Antonio Flores’ Blog

With effect from the 17^th of August 2015, a new EU law will automatically apply –replacing local laws- to the succession of persons who die on or after the same date in countries parties to the agreement. While the main concepts of this new law may seem simple, the name given to it is truly mind-boggling:

Regulation  (EU) No 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession.

But let’s not get carried away by all the legalese and go straight to the most relevant points of the law; and by doing so perhaps we can kill the expat rumour mill before it causes havoc.

The main change introduced relates to the applicable law to succession: As of August 17th, citizens are able to choose whether the law applicable to their succession will be that of their habitual residence or that of their nationality, on the understanding the former law will apply by default if there is no choice. This has important implications in Spain where, owing to century-old laws, children have an automatic entitlement to two thirds of the estate.

This choice shall be made expressly in a declaration in the form of a disposition of property (will or codicil), or shall be demonstrated by the terms of such a disposition.

People who already have a will need to check if it contains a term or terms that indicates that the national law, sometimes described as personal law, will apply. Most wills I have come across do state this when noting that the testator’s wishes are in accordance to his or her national law, which in my opinion suffices.

Where there is no provision to the effect in a will and the testator wishes to avoid the application of Spanish succession laws, we recommend drafting a new will.

Finally, we still recommend property owners to have a Spanish will as well as one in the country(ies) where they own assets, at least until we can experience how easy -or not- will it be enforce wills in other EU states. This applies in particular to the United Kingdom and Ireland since neither country is bound or subject to the application of this Regulation.

Antonio Flores Inheritance EU Succession, Inheritance Spain, Regulation (EU) No 650/2012, spain law inheritance, spanish testament, Spanish will

It comes as no surprise that 30% of the enquiries we receive during a month relate to inheritance tax (IHT): there is an almost absolute ignorance about how much it is, when and where is it payable and how does one go about not paying, if at all possible.

IHT tax in Spain can span from nothing, if you inherit under a certain sum and are a Spanish resident to a whopping 81,6% if you inherit loads of money, you are also very well-off and you have no family ties with the testator. This is why it is important to know more or less what would the tax liability be for our inheritors should we pop our clogs within say 12 months (it makes a difference if one dies tomorrow as opposed to dying in say 20 years, particulary if you have a 20 year mortgage which by then would have been repaid).

To calculate quickly how much tax would our inheritors have to pay we could do with an IHT calculator and hopefully this will soon be an application on our website but meanwhile see below some examples on the tax liability if we were to inherit different value net assets (after mortgages, debts etc.):

(We are assuming, for the purposes of the above calculations, that the net values have already been reduced with the average legal allowance, approximately 15.000 Euros)

The following list is by no means complete, but mentios a few of the most common mistakes made by non-resident testators with regards to their Spanish property. I always recommend that people:

1. If you have already bought, don’t just transfer the property to your children (or designated inheritors)!: This seems quite obvious but still today many property owners believe they can do it lawfully and don’t realize that logic and common sense are up against them: how can children buy when they don’t have money?
2. Don’t panic and jump into equity realease programmes, foreign company incorporation scheme or other miraculous option. The reason for this is very simple: the suppliers of these products/services do this for a living which means that they will not wish that you opt for another IHT avoidance scheme, but only theirs. In short, they are not able to give you impartial advice. If you are not sure, try asking them…
3. Over a certain value, don’t buy in your own name: How much will have to be paid will depend on the value, whether you have a mortgage, the number of designated inheritors and the relationship with them or if these are residents for tax purposes.
4. Don’t reciprocally will the property between the spouses, if the ultimate heirs will be the children. This can raise the tax bill dramatically.
5. Don’t pass away without a will or just a foreign will and think a Spanish will is not needed. Any asset proprietor in Spain should arrange his post-death affairs in a neat way, inasmuch as the heirs would otherwise be involved in consuming and expensive legal procedures which would attract different legal jurisdictions. An experience not recommended by those who have experienced it.
6. Don’t use the services of the so called tax experts to draft a will.
7. Don’t attempt tax-evading tricks, especially if you don’t know the risks!

In the following days I will elaborate more on each of these points.

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For those of you interested, on Tuesday September the 28th, I will be in the The Hannah Murray Show on Talk Radio Europe, discussing the inheritance issues that affect foreigners in Spain. You can tune in directly through their website (internet stream), or through the FM frequency assigned in your area.

Antonio Flores Inheritance, Taxes inheritance tax spain, Spain taxes, Spanish will, tax avoidance Spain