised to avoid unnecessary tax technicalities. The information and tax rates supplied are in line with current tax laws in Spain, which are subject to change. Seek professional tax & legal advice on your matter – see disclaimer below.

Article copyrighted © 2019. Plagiarism will be criminally prosecuted.

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By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
16th of July 2019

We published an article earlier on this month (Andalusia, now a tier 1 region for low taxation in Spain) where we gave a brief overview on the sweeping changes in Andalusia in 2019 on Inheritance and Gift tax. The tax changes from April 2019, coupled with those from January 2018, are so eventful they have ushered in a new era of wealth planning in Andalusia.

One of the main requirements to benefit from the regional ultra-high tax relief of 99% is that the giftees or beneficiaries of an inheritance in Andalusia need to be resident in the European Union. Please note that I’m not talking about your nationality, I’m discussing tax residence. For example, a Canadian national, who is resident in the EU, could benefit from this ultra-low regional tax. Conversely, a German national who is resident in Singapore may not benefit from it. Bottom line, what matters is your tax residency, not your nationality (which is irrelevant) to take advantage of Andalusia’s new Inheritance & Gift tax laws.

This begs the question on how Brexit will impact these heirs and giftees. The goal of this article is to highlight a limited window of opportunity available to some UK taxpayers who can take advantage of it if they are pro-active before Brexit closes in on us.

All comments made below only have in mind specifically the region of Andalusia and as beneficiaries the following groups of family members, for tax purposes:

Group I: Natural and adopted children under 21.
Group II: Natural and adopted children over 21, spouse, registered civil partnerships, parents, adoptive parents, grandparents and great-grandparents.

To close my introduction, I’d like to point out that although the scope of this tax article deals specifically with Andalusia, the same pervading idea would apply throughout the rest of Spain. Meaning, for example, a British owner of a property located in Madrid, which has an incredibly lenient regional inheritance law, could – and should – take advantage of generous regional inheritance & gift laws pre-empting Brexit before time runs out. Post-Brexit, this Madrid expat owner will likely no longer be able to benefit from the generous ultra-high regional tax reliefs and will only be able to resort to the national tax relief scale which is nothing short of appalling (compared on how good the regional ones are that almost suppress or negate IHT completely). Our law firm can act for you nationwide.

I’m British, how does Brexit affect my rights to inherit in Andalusia?

Brexit casts a long shadow of uncertainty over everything, specifically on tax matters. Regardless on which side of the fence you are on, leaver or remainer, the fact is that Brexit will have a serious impact in our life’s.

Although no one knows for sure what will happen on Halloween’s eve in 2019, the fact is that if everything goes according to plan, the United Kingdom will break away from the Union this fall. One of the main requirements of Andalusia’s 99% tax relief on succession is that the beneficiary must be resident in the European Union (i.e. United Kingdom) or in the European Economic Area (EEA) compromised additionally by Iceland, Liechtenstein and Norway.

Although at this point in time we cannot rule out completely that post-Brexit UK tax residents will be able to take advantage from Andalusia’s lenient tax relief, it is within reason to think they will not; unless something specific is agreed which seems most unlikely. Meaning that in all likelihood after Brexit is triggered on the eve of the 31st October, UK tax residents will no longer be able to benefit from regional tax reliefs such as those generously offered by Andalusia. This would translate into UK beneficiaries of an inheritance, or gift, in Andalusia paying a punitive tax bill post-Brexit.

This is because as the UK would no longer be a member state of the Union, lenient regional tax reliefs, such as those offered by Andalusia, would no longer apply. Only the national tax relief scale would apply which, as I’ve often criticized over the years, is found wanting. You can find a full list of national tax relief here:

Succession planning is key for UK nationals pre-Brexit

The whole point of this taxation article is to garner attention on the limited window of opportunity open to some UK tax residents allowing them to pay no tax, or almost no tax, before Brexit is triggered. Take heed of our advice, the difference in tax to pay post-Brexit is nothing short of brutal.

I. Inheritance

As we have no control over who lives or dies before Brexit, it really makes no sense to publish a chart on inheritance tax. However, for completion’s sake, I will include it. The following chart is for a deceased that lived in the UK, beneficiaries of his estate are UK resident and are included in Groups I and II. Inherited estate is located in Andalusia.

In the third example below, inheriting €3mn, a UK heir will pay 146 times more tax in a post-Brexit world. That’s a 14,600% increase in tax to pay!

Inherited

Tax to pay

Pre-Brexit

Post-Brexit

€500,000

€0

   €106,000

€1,000,000

€0

€262,600

€3,000,000

€6,460

  €942,600

 

II. Gift

However, we can exert control over gifting assets during our lifetime to our spouse and/or children. The following chart illustrates just how little Gift tax a beneficiary (or giftee) needs to pay in Andalusia before Brexit is activated. It also shows us the humongous difference in tax to pay in a post-Brexit world.

To focus on the second example, on gifting one million euros now to your spouse or children (giftees) they would pay almost no Gift tax whatsoever (under three thousand euros). If the giftor decides instead to wait until after Brexit, his child (or wife) would have to pay over a quarter of a million euros! In other words, if the giftor acts now pre-empting the tax change he would save his children or spouse from paying 96 times more tax. That is a 9,600% difference in tax to pay!

