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Spanish Inheritance and Property Ownership- Anticipating Brexit

Spanish Wills &Estate Planning Posted on Thu, April 25, 2019 19:26:05

Introduction

Many people are reaching saturation point with the subject of
Brexit. But there are a number of recurring themes in questions being asked by
concerned clients who own Spanish properties. Some are clear, irrespective of
the final outcome of Brexit- others not quite so. Briefly to deal with the top
5:

1. Validity of Spanish Wills

We have always strongly recommended
British nationals who own Spanish assets to make a separate Spanish Will
covering those assets. This helps to minimise the risk of delays and excessive
costs in Spanish probate; and also ensures procedural and beneficial certainty.

The Brussels IV Directive
provided that with effect from 2015, the place of ‘habitual residence’ of a
deceased British national would principally determine which country’s
succession law applies to the succession of their estate in Spain. However, a
lifetime declaration can be made (usually in a Will) overriding that- so a British
national can, for example, elect for the law of England and Wales to regulate
the succession of Spanish assets instead of Spanish ‘forced heirship’. This is
the case even if the British national testator is resident in Spain.

Brexit will not affect the
validity of properly executed and registered Wills of Spanish assets previously
signed by British nationals; nor will it invalidate correctly made declarations
of choice of applicable succession law.

However, this is still a
very opportune moment for Spanish Wills to be reviewed, in particular to ensure
maximum tax efficiency; in view of the succession tax changes which are on the
horizon.

2. Spanish Succession Tax Impact

EU citizens (wherever they are resident), who are inheriting
Spanish assets, currently have the benefit of the individual Autonomous Regions’ Spanish Succession Tax (SST) exemptions and
allowances. In Andalusia for example, this currently includes a 1 Million Euro
exemption per beneficiary.

In contrast, non-European beneficiaries of Spanish assets who are not
fiscally resident in Spain, have the benefit a ‘National Rules’ SST exempt
amount per beneficiary of just under 16,000 Euros.

Once Brexit occurs, (so British nationals will no longer be EU
individuals), it is anticipated that they will only have the benefit of the individual Autonomous Regions’ SST exemptions
and allowances if they are fiscally resident in Spain. Conversely, for others
who are not fiscally resident in Spain, this would operate drastically to
increase SST impact- even on Estates with relatively modest Spanish asset
values; and even on inheritance between spouses.

There are SST saving provisions which can be incorporated in Spanish
Wills in appropriate cases, to mitigate SST impact. This is whether the concern
is about post-Brexit SST changes, or the consequences of the future unification
of the SST system (considered to be inevitable, for Spain to continue to be
EU-compliant). The latter is anticipated to provide for standard / averaged SST
impact across Spain, wherever assets are located (in the way that UK IHT is
applied, for example). Many areas of Spain could see an increased SST impact as
a result of this.

3. Spanish Fiscal Registration/ NIE Numbers

Non-
Spanish individuals are required to have a Spanish Fiscal (‘NIE’) number in
order to acquire or inherit Spanish assets. New requirements are being
introduced currently across Spain for non- Europeans (including British
nationals already), for obtaining NIE numbers. These include the annexing of a
colour copy of every Passport page to the Notarised Power of Attorney- when a
Spanish professional representative is dealing with the fiscal registration.
Also, it can take many weeks to get an appointment at the Spanish Police
issuing office (Comisaría de Policía), so this is something which must be
attended to urgently at the outset of any Spanish inheritance or property case;
to ensure timescales can be met in completing fiscal registration. Otherwise,
inheritance cases can stall/ or property transactions can even fall through-
all over what used to be a swift and simple process, but which is now lengthy
and full of traps for the unwary.

4. Becoming Spanish Resident

For EU citizens, becoming Spanish resident has generally
been a relatively straightforward exercise in recent years. However, non- EU citizens (who do not have the benefit of ‘freedom of
movement’ rights within the EU), have always had to meet additional
requirements. Throughout Spain, there has been a rush of British nationals
seeking Spanish residency in recent months- in the lead-up to Brexit. As such, waiting
times for appointments have become greatly extended, meaning that many now will
have to satisfy tougher (non- EU) criteria to qualify for Spanish residency. These
include: a criminal record check; proof of adequate income/ capital; and a
place to live. Also, (and expensively in insurance terms for older people), proof
of medical cover. Until now, it has been straightforward for British nationals
to prepare for and attend Spanish residency appointments personally. But with
the changing requirements and greater scrutiny of the information and
documentation required, it is recommended that the services of a Spanish
administrative specialist (‘gestor’) are engaged. Otherwise, this can become an
extremely protracted and frustrating process.

5. Taxation of Spanish Holiday Homes

Many British nationals who
own holiday homes in Spain rent them out from time to time, to cover running
costs; and/or to derive some asset income.

A consequence of British
nationals no longer being EU Citizens, is that we anticipate the loss of the
beneficial tax treatment which EU Citizens enjoy for non-resident rental income
received. This impacts on: income tax rate; permitted deductions for income tax
purposes; and also capital gains tax. Coupled with recently introduced laws in
Spain to regulate holiday lettings, (the fiscal and bureaucratic complexities
involved in letting out a Spanish holiday home- even for a few weeks each year-
are such that many are concluding that it is no longer feasible. Renting out a
Spanish property may well prove to be less profitable than hoped). For those
who do wish to persevere, it is extremely difficult to sidestep the need to
engage a Spanish accountant to deal with the compliance/ accounting- further
adding to the cost base, of course.

The Legal 4 Spain team is always
available to provide preliminary advice on a no-obligation basis in relation to
Estate Planning and Inheritance cases where there are Spanish assets; and Spanish property transactions.



Spanish Probate- Dealing with Onerous Spanish Assets

Sale of Spanish Assets Posted on Tue, November 27, 2018 16:51:40

Usually, the recipient of an
inheritance receives an asset of positive value; this being almost universally
the intention of testators, in making Wills.

However, even in the post- financial
crisis period in Spain- where property values are gradually increasing in most
areas now- many inheritance situations arise in which a very careful analysis
has to be carried out. This is required, to ensure that there is, in fact,
positive net value to the beneficiaries. Surprisingly frequently, the net value
to the beneficiaries in Spanish inheritance cases can in fact, prove to be
negative.

Some examples of potentially
problematic cases are:

1. Negative Equity Cases. In the years leading up to the financial crisis (in
particular 2001-2007), Spanish banks became very relaxed about the loan to
value ratio on new mortgages. In many cases, loans were made which exceeded
100% of the property’s value/ purchase price- funds being made available to borrowers
also to cover purchase costs and taxes; and property improvement works/ furnishing,
for example.

The drop in the Spanish
property market during the period 2007-2013 in many areas of Spain was so
severe, that in many cases, values of mortgaged properties fell to 50% of the
loan amount secured against the property. Even after a few years of recovery,
many Spanish property owners remain in negative equity, even though they
maintain mortgage payments, so as not to lose their home- and in the hope that
values will eventually increase to the level at which there is positive equity.

In any Spanish inheritance
case where there is a mortgage (especially what appears to be a high mortgage
amount relative to the property’s estimated value), it is essential to obtain a
professional independent valuation of the property as early as possible in the probate
process. Apart from anything else this valuation will be used to carefully
assess the taxes and costs which will be payable in the Spanish inheritance process.
In addition, there are taxes and costs which would be payable in the Spanish
property sale process (if the property were to be sold on the open market).

Total Spanish property sale
taxes and costs can amount to approximately 12% of gross sale price; and total
Spanish probate taxes and costs can often be between 5-10% of Estate value. So,
the combination of all these taxes and costs can significantly erode the net
value of an inherited Spanish property, which is then intended to be sold on
the open market.

It is incumbent upon the
Spanish probate professional representative to carry out this assessment; and
to advise beneficiaries accordingly. Failure to advise beneficiaries that the
net value to be inherited is negative (if that is the case); and as to the
options which are therefore available to the beneficiaries, would be a serious
dereliction of the professional’s responsibility to the client.

2. Equity Release Cases. This is a specific type of situation within the
negative equity genre of case. There was particular growth in sales of equity
release packages in the pre- financial crisis period in Spain; and the percentage
of negative equity situations arising from equity release cases is still
particularly high. In any Spanish probate case where there is an equity release
loan, it is essential at the outset, to obtain a completely up to date
statement from the lending company/ bank; and to get comprehensive details as
to the calling in/ redemption of the loan, to be able to make early calculations;
and advise beneficiaries as to the viability of inheriting.

3. Low Asset Value Cases. In many Spanish probate cases- particularly where
there is no real estate interest in the Spanish Estate, there remain other
minor assets, such as a vehicle or a bank account in the name of the deceased.
In some circumstances, a simplified Spanish probate process is possible;
avoiding the complexity and cost of a Notarial Deed- but not a fiscal
declaration, which is always required. But in many other Spanish probate
cases (and every case where there is a real estate interest in the Spanish
Estate), the ‘full blown’ Spanish probate process is legally necessary- including
the execution of a Notarial Deed. As such, the basic costs of the Spanish
probate process are such that, in many cases, they exceed the value of the
assets in question.

Solutions

The role of the Spanish
probate legal representative in cases where asset values fall short of
inheritance taxes and costs, is to advise the beneficiaries as to the options they
have available to them.

In some cases, although it
may appear wasteful or irresponsible, it is advisable and safe to take no
action; so neither to inherit nor to renounce.

In other cases, renunciation
is advisable. But even formally to renounce a Spanish inheritance entitlement,
the Spanish legal representative may need a Power of Attorney signed by the beneficiaries-
and possibly also the execution of a Spanish Notarial Deed. Both of these
processes involve costs on the part of the beneficiaries- (aside from the professional
charges of the legal representative). So, costs still need to be carefully
evaluated, even in the event of a renunciation of a Spanish inheritance
entitlement.

Finally, and very much a
last resort (and ensuring, of course, that the very strict Spanish law
professional conduct rules and fiscal compliance details are fully adhered to);
some Spanish legal representatives are willing in certain cases (by specific
written agreement with the beneficiaries), to step in; claiming the inheritance
in the name of the beneficiaries, but then to retain for themselves an asset.

