By Leon Fernando del Canto
The UK might have left the EU only last month, but for those who own assets in Spain, where wills and inheritance tax is concerned, Brexit really began on 17th august 2015. On this date, Spain introduced a new regulation relating to succession law (namely, the EU Succession Regulation No 650/2012, also known as ‘Brussels IV’).
The Regulation was introduced with the aim to unify succession laws across all EU member states, however the UK opted out. Brexit, now officially underway, is highlighting the need for UK residents who hold assets abroad to review and update any wills drafted before the 17th of August 2015 under English or Spanish law. Any wills granted before then must comply with its provisions for any assets located in Spain.
Whether you have a single English will or two separate wills (one in England and one in Spain) you must reconsider it with great care, including looking at any state and tax planning considerations. Where a British national owns assets in one of the EU Member States, by default, upon death, the succession of their assets will be governed by the law of the country in which the person who died habitually resided. The alternative is to stipulate in the will the law of their nationality to the succession and administration of their estates.
Under Spain’s new Regulation, if a separate will is drafted in Spain, the choice to apply English law must be considered together with the UK’s applicable probate rules. In Spain, any wills must be signed by a Notary and submitted to the Central Registry of Wills, and professional advice should be taken by a qualified lawyer and tax adviser in both countries.
The chosen law becomes particularly important, although this does not apply to the court’s jurisdiction. Although a court of a Member State whose law had been chosen by the deceased shall have jurisdiction under some conditions (or even exclusive jurisdiction on any succession matter), if the parties so agreed, it is also possible that the same court declines its jurisdiction in accordance with the applicable law to the nationality of the deceased. This is of particular importance in the UK where the High Court is the only body able to issue grants of representation.
Draft a will to avoid “forced heirship”
On any Spanish will the “forced heirship rule” applies, as in Spain there is no testamentary freedom. It is important to have a will with a choice of english law as the law applicable to the succession. This is the only way to avoid the “forced heirship rule”. If there is no will the spanish intestacy rules applies and all the assets are inherited by the children.
Where tax is concerned, the first point to consider is that Inheritance Tax is not included in the Double Tax Treaty between the UK and Spain. Therefore, when drafting a will, the Spanish Inheritance and Gift Tax (ISD) must be considered together with the UK’s inheritance tax rules (IHT). The Spanish ISD is an acquisition tax – not a transfer tax like its UK equivalent. The acquisition by inheritance or gift of a property situated in Spain carries a real obligation to ISD payable by the inheritors or the receiver of the gift. The beneficiary’s position – and not the transferor’s estate – should be considered for tax planning purposes. Upon death, the British domiciled, if resident or an owner of assets in Spain, will also be taxed in the UK on their Spanish property, as part of their worldwide assets. The legatees or recipients (whether resident in Spain or not) will be liable to taxes on their Spanish property and assets.
For tax purposes, spouses are not exempt beneficiaries and the tax-free allowance applicable to some registered charities is also very limited. There are some allowances applicable to spouses and other family members, and applicable rules may vary depending on the Spanish territory (Comunidad Autónoma) where the recipients or the assets are located. It should be noted that Lifetime gifts (Donaciones inter vivos) are also taxed. Finally, traditional estate or tax planning schemes, such as using an offshore trust or company to hold the property, should also be reconsidered under the new tax and legal rules.
Communication with the Spanish Tax Agency (Agencia Estatal de Administración Tributaria (AEAT) must take place in the six months following death. Non-residents need a tax reference number (NIE), and a Spanish tax representative (Representante Fiscal) should be appointed for the sake of efficiency. The Spanish Tax Agency website is www.aeat.es.
Leon Fernando Del Canto is an international tax barrister practising from Normanton Chambers in London. He is the head of Del Canto Chambers, a member of the Honourable Society of Lincoln’s Inn, The Worshipful Company of Tax Advisers, the Association of Taxation Technicians and the Madrid Bar.
Find out more about Del Canto Chambers.