The following chart applies to gifting next-of-kin or spouse (subject to a pre-existing net wealth). The gifted money, or assets, must have been located in Andalusia over the previous 5 years.

Gifted amount tax to pay pre-Brexit tax to pay post-Brexit
€500,000 €1,100 €110,768
€1,000,000 €2,800 €268,122
€3,000,000 €10,100 €948,122

Example one: gifting real estate. Mrs Blackwood wants to gift her son and daughter (both UK residents) in equal shares her Andalusian villa worth 2 million euros; meaning they would be gifted one million euros each. Her two children (giftees) would be liable to pay Gift tax in Andalusia. As they are both UK tax residents, they qualify to benefit from Andalusia’s ultra-high tax relief and would each pay €2,800 in Gift tax (nada). Mrs Blackwood would be liable for both CGT and plusvalia tax (which can be greatly mitigated, or even negated, as explained below in the next section).

Example two: gifting money. Mr Waller, who works in Andalusia, gifts his loving wife Eleanor (who is UK tax resident) 3 million euros. Eleanor would only pay slightly over €10,000 euros in Spain. Mr Waller would pay no tax.

Applicable taxes on gifting assets

Depending on whether money or real estate is gifted, different taxes apply.

  • When you gift money, only the giftee pays Gift tax, which is currently negligible in Andalusia. Giftor is not liable for any tax.
  • When you gift real estate, a giftor is liable for both capital gains tax and plusvalia tax. The giftee is liable for gift tax, which is almost negligible in Andalusia.

 

Regarding the second bullet point, a giftor can  apply and benefit from all the tax reliefs available to greatly mitigate, or completely negate, his CGT liability on gifting (or selling) real estate. More on this in our taxation article: Capital gains tax mitigation on selling (or gifting) your property – 8th May 2019.

The following chart (attempts to) summarise it:

Giftee Giftor
Gift Gift tax CGT Plusvalia tax

 Money

X

Real estate

X X X

Double taxation treaties on Inheritance & Gift tax

Unfortunately, Spain has only signed such treaties with three countries: France, Greece and Sweden.

There is no treaty in place between Spain and the United Kingdom. Meaning that although you would pay no tax, or almost no tax, in Spain you may be liable to pay some tax in the United Kingdom. Traditionally the HMRC gives tax breaks on paying tax in Spain.

How can Larraín Nesbitt Lawyers assist you?

We can offer you a Spanish Inheritance Tax Assessment Report (SITAR). The SITAR is a tax report written in plain English tailored for each taxpayer that clearly lays out the taxes you would be liable for in a pre and post-Brexit world. As every matter will be different, it requires we study it case-by-case. We can offer you this tax service for a very competitive fee: Spanish Inheritance Tax Assessment Report (SITAR)

If you decide to go ahead gifting money, or an asset, to your spouse or children located in Andalusia we can arrange drafting and signing a Gift deed that needs to be witnessed by a Spanish Notary Public.

We will also calculate and submit the associated taxes (even if there is no tax to pay, it must still be done). And finally, we change over at the Land Registry the ownership of the assets over to the new beneficiary. If you are simply gifting money, you can skip the Land Registrar phase altogether.

Conclusion

You will often hear tax advisors stating that planning ahead on tax matters is crucial. This has never been truer than now. Pre-empting Brexit will allow shrewd UK residents to legally avoid their loved ones paying huge tax bills, walking away scot-free.

The following four months may offer some privileged UK taxpayers a once-in-a-lifetime opportunity to vastly reduce their inheritance and gift tax bill in Andalusia, even paying no tax at all in Spain. A lot of money will be at stake for many people, which is why we urge you to plan ahead and take legal advice on your tax matters. In the unlikely event Brexit is called off, this generous tax relief of 99% on Inheritance & Gift tax will be available permanently for UK residents.

Post-Brexit all these ultra-generous regional tax reliefs will disappear overnight for non-EU residents which is why we advise UK residents do not sleep on this and be pro-active, seizing the opportunity while it is available to them. It is a certainty they can benefit from it now; it is uncertain they will be able to benefit from it post-Brexit.

We’ve had to wait over 40 years in Andalusia to have such great inheritance and gift tax reliefs. Can you afford to wait so long? Talk to us, we will be delighted to review your tax matter and offer you a cross-border solution, assisted by our UK partners, which gives you peace of mind and works best for you and your family in both countries.

There is no better place for money to be in than in a taxpayer’s pocket.

 

If you fail to plan, you plan to fail.” – Benjamin Franklin.

Founding Father of the United States of America. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.

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Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form to book an appointment.

 

 

Article also published at Larraín Nesbitt Lawyers: Brexit and Inheritance & Gift tax in Andalusia

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About Raymundo Larraín Nesbitt

After completing his dual law degree in Madrid (ICADE) in 2003 Raymundo went on to work for prestigious Spanish and English law firms in Spain before moving to the UK for several years to work for a British multinational. He is a prolific writer of legal & financial articles in English, with well over 140 articles published and widely used in the Spanish real estate sector. Raymundo now runs his own law practice in Marbella, where he advises local and foreign clients on all legal matters with a focus on conveyancing and non-resident taxation. He is regularly quoted by the international press as a reliable source in his field of expertise.