This can be a feasible
solution where the cost to the beneficiaries to inherit would otherwise exceed
the net value of the inheritance. If the legal representative does not have to incur
third party professional charges, then it is possible that there could still be
a net benefit to the legal representative of receiving the asset in place of
the beneficiaries- at least then leaving a ‘clean’ situation. And assuming the
financial situation allows that, with at least some financial compensation then
being paid to the beneficiaries by the legal representative.

The above is non-exhaustive,
general advice. The Legal 4 Spain team is always
available to provide preliminary advice on a no- obligation basis in relation
to Spanish inheritance cases.



Spain- Succession Tax and Inheritance Planning Update

Spanish Succession Tax Posted on Sun, May 13, 2018 22:24:54

Introduction
The major changes
introduced in Andalusia at the beginning of 2018 for the calculation of Spanish
Succession Tax (SST) liability are of note generally, when dealing with estate
planning and inheritance cases which include Spanish assets.

Andalusia
is only one of 17 Autonomous Regions within Spain

Whilst in Spain, the individual Autonomous
Regions set their own exemptions/ allowances, a very
significant proportion of Spanish properties owned by British nationals are actually
situated within Andalusia. Hence, an awareness of the SST rules in Andalusia is
particularly important for estate planning professionals who deal with cases
including Spanish assets.

Movement
towards reduced SST Impact

The recently introduced fiscal changes in
Andalusia followed a concerted social and political campaign in Spain against
the previous rules- which in many cases, led to inconsistent and onerous
treatment of beneficiaries. Several other Autonomous
Regions had previously capitulated to this type of pressure; and had taken
steps to reduce SST Impact.

Now that Andalusia has similarly
acted, it is anticipated that Autonomous Regions which (for now),
continue with harsher SST rules, could over time, also introduce less stringent
rules. In general terms, the policy trend in Spain certainly appears to be
towards reducing SST impact.

Also, many commentators continue with the view that the
imposition by Autonomous Regions of different SST rules also
creates discrimination between EU citizens- depending on where in Spain their
property is situated. The view being that it is inevitable eventually, that
Spain will be forced to centralise/ standardise the SST policy across all the
Autonomous Regions, to bring an end to this anomalous
situation.

Andalusia’s
New SST Rules

The effect of the new rules is that spouses and parents/
children/ grandchildren who individually inherit assets within Andalusia which
do not exceed 1 Million Euros in value, pay no SST- by way of an exemption. But
as always, there are various important ‘small print’ points:

·
The new rules only take effect in
relation to inheritance which arises from deaths occurring after 1 January
2018. There is no retrospective effect.

·
The new rules do not benefit
beneficiaries who fall outside the strict marital and ascendency/ descendency
relationship groups indicated.

·
Any beneficiary who has wealth above
1 million Euros in value before the inheritance in question does not
have the benefit of the new exemption.

·
For cases where the actual amount
inherited exceeds 1 million Euros in value, then it is only the amount above 1
million Euros which is taxed. (Previously this was not the case. To exceed the
exempt amount even by one Euro meant that tax was then paid on everything-
subject only to very small allowances).

Issues for
British owners of Spanish Properties

·
As was previously the
case, EU individuals inheriting properties in Spain continue to have the
benefit of the individual Autonomous Regions’ SST exemptions
and allowances, irrespective of their country of actual residency. This extends
to the new rules of Andalusia, including the 1 Million Euro exemption.

·
However, once Brexit occurs, (as
British owners of Spanish properties will then no longer be EU individuals), it
is anticipated that they will only have the benefit of the
individual Autonomous Regions’ SST exemptions and allowances provided
that
they are fiscally resident in Spain.

·
So post-Brexit, family owners of
Spanish properties who continue to live mainly in the UK (and, for example,
just have a holiday home in Andalusia), will instead of having an SST exempt
amount per beneficiary of 1 Million Euros, have an SST exempt amount per
beneficiary of just under 16,000 Euros!

·
In estate planning terms therefore,
it is essential to bear in mind where potential beneficiaries are fiscally
resident. In many cases of English individuals who have retired to Spain, for
example, if their children remain living in the UK, then the family Spanish
assets remain very much exposed to SST.

·
For this reason, although the
headline-grabbing increase in the SST exempt amount has come as a relief to
many families, there are a very significant number of British families with
properties in Spain where (and even more so, anticipating the post-Brexit
situation), there is very little in the way of SST protection. So, intelligent estate
planning; and having in place tax efficient Spanish Wills, remains as important
as ever, for English families with properties in Spain.

The Legal 4 Spain team is always
available to provide preliminary advice on a no-obligation basis in relation to
Estate Planning and Inheritance cases where there are Spanish assets.



Why Spanish property owners need Spanish wills

Spanish Wills &Estate Planning Posted on Sun, October 15, 2017 13:01:49

For
owners of Spanish properties, the importance of making a Spanish Will is
paramount.

In
general terms, a correctly executed Spanish Will ensures certainty, speed and
economy in the event of Spanish probate; and also provides the facility for tax
efficiency.

Conversely,
the consequences for the beneficiaries of a non-Spanish national who dies
leaving Spanish assets, but no Spanish Will, can be unexpectedly onerous. In
our Spanish probate practice, to date, there is not a single case where we have
not found a solution to complete Spanish probate- however unusual the
circumstances.

In
a few exceptional cases, whilst it has been possible to ‘unlock’ the Spanish
property by completing the Spanish probate case, the combination of the failure
of the deceased to make a Spanish Will and the consequential forced application
of Spanish legal and fiscal principles, has inevitably created situations of
significant complexity for those left behind. A couple of examples will
illustrate the point.

Intestate
Spanish resident

A
deceased English lady, estranged from her three adult children from her first
marriage, since her second marriage 25 years ago. She died totally intestate.
She had taken Spanish residency along with her second husband, in her final
years. She had verbally expressed her intention that her surviving husband (and
co-owner of the Spanish property) should receive her 50% interest in the
Spanish property in the event of her death.

As
the deceased was habitually resident in Spain at the time of her death, in the
absence of any legally binding direction for English succession law to apply
(by her not having made a Spanish Will), Spanish succession law had to be
applied.

Spanish
succession law generally operates to protect the interests of descendants-
therefore in this case, necessitating the long- estranged deceased’s children’s
involvement in the Spanish probate process.

The
deceased’s children (after no contact in 25 years), had to be traced through
genealogy professionals. Rejecting the proposal simply to renounce their
entitlement, as had been hoped, the deceased’s husband is left with a
restricted interest in the Spanish property- now being a co-owner, along with
his deceased spouse’s children- whom he had never even previously met.

Had
the deceased signed a simple Spanish Will containing an expression of her wish
for her husband to inherit- pursuant to English succession law, her husband
would have enjoyed a comfortable retirement; and he would have been able to
sell the Spanish property as he had planned with his late wife; enabling him to
return to live in England. He would have received the Spanish property sale
proceeds following his wife’s death.

Instead,
he remains in Spain with all his wealth tied up in a Spanish property, which is
now co-owned along with individuals who are not known to him; and whose
willingness to co-operate is directly linked to ill-feeling over the demise of
their parents’ marriage 25 years ago.

In
fact, had it not been possible to find the solution we did, the situation would
have been significantly worse for all concerned, with the property totally
‘locked’ in legal terms; and selling or dealing with (mortgaging/ letting) the
property would have been totally impossible. Our solution of the case at least
provides a framework for the family to come together and settle terms between
them for the disposal of the property- which could then be effected without any
further legal complications.

An
English resident couple in a civil partnership with a property in Spain

Each
had English Wills leaving their respective worldwide Estates to a common
friend.

Each
partner then intended as part of their overall Estate planning, to sign a
Spanish Will leaving a life interest in their respective shares in the Spanish
property to the surviving civil partner, with the underlying legal title in the
Spanish property passing down to the common friend.

This
intended Estate planning strategy would have resulted in a zero Spanish
Succession Tax bill for the surviving partner; and his having a secure lifetime
interest, guaranteed for his remaining years- living unencumbered in the
Spanish property.

But
the failure (by the partner who then died before signing his Spanish Will), to
act promptly in signing the Spanish Will as planned, meant that the surviving
partner was unable to claim the intended lifetime interest in the Spanish
property.

And
furthermore, because of a quirk in the regional rules for calculation of
Spanish Succession Tax, this also led to a total Spanish Succession Tax bill of
more than 3 times the amount it would otherwise have been (from 20,000 Euros up
to more than 60,000 Euros).

So,
again, the best possible solution in the circumstances was found for the case
to ‘unlock’ the Spanish property. But the failure of the deceased to have put
in place a Spanish Will with tax efficient Estate planning, unavoidably
frustrated his testamentary wishes; and also left an unnecessarily high level
of tax exposure.

The
Legal 4 Spain team is always available to provide preliminary advice on a
no-obligation basis in relation to Inheritance and Estate Planning cases where
there are Spanish assets.



Spanish Succession Tax- The Impact of Location in Spain

Spanish Succession Tax Posted on Fri, June 02, 2017 20:52:25

Background

It is well over 2
years now, since the European Court of Justice’s Ruling, that the Spanish Tax
Authority’s succession tax system conflicted with the European Union principles
of freedom of movement of EU individuals and circulation of money within the
EU.

That case was
specifically in relation to the distinction the Spanish Tax Authority
previously made between those who were resident in Spain; and those who were
non-resident.

The Ruling was that
Non-Spanish Residents (who were also Europeans) should be treated in the same
way as Spanish residents, for the purposes of Spanish Succession Tax.

Following the Ruling,
Spain revised its practice, as required; and now (for example), British owners
of Spanish properties are treated in the same way for Spanish Succession Tax
purposes, irrespective of whether or not they are resident in Spain.

But although the
Spanish Tax Authority is now compliant in terms of the Spanish residency/ non-
Spanish residency distinction, there remains a separate glaring inconsistency
in approach, which also amounts to discriminatory treatment of EU individuals.

That is the different
levels of Spanish Succession Tax impact, according to which Autonomous
Community within Spain is the charging Tax Authority in the case in question.

Continuing Discrimination

In many countries,
the calculation and charging of succession taxation is simplicity itself.
However in Spain, it is a highly complex system, which creates a great deal of
uncertainty, inconsistency and controversy.

Spanish Succession
Tax is not always administered centrally; nor is it charged in a uniform way
nationally; nor is it charged at a single rate; nor is it subject to universal
national allowances and reductions.

At the heart of the
complexity is the fact that for Spanish nationals/ Spanish residents, the
responsibility for Succession Tax administration lies with the 17 individual
autonomous communities within Spain. Each autonomous community has discretion
as to charging basis; practice; and allowances/ exemptions.

This fiscal quagmire creates
bewildering inconsistencies across Spain. On the attached image, the Spanish
Succession Tax impact is indicated, based on the same Estate details, but
varying according to which is the applicable Autonomous Community.

And, as a very
noteworthy side issue, it is not only foreign owners of Spanish properties who
are exposed to the unfairness of this perplexing system; but it has been
acknowledged that many Spanish families living in Spain themselves suffer this
arbitrary discrimination under the current system, according to where (in
Spain) their family members live.

Conclusion

It remains to be seen
whether this very worrying anomaly will be regularised by centralizing/
standardising administration of Spanish Succession Tax; or (if that is deemed
too radical), at least a harmonisation of practice across Spain.

For non- Spanish
owners of Spanish properties, they are fortunate, in that there are
opportunities in Spanish Wills and estate planning, to mitigate this exposure
to Spanish taxation; and expert advice is recommended to ensure that the fiscal
impact is minimised; in planning for future inheritance.

This general
commentary is not intended to be exhaustive; and case-specific legal advice
should always be sought.

The Legal 4 Spain
team provides a full Wills, Estate Planning and Probate service for properties
and other assets anywhere in Spain. We are always happy to provide a
competitive cost estimate in the first instance, on a no-obligation basis.



Spanish Succession Tax- In Anticipation of Brexit…

Spanish Succession Tax Posted on Tue, May 09, 2017 22:26:45

Background

It is well over 2 years now, since the European Court
of Justice’s Ruling that the Spanish Tax Authority’s succession tax system conflicted
with the European Union principles of freedom of movement of EU individuals and
circulation of money within the EU.

That case was specifically in relation to the
distinction the Spanish Tax Authority previously made between Spanish Residents
and Non-Spanish Residents.

The Ruling was that (European) Non-Spanish Residents
should be treated in the same way as Spanish residents, for the purposes of
Spanish Succession Tax.

Following the Ruling, Spain (as required) revised its
practice; and now, British owners (for example), of Spanish properties, are
treated in the same way for Spanish Succession Tax purposes, irrespective of
whether they are resident in Spain or not.

Brexit

It is considered probable by most commentators, that
the Spanish Succession Tax treatment of British owners of Spanish properties is
likely to change again in the light of the Brexit Referendum decision.

In principle, (as regards British owners of Spanish
properties who are not actually resident in Spain), the Spanish Tax Authority
will no longer be obliged to comply with the EU principles which require equal
treatment of EU citizens.

It remains to be seen exactly how the negotiation
between the UK and Spain will be concluded as regards fiscal issues. But, it is
considered probable that once the UK is outside the EU, (non-Spanish Resident)
British owners of Spanish properties will lose this special EU benefit, and
will again be subject to the much more onerous ‘national’ Spanish Succession
Tax rules, as applied by the Central Spanish Tax Office.

This would strip from British (but non-Spanish
Resident) owners of Spanish properties, the more ‘generous’ succession tax allowances/
exemptions which the autonomous communities within Spain otherwise currently offer.
So, a meagre succession tax-free inheritance amount of just below 16,000 Euros
per spouse/ descendent beneficiary is then allowed. Any inheritance received
above that value is taxable.

Conclusion

Well advised British owners of Spanish properties
(but who are not actually resident in Spain) should therefore review their
Spanish Wills and Estate Planning arrangements, to be prepared for this anticipated
consequence of Brexit.

The tax mitigation steps which are recommended to
prepare for this anticipated consequence of Brexit, are in fact, intelligent
estate planning steps to take, even if the outcome of Brexit in this context is
less onerous than expected.

So, in other words, a Spanish Wills and Spanish Estate
Planning review is recommended as a wise process to go through in the run-up to
Brexit- whatever the outcome of negotiations between the UK/ the EU. It is quite possible that the Spanish tax
exposure can be reduced- whatever the end result of Brexit.

This general commentary is not intended to be
exhaustive; and case-specific legal advice should always be sought.

The Legal 4 Spain team provides a full Wills, Estate
Planning and Probate service for properties and other assets anywhere in Spain.
We are always happy to provide a competitive cost estimate in the first
instance, on a no-obligation basis.



Spanish Assets- Lifetime Estate Planning

Spanish Wills &Estate Planning Posted on Fri, March 24, 2017 00:05:50

At
the outset of many estate planning cases which involve Spanish assets, advice
is required as to the options for ownership changes within the family.

A
typical scenario is: a married couple, who have owned their Spanish holiday
home for many years, but health/ mobility issues as they have got older, mean
that their use of the holiday home is on the decline. But meanwhile, their
children/ grandchildren are very happily ‘taking over the reins’!

In
terms of estate planning then, the Spanish property starts to become more of a
liability than an asset- particularly in terms of potential future inheritance
tax liability.

The
Spanish property is usually non-income producing (particularly in the light of
recently introduced increased bureaucratic requirements for short term lettings
in Spain). So, it seems logical that the ownership should be ‘passed down’
within the family, to reduce estate size/ future tax liability- but without any
loss of income (and still with the possibility of the continued occasional use
of the property by the transferor).

This
is logical in theory; but other than the obvious practical considerations (the
assumed continued solvency/ marital situation of the recipients; and assumed
continued harmony within the family), there are important additional
considerations which need to be borne in mind; including:

1. There
is a Spanish taxation liability for recipients of gifts of Spanish assets, the
calculation of which is broadly similar to Spanish Succession Tax, (but without
all the regional allowances and deductions). In other words, the Spanish
lifetime gift tax has a similar- or higher- impact on the recipient than if
they were to inherit the asset. (This is therefore entirely different in
concept to a Potentially Exempt Transfer under the UK IHT regime). There can,
of course, be situations in which the Spanish lifetime gift tax does not
counteract the fiscal wisdom of a lifetime transfer- for example, if in overall
(worldwide) estate planning terms, it is still advantageous to pass the Spanish
property down a generation (or two); or if a Spanish property can currently be
transferred at a low value- so a relatively low tax amount- when a future
increase in value is anticipated. It can be better in that case, for the next
generation to ‘enjoy’ the uplift in value, rather than storing up an ever
increasing Spanish Succession Tax liability in the original owner’s hands.

2. Further
on the Potentially Exempt Transfer point- whilst a UK tax payer making a gift
of their Spanish property within the family could constitute a Potentially
Exempt Transfer- so over time, it comes out of the worldwide taxable estate for
UK IHT purposes- one would need carefully to consider the fiscal consequences
of the donor failing to survive the qualifying period to achieve the maximum UK
IHT benefit.

3. Also
for UK nationals considering making a lifetime gift of a Spanish property
within the family, UK ‘gift with reservation’ considerations need to be addressed
and factored into the arrangements for any continued use of the Spanish
property by the donor. As would be the case with a UK asset which is gifted,
but then still used by the donor, the continued use of the asset needs to very
carefully documented/ financially accounted for, to avoid the gift failing for
UK IHT purposes; and the asset therefore not (fiscally) leaving the donor’s
estate.

4. A
change of property ownership in Spain can be effected by way of a sale between
family members rather than a gift- as often, the rate of tax on a sale is less
than the rate of tax on a lifetime gift. However, this type of transaction
would inevitably be very carefully scrutinized by the Spanish Tax Authority, to
ensure that the sale is not a sham, simply to reduce the taxation basis from
lifetime donation down to the sale taxation level. So, the property could not
be sold at an undervalue; and the Authorising Notary would actually need to see
evidence of funds passing between the the buyer and the seller. And of course,
the funds for the transaction cannot be provided by one family member to
another within Spain, otherwise that would be a taxable lifetime gift of the
money! So, any such transaction has to be extremely carefully orchestrated, to
be legally and fiscally compliant. And an assessment has to be made on a case
by case basis, as to whether or not this is advantageous when compared to a
lifetime donation transfer.

5. A
change of Spanish property ownership- even within the family- triggers other
costs and taxes, so these need to be factored into the equation. In addition to
the donation/ purchase tax, the additional expenses include Notary and Property
Registry costs; and Plus Valia tax (a local Town Hall tax payable on property
transfers, based on rateable value and length of transferor’s ownership. It can
also be necessary to update contracts for property services (water/
electricity, etc), and this can trigger a requirement for re-certification for
safety/ compliance purposes; and possible updating/ upgrading of supply
apparatus.

The
above is a non-exhaustive checklist of the issues. In the majority of the cases
we see, whilst a full analysis and discussion can be helpful, the conclusion is
that the costs and complexities of a lifetime transfer of a Spanish property
within the family outweigh the benefits. In this case, the focus returns to tax
efficient Spanish Wills and estate planning.

The
Legal 4 Spain team is always available to provide preliminary advice on a no-
obligation in estate planning cases involving Spanish assets.



Spanish Succession Tax Update

Spanish Succession Tax Posted on Thu, February 02, 2017 15:41:44

April 18th, 2016

Introduction

A frequently asked
question by new clients prior to making Wills of their assets in Spain, is: ‘How
much Succession Tax is payable in Spain?’

A simple enough
question; and in the case of UK estates, for example- in the majority of cases-
there is a simple enough answer. By contrast in Spain,
there are a significant number of potential variables in the
calculation, such that
the position is generally very much case- specific. It can therefore be
misleading to provide generic advice/ calculations. (But an experienced
practitioner will be able quickly to assess- based on the relevant details- and provide
an indicative amount or percentage).

In this article, I
will briefly review the usual variable factors, to identify the details which are usually
required from clients. Then I will examine in more detail, a specific recent legal
development as regards the actual location of real estate interests within
Spain.

Variable Factors in
Spanish Succession Tax (SST) Assessment

The principal factors
which will determine the amount of SST which will be payable in a given
case include: categories of assets; open market value of assets; actualised
rateable value of real estate assets; official value of other assets (eg. vehicles);
residential status of deceased; residential status of beneficiaries; number
of beneficiaries; relationship/ connection between the deceased and each
beneficiary; total deceased estate value; and pre-existing owned asset value by
each beneficiary in Spain. The other determining factor for SST calculations
which requires particular explanation, given that there have been recent legal
changes, is the location within Spain of the real estate assets in a deceased estate.

Effect of Real Estate
Location on SST Assessment

Traditionally (for SST
calculation purposes), a distinction was made between Spanish property
owners who were actually fiscally resident in Spain; and Spanish property
owners who were fiscally resident outside Spain (for example, UK families with a
holiday home in Spain, for occasional use). Spanish residents had
the benefit of the SST exemptions/ allowances of the Autonomous Community
(there are 17 in Spain) within which the property was situated for the
purposes of calculating SST.

In contrast,
non-Spanish residents were allowed no such regional reductions in SST, and were subject
to the basic ‘national’ rules. So, even for spouses and descendants, each
beneficiary had an SST- free allowance of just 15,957 Euros; and everything beyond
that value level was subject to SST in the hands of each individual
beneficiary.

A challenge was made
against this practice through the EU Courts, on the basis that it created
discrimination between European citizens, dependent upon whether they were
fiscally resident in Spain or not. This was held to be contrary to the principles of
freedom of movement of European citizens/ their capital within Europe.

As such, Spain having
duly complied with the EU Ruling, no longer differentiates in SST calculations
for European nationals with properties in Spain, between those who are fiscally
resident in Spain and those who are not.

So, for UK nationals
with properties in Spain, (for as long as the UK remains an EU member), the actual
location in Spain of the property in question is of fundamental importance
in determining the SST liability. The actual impact of SST varies
dramatically between the individual Autonomous Communities within Spain, according to
the applicable Autonomous Community’s own allowances and deductions for SST
calculations. (As a side issue, many
commentators believe that the imposition by different Autonomous Communities
of different SST rules also creates discrimination between EU citizens
depending on where in Spain their property is situated. No Ruling or Directive
has yet been issued against Spain on this front. However, some see it as almost
inevitable that eventually Spain will be forced to centralise/
standardise the SST policy across all the Autonomous Communities, to bring an end to
this anomalous situation).

But pending any
further change, it is important to note the actual location of a Spanish property
continues to have a significant impact on SST liability.

Unilateral Relief
Treaty

Another issue for UK
estate planners to bear in mind in advising clients with Spanish assets, is the
availability of Unilateral Relief Treaty credit for the purposes of UK IHT
calculation, based on SST actually paid. This enables a final net overall UK
IHT/ SST calculation to be made. There are a significant number of rules/
restrictions to bear in mind in this regard- also that the current Treaties are based on
the UK’s current status within the EU. Should that change, then it is
assumed that the position would need to be revisited; and this could, of course, have
an important impact on overall tax rates in the context of inheritance of Spanish
assets owned by UK nationals.

The Legal 4 Spain team
is always available to provide preliminary advice on a no- obligation basis,
in relation to Wills of Spanish assets and Spanish estate planning generally.



Selling a Spanish Property Out of Probate

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:36:02

September 21st, 2015

In many cases, whether
spouse-to-spouse inheritance or passing down the family line, beneficiaries
wish quickly to sell inherited Spanish properties.

In order to complete a
Spanish property sale following the death of an owner (or co-owner), the
succession process must be completed first.

The seller or sellers
must be alive; have legal capacity demonstrated in the personal attendance at the
Notary’s on completion of the sale, or be validly represented under Power of
Attorney.

In many areas of Spain
(even in an active market), the process of selling a property can be fairly
lengthy.

There is no problem
therefore (in order to get ‘the ball rolling’), in marketing a Spanish property
for sale before completion of an inheritance case. But obviously, the legal
position must be made clear to any interested parties. Furthermore, any
contractual commitment entered into must be of a conditional nature- completion
of the sale being subject to prior completion of the inheritance.

The following is a
brief summary of the principal ‘paperwork’ and logistical items to attend to,
before putting a property on the market for sale.

1. Property
Title
The original Title
Deed (‘escritura’) will be needed- or if it cannot be located, then an official
copy should be obtained from the Notary’s. The Registered Title details can be
extracted from the Title Deed; and an up to date copy of the Registered Title
should be obtained from the Property Registry. In many cases, there are
discrepancies between the official Spanish property title and the position ‘on
the ground’. So, it is often necessary to get the title updated prior to a
sale. Banks (for buyers’ mortgages) and well advised buyers generally will wish
to see correct property description in the title. Discrepancies can otherwise
seriously impact on achievable value. The title rectification process can be
fairly lengthy- usually with architects’ certificates and retrospective Town
Hall approval required. So, it is always best as early as possible to be aware
of any such issues; and to ensure that they are correctly addressed.

2. Energy Performance
Certificate.
In order to
market a Spanish property for sale, owners are legally required to obtain an up
to date Energy Performance Certificate. Competition in the market now for this
service means that it is generally a fairly quick and economical exercise.

3. Local Rates
Information.
The rates
details for the property will be needed, together with proof that there are no
rates arrears. Reference numbers can usually be found on the receipts for rates
(IBI/ SUMA) sent out by the local Town Hall (‘Ayuntamiento’) or the paying
bank. Missing information can be obtained from the ‘Catastro’- rates department
of the Town Hall.

4. Planning
Permission.
Such evidence as
is available from the time of acquisition of the property will be required, to
prove compliance with planning legislation; and permission for the legal
occupation of the property. For any missing documentation, official copies- or
confirmation of legal compliance- can be obtained from the planning
(‘urbanismo’) department of the Town Hall.

5. Community Details. Full details of the Community
Administrator should be available, together with a copy of the Community
statutes and (if possible) copies of the minutes of recent Community meetings.
A summary of Community charges over recent years will be needed; and also
details of any forthcoming charges, which have already been notified. The most
recent statement/ receipt of Community charges will be needed; and before
signing the sale and purchase deed (‘escritura de compraventa’) before the
Notary, a Certificate by the Community Administrator confirming that there are
no arrears of Community charges will be required.

6. Tax Issues. Capital Gains Tax liability will need to be considered; and also for
non-Spanish resident sellers, a tax retention of 3% of the sale price is made
on completion; and fairly stringent conditions apply to reclaims, even in the
event of a sale at nil gain.

7. Services Contracts. Receipts for the most recent payments of
property outgoings (principally electricity/ water; and if applicable, gas)
will be required, together with the latest contractual terms of supply- in the
absence of copies, these can be obtained from the local offices of the services
supply companies. Apportionment between seller and buyer needs to be addressed
following completion of the sale.

8. Power of Attorney. If the sellers do not anticipate being
personally present in Spain for the legal sale process, then it will be
necessary for a Power of Attorney (containing the necessary legal powers to sell
and carry out associated administrative tasks) to be signed in favour of the
appointed representative/ legal adviser. A well prepared Power of Attorney for
the inheritance case should include the relevant provisions, to save
duplication.

9. NIE Certificates. NIE (Spanish fiscal) numbers will be
required for any registered owner; and up to date NIE certificates will need to
be provided to the Notary on completion. These are also required for
beneficiaries anyway, so will be available from the inheritance documentation.

10. Mortgage. If there is an outstanding mortgage on
the property, details will be required as to the arrangements / requirements of
the lender as to redemption; and also any charges which will apply. A mortgagee
representative also needs to be available at the Notary’s on completion. So,
often this dictates the timing and location of completion.

11. Bank Account. Any Spanish property seller will require
a current bank account in Spain into which the completion monies can be paid.
Usually a lawyer’s client account will have been opened for the inheritance
case and can be used for this. It is advisable to be certain in advance, as to
the charges which will be applied in crediting the completion monies to the
account; and for the onward transmission of the completion monies. Spanish bank
charges can be surprisingly high; and the manner of payment of the purchase
price; and onward transmission/ form of Foreign Exchange service used, can
significantly affect the costs.

12. Legal
Representative.
In order to be
fully protected in any Spanish property transaction, it is essential to appoint
in writing a legal representative, who is independent- both from the other
party to the transaction; and also from the estate agent negotiating the
transaction. The appointed legal representative must be duly qualified,
registered with the applicable Colegio de Abogados (Law Society equivalent);
and up to date with their professional practice requirements. They must also
carry adequate professional indemnity insurance cover. It is also essential
that all communication is in a language which both the property owner and the
legal representative speak perfectly. There should be no risk of any
misunderstanding. Usually a specialist lawyer will have been engaged for the inheritance
case; so they are generally the logical choice for handling the legal aspects
of the sale.

13. Estate Agent
Appointment.
The issue of
estate agent appointment in Spain can be something of a potential minefield;
and is worthy of an entire separate article! Suffice to say for now that it is
an area which needs to be extremely carefully handled and documented.

The above is a
non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team
is always available to provide preliminary advice on a no-obligation basis in
relation to probate and/or a sale or purchase of a Spanish property.



Key Points in Preparing for a Spanish Property Purchase

Spanish Legal Issues Posted on Thu, February 02, 2017 15:35:16

April 28th, 2015

Advance preparation
for the purchase of a Spanish property can simplify and speed up the purchase
process; and minimise transaction costs.

The following is a
reminder of some of the principal ‘paperwork’ items to consider, when dealing
with a Spanish property purchase.

1. Appointment of
Legal Representative.
In order to be
fully protected in any Spanish property transaction, it is essential to appoint
in writing, a legal representative, who is independent- both from the other
party to the transaction and also from the estate agent negotiating the
transaction. The appointed legal representative must be duly qualified,
registered with the applicable Colegio de Abogados (Law Society equivalent) and
up to date with their professional practice requirements. They must also carry
adequate professional indemnity insurance cover. It is also essential that all
communication is in a language which both the buyer and the legal
representative speak perfectly. There should be no risk of any misunderstanding
or ambiguity. Advice should be obtained also before signing a legally binding
contract, as to the structuring of the purchase, for estate planning purposes.

2. Survey. Even if not required for mortgage
purposes, a survey by an independent expert is recommended before any Spanish
property purchase- both to verify the condition of the property; but also to
ensure that the description of the property (in the Property Registry and Town
Hall/ rates department) is consistent with the position ‘on the ground’. This
avoids later problems. In many cases, there are inconsistencies, which require
correction.

3. Power of Attorney. If the buyer does not anticipate being
personally present in Spain for the legal / transactional process, then it will
be necessary for a Power of Attorney (containing the necessary legal powers) to
be signed in favour of the appointed representative/ legal adviser.

4. NIE Certificates. NIE (fiscal) numbers will be required
for any Spanish property buyer; and up to date NIE certificates will need to be
provided to the Notary on completion.

5. Bank Account. Any Spanish property buyer will require
a current bank account in Spain usually- to deal with the purchase funds; and
in any event, for payment of the property outgoings following completion. It is
advisable to be certain in advance, as to the charges which will be applied in
crediting monies to the account; and for making transfers from the account.
Spanish bank charges can be surprisingly high; and the manner of funding the
purchase price; and transfer/ Foreign Exchange issues, can significantly affect
the costs.

6. Mortgage. If mortgage funding is required, the
process should be started as early as possible, as significant delays can
otherwise occur- as all aspects of the title to the property and its value as
security will be scrutinized by the bank’s advisers; and this can be a lengthy
process. Also in undertaking any loan in Spain, full clarity on costs must be
obtained- not only in servicing the loan, but also the initial/ set-up costs;
and any amounts payable to redeem the loan also.

7. Capital Gains Tax/
Accounting.
From the very
outset of a purchase, attention should be paid to the collation of all financial
information and receipts- e.g. construction/ works invoices and other
accounting paperwork- principally to build up a solid record of possible future
deductions/ allowances for capital gains tax purposes, for the occasion of a
subsequent sale of the property.

8. Title Deeds. Following completion, the buyer should
receive an official copy of the Purchase Deed (‘escritura’). The Registered
Title details can usually be extracted from the Title Deed; as an up to date
copy of the Registered Title is usually appended to the rear of the escritura,
once the registered title is updated to reflect the sale and purchase of the
property.

9. Planning
Permission.
Proof of
compliance with planning legislation; and permission for the legal occupation
of the property will be required. Usually for any missing documentation,
official copies- or confirmation of legal compliance- can be obtained from the
planning (‘urbanismo’) department of the Town Hall.

10. Rates Information. The full rates details for the property
will be required, together with proof that there are no rates arrears.
Reference numbers can usually be found on the receipts for rates (IBI/ SUMA)
sent out by the local Town Hall (‘Ayuntamiento’) or the sellers’ paying bank.
Missing information can usually be obtained fairly easily from the rates
(‘Catastro’) department of the Town Hall. An apportionment of rates will need
to be made between the seller and the buyer on completion.

11. Community Details. Full details of the Community
Administrator will be required, together with a copy of the Community statutes
and (if possible) copies of the minutes of recent Community meetings. A summary
of Community charges over recent years will be needed; and also details of any
forthcoming charges, which have already been notified. The most recent
statement/ receipt of Community charges will be needed; and before signing the
sale and purchase deed (‘escritura de compraventa’) before the Notary, a
Certificate by the Community Administrator, confirming that there are no arrears
of Community charges will be required. An apportionment of Community charges
will need to be made between the seller and the buyer on completion.

12. Services
Contracts.
Receipts for the
most recent payments of property outgoings (principally electricity/ water; and
if applicable, gas) will be required on completion, together with the latest
contractual terms of supply- in the absence of copies, these can be obtained
from the local offices of the services supply companies. Following completion,
the services contracts will need to be transferred to the buyer- services
apparatus updating works may be required, so the advice of an independent
expert is recommended before a contractual commitment is made. An apportionment
of costs will need to be made between the seller and the buyer on completion.

13. Energy Performance
Certificate.
The seller is
required to provide an energy performance certificate in relation to the
property on completion.

14. Wills. Every purchaser of a Spanish property
should ensure that they have an up to date validly executed and registered
Spanish Will, which accurately reflects their wishes for the succession of
their Spanish property interest in the event of their death.

15. Non-Spanish
Resident Tax Returns.
Non-Spanish
resident owners of Spanish properties have to make an annual tax declaration in
Spain. Usually a fiscal adviser is appointed to deal with this, following
completion of the purchase.

The above is a
non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling)
throughout Spain. We are always happy to provide a competitive cost estimate at
the outset of a transaction on a no-obligation basis.



Avoiding Legal Problems with Spanish Property Transactions

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:34:25

April 6th, 2015

As the Spanish
property market news headlines switch to recovery mode- with sales on the
increase, profits to be made; so the prominence recedes of the Press focus
during the recessionary period, of the supposedly ‘high risk’ nature of Spanish
property ownership- from demolition orders for planning defects; through
properties falling down with no right to compensation for distressed owners; to
unscrupulous intermediaries disappearing with client funds.

But the common theme
throughout the previously reported disaster cases must not be forgotten. In the
vast majority of problem cases of Spanish property ownership, there was no
independent professional legal representation at the time of purchase or sale;
or perhaps worse still, reliance upon unqualified/ incompetent legal
representation.

Obviously non-Spanish
owners of Spanish properties wouldnever dream of property dealings in their own
country without proper legal representation. So it is quite astonishing that in
Spain, often with no knowledge of the legal system or even the language,
private investors decide to ‘take a flyer’ in terms of the detail of the
Spanish legal process!

It is precisely
because of the well-documented risks in Spanish property ownership and the
frequent lack of clarity as to transactional costs and taxes, that independent
professional legal representation is essential for Spanish property purchases
and sales.

With proper
professional advice, instead of taking a high-risk gamble, owners of Spanish
property can invest intelligently and securely in real estate in Spain.

Some key points for
buyers and sellers of Spanish properties:

1. Ensure that your lawyer speaks your
language fluently. For a significant investment such as real estate, everything
must be completely clear.

2. Ensure that your lawyer is qualified and
registered in Spain with the Colegio de Abogados, to be certain of professional
regulation. (And check that there is adequate professional indemnity insurance
in place to cover the risk of anyproblem with their work).

3. Ensure that your lawyer is dual
qualified and professionally regulated both in Spain and in your own country,
to have a full grasp of all the tax implications of your Spanish property
investment. This enables dealings in Spanish real estate to be conducted in the
most tax efficient way, having regard to your tax liabilities both in Spain and
crucially, also in your own country.

4. Ensure that your lawyer acts
independently from the estate agent, developer or other parties to the
transaction. If there is any connection, ensure impartiality and the usual professional
clearance of anyrisk of conflict of interests.

5. Ensure that your lawyer provides you at
the outset with a clear written budget of all costs and taxes; and undertakes
to follow up at the end of the case with a final, clearly detailed cost and tax
summary.

6. Ensure that your lawyer operates an
individually designated client accounting system for your full financial
security.

7. Ensure that your lawyer provides a
written report on title, well in advance of a contractual commitment,
confirming all title and planning information in relation to the property. All
parties to a transaction must be completely clear on all aspects before a
contractual commitment is made.

8. Ensure that an initial private contract
is entered into, with a deposit paid on exchange of contracts. This provides
security for both parties; and protection against wasted/ abortive costs and
unscrupulous behaviour in terms of last minute negotiations.

9. Ensure that your lawyer (usually in
conjunction with the estate agent) attends to the transfer of services to the
property following completion.

10. Specifically ask your lawyer to confirm
the above points, to ensure that nothing is overlooked; and that you are fully
protected by your legal representation.

The above is a
non-exhaustive checklist- really just the bare minimum.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling)
throughout Spain. We are always happy to provide a competitive cost estimate at
the outset of a transaction on a no-obligation basis.



Non-Spanish Residents’ Tax Returns for Spanish Property Owners- Update

Spanish Legal Issues Posted on Thu, February 02, 2017 15:33:38

March 5th, 2015

Overview

Every non- Spanish
resident owner of a property in Spain has to file during each calendar year (in
respect of the immediately previous calendar year), a tax return in Spain
(Form- Modelo 210). It is a simple matter, involves a relatively modest cost;
and (generally) a fairly modest amount of tax to pay, based on the property’s
rateable (Catastral) value.

Background

Although it is
obligatory for these tax returns to be made, the follow-up by the Spanish Tax
Authority against those who have failed to declare in the past has been fairly
limited in practice; and the consequences not disturbingly significant.

But this is changing.

Purchasing or
Inheriting a Spanish Property Puts The New Owner ‘On The Radar’

Very simply (and quite
unsurprisingly) technological advances in the manner of operation of the
Spanish Authorities- and therefore improvements in communication between them-
are occurring at a rapid pace.

It is therefore naïve
in the extreme to assume that dealing with a Spanish asset through one Spanish
Authority does not trigger awareness in others.

Shortly following
completion of Spanish property purchases and inheritances now, those acquiring
the property are immediately notified of the awareness of the change of
ownership by the corresponding tax authorities. (A helpful ‘pointer’!)

Consequences of
Failure to File Non-Spanish Residents’ Returns

1. A significant issue
(which we are now seeing occurring automatically) is that if a filing date is
missed, a recalibrated demand is sent out including penalties/ interest. The
powers of enforcement for failure to pay can be extreme- legal action,
embargoed accounts/ assets; ultimately the facility for the Spanish Tax
Authority to seize and auction assets to cover tax debts due. (Extreme cases
obviously, but the point being that the Spanish Tax Authority does have- and
does exercise on a case by case basis- extensive rights and facilities to
recover tax debts).

2. A further
potentially alarming consequence is something which is coming as a nasty
surprise for many sellers of Spanish properties who have failed to file their
annual tax returns.

When a non-Spanish
resident sells a Spanish property interest, 3% of the declared sale price is
retained for the Spanish Tax Authority. This is, in effect, on account of
Spanish capital gains tax liability. But if the retention is greater than the
actual tax liability, the seller can reclaim the tax.

But the Spanish Tax
Authority is now scrutinising the tax return history in dealing with reclaims-
and if found to be inadequate or incomplete, the tax retention on sale may not
be refunded.

So, 3% of the property
sale price can be ‘lost’ (even if there is no gain on the sale) for a simple
failure to make this tax return. To put that in context, on recent property
sale we saw for 900,000 Euros (at a loss) the seller waved goodbye to 27,000
Euros, for this administrative oversight.

Particular attention
therefore needs to be paid to this issue in the context of (and indeed following)
a Spanish property sale.

Conclusion

The Spanish Tax
Authority ‘means business’ over this. Compliance is, in reality, neither
complicated nor expensive. We will be happy to refer enquiries to associates
who provide this service extremely efficiently and cost-effectively; and their
service being provided in English, for non-Spanish speakers.

This general
commentary is not intended to be exhaustive; and case-specific legal advice
should always be sought.

Please speak to us at
Legal 4 Spain when considering a sale or purchase of a Spanish property, to
ensure you have the best quality legal representation to protect your interests
fully; but always at a competitive cost.



Avoiding Excessive Spanish Bank Charges- Part 2- Foreign Exchange

Spanish Legal Issues Posted on Thu, February 02, 2017 15:32:46

January 30th, 2015

Having previously
covered the concerns many owners of Spanish properties express regarding the
level of Spanish bank charges, it has been recommended that the issue of
Foreign Exchange (FX) should also be specifically mentioned.

The current weakness
of the Euro currency is fueling interest in the Spanish property market, where-
even with the currency issue on one side- prices in many areas remain
attractively low.

However, the converse
of this happy consequence of Euro weakness for inward investors, is that
sellers of Spanish properties wishing to repatriate funds to their countries
outside the Eurozone, are facing unattractive exchange rates- which can impact
strongly on final returns from Spanish property sales.

But an important (and
potentially very costly) issue which faces all individuals coming into or going
out of the Euro currency is often overlooked. This is the process and cost of
FX- particularly in the context of larger transactions, e.g. buying and selling
properties. It comes as a shock to many, to find that the total cost of a High
Street bank to High Street bank transfer where currency changes between Euros
and Sterling (for example) can be as high as 5%. That is a 5% ‘loss’ to the
individual making the transfer!

And a significant
proportion of this cost represents the banks’ profit in the FX trade. Indeed,
several major banks make a point of emphasising their free or low cost
electronic transfers in and out of the Eurozone- superficially making this
option appear to be economical. However, as the real profit for the bank is in
the FX trade itself, the relatively tiny cost to the bank of the actual
electronic transfer is of no real consequence in larger transactions.

It is therefore
advisable before committing to an FX transaction, to be absolutely clear (based
on comparing the actual amount debited from your account in one country; to the
final net amount which will be credited to your account in another and
considering official FX rates) as to the cost to you of the FX transaction.
This also enables a like for like comparison between the cost of your High
Street bank to High Street bank transfer; and the deal offered by an
independent FX specialist.

Of course, before
engaging an independent FX specialist to save money on the FX trade, it is
essential to be assured of the legal and regulatory standing of the FX
specialist in question, to avoid the obvious risks and pitfalls.

But professionals
engaged in transactions in Spain for foreign nationals where there are
frequently FX requirements, will generally be able to recommend a pre-vetted
independent FX specialist, to assist in minimising the otherwise hidden costs
in the FX process.

Please speak to us at
Legal 4 Spain when considering a sale or purchase of a Spanish property- or if
you have any FX requirement- as this is an area we will be able to assist, to
protect your interests fully; but always at a competitive rate.



Avoiding Excessive Spanish Bank Charges

Spanish Legal Issues Posted on Thu, February 02, 2017 15:31:27

January 5th, 2015

Since we covered this
subject previously, there have been significant changes within the Spanish
banking sector, principally to save failing Spanish banks. The Press has has
then had a field day as directors’ dealings and conduct are scrutinised, with
unsavoury findings.

But notwithstanding
all this, there seems to have been little improvement- complaints of poor
customer service and excessive charges are continually levelled at the
remaining Spanish banks. This is particularly the case from non- Spanish
account holders, who are used to free current account banking; and very modest
fixed rate charges for electronic funds transfers.

Nearly all Spanish
property owners are obliged to have a Spanish bank account, to pay property
outgoings; and also to have a Euro banking facility, for general expenditure in
Spain.

But invariably, they
are shocked at the high charges for holding and operating a Spanish bank
account. And then the real sting for Spanish bank customers can come when a funds
transfer needs to be made, either in or out of a Spanish bank account.

Two cases have been
referred to us recently- one where a client made a transfer from their Spanish
Euro account to their UK Euro account (having sold their Spanish flat), and the
Spanish bank sought to charge 1,000 Euros for the transfer. Another, where an
inward receipt of Euro funds from a UK Euro account was charged at 300 Euros.
Both cases involved major Spanish banks; and in both cases when challenged, the
banks substantially reduced the charges.

It is curious that
Spanish banks should purport to charge such high fees in the first instance;
and then with little discussion, simply back down.

The first issue is
quite straightforward. UK nationals in particular, are accustomed to fairly
modest fixed fees (or even zero cost) when making electronic payments; and
routinely zero cost for electronic receipts of funds. In Spain however, when
the electronic transfers are international, (even transfers in Euros), the
default position in many cases, is for the bank to try to charge on a
percentage basis, rather than a fixed fee.

Clearly this is
commercially unjustifiable; as the process/ cost to the bank is identical,
whether the transfer is for 10,000 Euros or 1,000,000 Euros. So logically, a standard
fixed fee should be applied.

And also, the
implementation of the SEPA (Single Euro Payments Area) European Union
Regulations, is certainly a helpful factor for Spanish bank customers who are
concerned about high charges.

In Regulation
924/2009, the European Parliament decreed in particular, that charges for
electronic payments between EU member states (of up to 50,000 Euros) must not
exceed the applicable charge for an equivalent national transfer.

As national transfer
charges are very much lower (and generally zero for electronic receipts) the
SEPA Regulations should be introduced into the discussion with your Spanish
bank as to applicable charges, before any significant transfer into or out of
your Spanish bank account is authorised.

Quite possibly for
larger funds transfers, (and depending on the bank account terms) splitting the
payments into smaller amounts (sub- 50,000 Euros) can considerably reduce the
charges. Indeed, the most PR conscious Spanish banks are already including in
their standard terms, free transfers for up to 50,000 Euros within Europe,
waiving even the limited fee they would otherwise be entitled to charge under
the SEPA Regulations.

These are very
positive developments for Spanish bank customers; but during this process of
realisation/ change, it remains necessary to discuss and negotiate charges with
your Spanish bank before authorising significant funds transfers, so as not to
be caught by the bank’s default charging structure.

If necessary, new bank
account opening in Spain is now easier than ever before. A small amount of
research and paperwork can lead to huge savings, by moving to an alternative
Spanish bank that offers competitive charges as a standard feature.



Preparing for Selling a Spanish Property

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:30:36

December 2nd, 2014

Advance preparation
for the sale of a Spanish property can simplify and speed up the sale process;
and minimise transaction costs.

The following is a
reminder of the principal ‘paperwork’ items to attend to, before putting a
property on the market for sale.

1. Title Deeds. The original Title Deed (‘escritura’)
will be required- or if it cannot be located, then an official copy should be
obtained from the Notary’s. The Registered Title details can be extracted from
the Title Deed; and an up to date copy of the Registered Title should be
obtained from the Property Registry. Sometimes there are matters which may
require attending to before the property can be sold- for example, references
to previous mortgages may need clearing off the Registered Title; or there may
be inheritance issues which require completion; or title/ property description
corrections.

2. Energy Performance
Certificate.
In order to
market a property for sale, Spanish property owners are legally required to
obtain an up to date Energy Performance Certificate. Usually, estate agents are
able to recommend local authorized certificate providers.

3. Rates Information. The full rates details for the property
will be required, together with proof that there are no rates arrears.
Reference numbers can usually be found on the receipts for rates (IBI/ SUMA)
sent out by the local Town Hall (‘Ayuntamiento’) or the paying bank. Missing
information can be obtained from the ‘Catastro’- rates department of the Town
Hall.

4. Planning
Permission.
Such evidence as
is available from the time of acquisition of the property will be required, to
prove compliance with planning legislation; and permission for the legal
occupation of the property. For any missing documentation, official copies- or
confirmation of legal compliance- can be obtained from the planning
(‘urbanismo’) department of the Town Hall.

5. Community Details. Full details of the Community
Administrator should be available, together with a copy of the Community
statutes and (if possible) copies of the minutes of recent Community meetings.
A summary of Community charges over recent years will be needed; and also
details of any forthcoming charges, which have already been notified. The most
recent statement/ receipt of Community charges will be needed; and before
signing the sale and purchase deed (‘escritura de compraventa’) before the
Notary, a Certificate by the Community Administrator confirming that there are
no arrears of Community charges will be required.

6. Capital Gains Tax/
Accounting.
If applicable,
(check with fiscal adviser) all construction/ works invoices and other
accounting paperwork should be collated to be ready to provide along with
fiscal submissions relating to Capital Gains Tax liability- principally to
ensure readiness for claiming any applicable deductions/ allowances.

7. Services Contracts. Receipts for the most recent payments of
property outgoings (principally electricity/ water; and if applicable, gas)
will be required, together with the latest contractual terms of supply- in the
absence of copies, these can be obtained from the local offices of the services
supply companies.

8. Power of Attorney. If the sellers do not anticipate being
personally present in Spain for the legal sale process, then it will be
necessary for a Power of Attorney (containing the necessary legal powers) to be
signed in favour of the appointed representative/ legal adviser.

9. NIE Certificates. NIE numbers will be required for any
registered owner; and up to date NIE certificates will need to be provided to
the Notary on completion.

10. Mortgage. If there is an outstanding mortgage on
the property, details will be required as to the arrangements / requirements of
the lender as to redemption; and also any charges which will apply.

11. Bank Account. Any Spanish property seller will
generally require a current bank account in Spain into which the completion
monies will be paid. It is advisable to be certain in advance, as to the
charges which will be applied in crediting the completion monies to the
account; and for the onward transmission of the completion monies. Spanish bank
charges can be surprisingly high; and the manner of payment of the purchase
price; and onward transmission/ form of Foreign Exchange service used, can
significantly affect the costs.

12. Legal
Representative.
In order to be
fully protected in any Spanish property transaction, it is essential to appoint
in writing a legal representative, who is independent- both from the other
party to the transaction and also from the estate agent negotiating the
transaction. The appointed legal representative must be duly qualified,
registered with the applicable Colegio de Abogados (Law Society equivalent) and
up to date with their professional practice requirements. They must also carry
adequate professional indemnity insurance cover. It is also essential that all
communication is in a language which both the property owner and the legal
representative speak perfectly. There should be no risk of any
misunderstanding.

The Legal 4 Spain team
provides a full property conveyancing service (buying and/or selling)
throughout Spain. We are always happy to provide a competitive cost estimate at
the outset of a transaction on a no-obligation basis.



Dealing With Spanish Probate

Probate in Spain Posted on Thu, February 02, 2017 15:29:55

November 12th, 2014

In preparation for dealing with the
administration of estates which include Spanish assets, it can be useful to
have an overview of the Spanish probate process- to be prepared; and to avoid
surprises.

Ten key procedural stages in the
Spanish probate process are:

1. Collating Documentation and
Information.
As with any estate succession,
thorough preparation at the outset is essential. Principal items to locate/
cover for Spain typically include: Death Certificate; Will; title deeds for
Spanish properties (‘escrituras’); most recent property rates receipt; Spanish
registered vehicle documentation; asset valuations; bank account details (and
official extract covering the date of death); full details/ date of death
statements for any Spanish loans, mortgages, investments; and Spanish fiscal
number certificates (N.I.E’s) for deceased and beneficiaries. If the deceased
left no Spanish Will, then an official sealed copy of the UK Grant (with UK
Will annexed, if applicable) may be required; and possibly further proof of
legal status and relationship with the deceased (e.g. Birth and Marriage
Certificates).

2. Signature of Power of Attorney. A professional Spanish representative is generally
appointed under Power of Attorney, in order to minimise inconvenience for
beneficiaries, as the Spanish inheritance process involves a significant amount
of personal attendance. UK estate administrators may also need to be
represented in Spain (under Power of Attorney), in addition to beneficiaries.
Usually, experienced Spanish practitioners will have arrangements in place with
UK Notaries’ Society members and The Foreign and the Commonwealth Office, to
enable the Power of Attorney to be signed just as easily in the UK as in Spain-
for signatories’ convenience. Generally, the entire Spanish legal process can
be conducted without the need for UK executors/ beneficiaries having to go to
Spain.

3. Obtaining N.I.E’s. As indicated, a Spanish fiscal number is required by
each estate representative/ beneficiary. Often seen as a significant hurdle,
but experienced Spanish practitioners will have a system in place for these to
be simply and rapidly obtained- including within the UK.

4. Spanish Central Wills Registry
Search.
An obligatory early step in
the process is that a search must be carried out to confirm the existence or
absence of a Spanish Will. If it is revealed that there is a Spanish Will, but
no official copy can be found; then usually a copy can be obtained via the
Spanish Notary.

5. Certification of Law and Official
Translations.
Any non-Spanish legal
documents which are required to prove beneficial entitlement (Death
Certificates; Grants of Probate, etc) may need to be Apostilled by the Foreign
and Commonwealth Office, in order to be legally admissible in Spain. In some cases,
they must also be translated and certified by an official translator. An
advantage of the existence of a valid separate Spanish Will (if there is one),
is that it reduces the complexity and extent of the documentation, which has to
be produced to the Spanish Authorities. In many cases, the Authorising Spanish
Notary will require a Certificate of English law, confirming the legal
entitlement of the beneficiaries and/or to provide any case-specific comfort as
may be required on cross-border legal issues.

6. Opening of Client Bank Account. It is fundamentally important before provision of
client funds, to ensure that the Spanish probate representative operates a
client accounting policy/ facility which fully protects the estate and the
beneficiaries. The standard obligatory requirements in Spain can be less
extensive than in the UK.

7. Execution of the Inheritance Deed
before the Authorising Spanish Notary.
Generally,
the procedural urgency in achieving the signature of the official Inheritance
Deed and concluding the Notarial process, is that this then enables the Spanish
Succession Tax to be paid. Payment of the tax must be made within 6 months of
the date of death, in order to avoid interest/ penalties accruing on the tax
debt. As the tax can generally only be paid once the Spanish Notarial process
is completed, it is critically important that the Spanish process is commenced
at the very earliest stage possible; and proactively pushed forward, to settle
matters with the Notary as quickly as possible. Otherwise, there is a danger
that an unnecessarily inflated Spanish tax liability will arise.

8. Payment of Tax. It is important to have obtained from the Spanish
practitioner at the outset of the case, a detailed estimate of all applicable
costs and taxes. This ensures adequate preparation time for provision of funds,
to enable the tax payment to be made immediately following the signature of the
official Inheritance Deed. In addition to Spanish Succession Tax, Plus Valia
Tax may also be payable. This is a local Spanish Town Hall tax, payable upon
the transmission of a property interest. Most Spanish Town Halls charge this on
inheritance, as well as property sales. It is calculated by reference to the
Spanish property’s rateable value; and the period of ownership. Traditionally,
this was a nominal amount. But with revisions to rateable values in particular,
in some areas of Spain it can be a very substantial amount.

9. Banks. Dealing with bank accounts in Spanish probate cases
can often be the longest and most frustrating part of the process, but this can
only be fully addressed once the Inheritance Deed has been signed and any
Spanish Succession Tax paid. Succession of bank accounts is not addressed at
local bank branch level in Spain. The bank’s central legal department instead
usually deals with succession matters. Direct contact with the bank’s central
legal department is generally fairly difficult. For the Spanish banks,
succession work is decidedly low priority.

10. Property and Vehicle Registries. Following the signature of the Inheritance Deed; and
payment of any Spanish Succession Tax; applications can be made to the Property
and/or Vehicle Registries, in order for the Spanish estate assets to be
registered in beneficiaries’ names. The Property Registration process in
particular, involves a further level of legal scrutiny. So, in some cases,
additional requisitions can be raised at this stage, beyond matters covered
with the Authorising Spanish Notary earlier in the process.

Conclusion.

The Legal 4 Spain team offers a full
Spanish probate service; and is always available to provide preliminary advice
on a no-obligation basis in relation to probate cases, which include Spanish
assets.



Reclaiming Wrongfully Charged Spanish Succession Tax

Spanish Succession Tax Posted on Thu, February 02, 2017 15:29:12

November 2nd, 2014

Introduction

As covered previously, the European
Court of Justice has ruled that Spain’s practice of charging non-Spanish
resident beneficiaries Spanish Succession Tax (SST) at a different rate from
Spanish residents is discriminatory; and therefore unlawful.

Entitlement to demand a repayment of
previously paid SST

Thus far, there are no exhaustive
guidelines. But in principle, where a non- Spanish resident has accepted an
inheritance of Spanish assets and has paid SST during the last 4 years at a
rate which is higher than they would have paid had they been Spanish resident,
then they are entitled to demand a repayment of the difference between the
non-resident rate and the resident rate.

For these past ‘discriminatory’
cases, it remains to be seen whether a specific, official process will be
established in Spain, to enable repayments of previously paid SST to be
reclaimed.

In the absence of a clear
administrative process in Spain for demanding a repayment in these
circumstances, an individual legal action needs to be mounted by each
beneficiary who considers that they have overpaid SST and are therefore
entitled to demand a repayment.

And the legal right in these cases
to demand a repayment is time critical, so the right could be lost unless
prompt action is taken.

Issues with the legal process for
reclaiming SST

The assessment of eligibility for
making a claim can be a fairly complex and time consuming exercise. In
particular, there have been changes in the way several of the Spanish
autonomous communities have charged SST over the last few years (mainly
reducing allowances for residents). This means that in a surprising number of
non-resident beneficiary cases, despite significant SST charges, no
discrimination can be shown.

Pending official guidelines, it is
considered to be essential that cases must be fully prepared and demands
submitted within 4 years of the date of the original tax payment, otherwise the
legal right to demand a repayment could be lost.

It should also be noted that the
reclaim would only be in relation to SST, not in relation to other Spanish
probate costs and taxes (eg. Plus Valia tax).

It is considered unlikely that the
Spanish Tax Authority will establish a rapid, simple and economical system for
processing applications for repayment. There will inevitably be detailed
documentation requirements; and certification of a receiving bank account will
be required.

The reclaim process is therefore
likely to be fairly lengthy. The consensus is that the period from commencing
the case to reaching a conclusion is likely to be typically in the region of 3
years.

The process of demanding a repayment
is also likely to be fairly costly. Preliminary estimates are that, to assess/
initiate the process will be likely to involve a cost of a minimum of 250 Euros
per claim. And then the total cost of the reclaim process could be in the region
of up to 20-30% of the amount reclaimed in total. (Although some interest may
be recoverable, partly to offset the costs).

If a credit for the SST paid has
been obtained in the beneficiaries’ own country (for example, against UK IHT),
then this could undermine the Spanish case for demanding a repayment.

From initial discussions with
specialist practitioners in this area, the range of minimum cases (below which
they would not consider it worthwhile taking a case on) is between 1,500 Euros-
2,500 Euros SST paid (per beneficiary).

Of course, any entitled beneficiary
can pursue their own claim for any amount of SST which is reclaimable- with or
without professional representation. There is no minimum level. But independent
professional advice is always recommended, to ensure the case is worthwhile
pursuing; and is handled correctly.

Spanish legal proceedings generally
can be lengthy and complex; and therefore costly. So it is essential at the
outset of any Spanish legal case, to have a clear understanding of the costs
which will be incurred; and the chances of success, to avoid the risk of
‘throwing good money after bad’.

Conclusion

For Spanish probate cases currently
in progress, the obligation remains for beneficiaries to pay SST according to
the current Spanish law (even though not EU compliant); and then (maybe)
subsequently have the right to make a reclaim.

From the Spanish property owner or
beneficiary’s point of view, this situation is far from satisfactory. But the
EU Court Ruling has unavoidably created a ‘legal limbo’; pending fresh fiscal
legislation/ directions from Spain.

Many practitioners have concluded
that the SST reclaim process is likely to be so fraught with potential issues-
delays, costs, procedural uncertainty, that the number of individuals who will
pursue cases- and see them through to a successful conclusion- will be
relatively small.

It is anticipated also that some
beneficiaries will conclude that, irrespective of the potential legal
entitlement, they have drawn a line under completed Spanish probate cases; and
have little interest in reopening the cases; and/ or taking on the cost and
stress of embarking upon this Spanish legal process.

But, for those individuals who do
wish to pursue an SST reclaim, it is recommended to be in the hands of a
specialist professional, as any procedural errors could be fatal to the claim.
Another risk inherent in reclaim opportunities of this nature is that
non-specialist operators tend to ‘spring up’, even taking on claim cases with
no real merit, but charging hefty up-front fees. As with all professional
services providers, some investigation as to background, reputation and
professional regulation/ indemnity cover is essential.

This general commentary is not
intended to be exhaustive; and case-specific legal advice should always be
sought.



Costs of Selling a Spanish Property

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:28:29

October 14th, 2014

Before setting a sale price, Spanish
property owners who are considering selling should be aware of all the
associated costs and taxes, in order to be able accurately to calculate the net
amount they will receive from the sale.

The costs and taxes on selling a
Spanish property can typically be in the range of 10-15% of the sale price, in
total. The following is a reminder of the principal areas to consider.

1. Estate Agency Fee. The seller usually covers the estate agency fee. The
applicable percentage of the fee needs to be individually negotiated in each
case. It will be determined by the nature and location of the property; its
price; and the detail of the service which will be provided by the estate
agent. The typical range of estate agency fees for ‘ordinary’ Spanish property
sales is 3-5% plus IVA. (A higher % applies if it is a low value transaction).

2. Energy Performance Certificate. In order to market a property for sale, Spanish
property owners are legally required to have an up to date Energy Performance
Certificate. Usually, the estate agent will be able to recommend a local
authorized certificate provider. In terms of pricing, it is a fairly
competitive market now; and there are a number of certificate providers
covering wide areas, so it is easy to determine a fair price for this service.

3. Tax Retention on a Spanish
property transfer.
When a non-Spanish resident
owner of a Spanish property sells, the buyer has to retain 3% of the declared
sale price and pay this to the Spanish Tax Authority. So, this is a 3% deduction
from the amount the seller receives. In some cases, the retention can be
reclaimed subsequently, but the reclaim process can be quite convoluted and
expensive to pursue.

4. Plus Valia Tax. When there is a transmission of a Spanish property
interest, the local Town Hall is entitled to charge Plus Valia Tax, which is
calculated by reference to the rateable value of the property and the period of
ownership. In a sense, it is a hybrid between a stamp duty and a local level
capital gains tax. The amounts in question vary widely from area to area; and
in some areas the charge is surprisingly high. So, it is always essential to
have a clear idea in advance of the Plus Valia which will be payable on a sale.

5. Community Administrator
Certification.
It will ordinarily be a term
of the sale that the seller pays all outstanding community charges up to the
date of completion. This is confirmed by the provision of a Community
Administrator’s Certificate, which the seller procures (and pays for). The
charge for the provision of this certificate typically ranges from 50-100
Euros.

6. Capital Gains Tax. A seller of a Spanish property might potentially face
an obligation to account for any profit in Spain and/ or in their home country
(if a non-Spanish resident). But this is a case-specific issue, so advice
should always be sought in both jurisdictions before proceeding with a sale, to
ensure full fiscal compliance.

6. Legal Fees. Expert independent legal representation is essential
when selling a Spanish property (please see our previous Blogs for details).
The cost depends on the value of the transaction and its complexity. But
typically, 0.75- 1% plus IVA (usually subject to a minimum fee level) should be
budgeted for.

7. Bank Charges. Bank charges in Spanish property transactions can be
surprisingly high. Some Spanish banks even charge to receive funds; and always
to transfer funds following completion. Often the charge is a significant %.
So, this should be confirmed in advance. If net sale proceeds are to be
repatriated to the seller’s country of origin, then (if outside the Eurozone),
a specialist Foreign Exchange broker should be used. This will improve on the
direct bank to bank FX rate; and there is then greater control over the timing
of the transfer; and agreement of the applicable FX rate. This specialist
service can also be useful, in case Tax Authority source of funds certification
is required.

8. Mortgage Redemption Charges. If the property is owned subject to a mortgage, then
before agreeing a sale, the terms of redemption of the mortgage (or its
transfer to another property) must be confirmed with the bank. Sometimes a
substantial redemption fee can be payable.

9. Notary Costs. Although technically this should be a shared cost, it
is often the case that the buyer pays the Notary fee. But sellers need to be
aware that this is an area of possible negotiation. The amount of the Notary
fee will depend on the value and complexity of the transaction. But we
recommend that the budgeted figure is around 0.75-1% plus IVA. So it is
important to agree before exchanging contracts, how this cost will be borne.

10. Property Registry. The buyer almost always bears the Property
Registration cost, so this should not be an issue of concern to the seller. But
as an aside, the Property Registration cost also depends on the size/
complexity of the transaction; and also the type of property and its location.
The Property Registration cost is typically around 0.5-0.75%.

In conclusion therefore, most well
advised Spanish property owners will assume a typical range of 25-30% to cover
the ‘in and out’ costs and taxes when assessing the total cost of buying and
then later selling a Spanish property.

This general commentary is not
intended to be exhaustive; and case-specific legal advice should always be
sought.

The Legal 4 Spain team provides a
full property conveyancing service (buying and/or selling) throughout Spain. We
are always happy to provide a competitive cost estimate at the outset of a
transaction on a no-obligation basis.



Spanish Succession Tax Under Review Following European Court Ruling

Spanish Succession Tax Posted on Thu, February 02, 2017 15:27:50

September 29th, 2014

Overview

The European Court of Justice has
ruled that the Spanish Tax Authority’s succession tax system conflicts with the
European Union principles of freedom of movement of EU individuals and
circulation of money within the EU.

Spain must comply with this EU Court
Ruling by making changes to its succession tax system, to become EU compliant
within 6 months. Otherwise, Spain will face financial penalties.

As yet, there has been no formal
response from the Spanish Tax Authority as to its proposals to comply with the
EU Court Ruling.

Background

Spanish Succession Tax is not
administered centrally; or charged in a uniform way nationally; or at a single
rate; or subject to universal national allowances and reductions.

In many countries, the calculation
and charging of succession taxation is simplicity itself. However in Spain, it
is a highly complex system, which creates a great deal of uncertainty,
inconsistency and controversy.

At the heart of the complexity is
the fact that for Spanish residents, the responsibility for succession tax
administration lies with the 17 individual autonomous communities. Each
autonomous community has discretion as to charging basis; practice; and
allowances/ exemptions.

This fiscal quagmire alone creates
bewildering inconsistencies across Spain.

But the further peculiarity,
(central to the EU Court Ruling), is that for non-Spanish residents, succession
tax is administered by the Central Spanish Tax Office, which strips from
non-Spanish residents, the more ‘generous’ succession tax allowances/
exemptions which the autonomous communities otherwise offer. So, for non-
residents, a meagre succession tax-free inheritance amount of just below 16,000
Euros per spouse/ descendent beneficiary is allowed. Any inheritance received
above that value is taxable.

And as a side issue of great
consternation, it has been acknowledged that many Spanish families living in
Spain also suffer discrimination under the current system, according to where
(in Spain) their family members live.

So the current system not only
unlawfully discriminates against non- Spanish owners of Spanish properties. For
Spanish families also, its haphazardness can be financially ruinous.

The ball is now in Spain’s court, to
see how they will react, in order to bring Spanish Succession Tax into line
with the EU requirements.

It remains to be seen whether this
will be by centralizing/ standardising administration or (if that is deemed too
radical), at least a harmonisation of practice across Spain; and/ or a switch
of criteria from individual place of residency to asset location.

Commentary

• A period of just six months is
very tight indeed for Spain to implement a complete overhaul of- and radical
change to- its succession tax system.
• With Spanish elections on the horizon, it is perhaps unlikely the current
Spanish Government will progress matters with great dynamism. Any change will
benefit some, but disadvantage others. Succession tax can be an emotive issue
for voters.
• If the six month deadline is not met, then Spain will face EU financial
penalties; but meanwhile, continue to administer succession tax on the current
basis.
• Pending fresh Spanish legislation/ directives, any individual wishing to
challenge a Spanish Succession Tax charge or to reclaim previously paid tax,
will presumably need to bring their own legal case, citing the EU Court Ruling.
• If (to comply with the EU Court Ruling) Spain reduces the succession tax
impact on non-residents, to be equal to the current impact on residents, then
not only would that add fuel to the fire for a potentially massive number of
reclaimants, but this would guarantee a reduced future fiscal income; therefore
being hugely expensive for Spain.
• Conversely, if Spain were to increase the succession tax impact on residents,
to be equal to the current impact on non-residents, then the issue of demands
for refunds could be conveniently complicated. And overall, this would
significantly benefit Spain by increasing future succession tax revenue.
• So, a feasible strategy for Spain could be: to leave matters as they are for
now; and just pay any EU fine for interim non-compliance. Then, after the
elections, introduce new national regulations to standardize succession tax,
with the emphasis on asset location rather than individual residency. And in so
doing, phase out resident reductions, to equalize the impact of succession tax
across the board.
• Perhaps a cynical posture, to react to the EU Court Ruling by increasing
succession tax impact. But with the stark choice between potentially facing a
huge fiscal loss; and increasing fiscal revenue, it would be surprising for
Spain to choose the former option.
• Ultimately therefore, the EU Court Ruling could mark a turning point, from
which the overall impact of succession taxation in Spain, (although
standardized in some form, to satisfy EU requirements), actually increases- in
particular for Spanish residents.
• In terms of reclaims for previously paid tax, even if a clear reclaim route
is established, if the reclaimants had received credits against fiscal
liability in their own countries (e.g. pursuant to double taxation relief
treaties), it is assumed that any Spanish reclaim application would be denied.
• It is also likely that if a clear reclaim route is established, the process
itself would be complex, lengthy and therefore expensive to pursue. It is
unlikely that the Spanish Authorities would be inclined to make it a rapid,
simple and economical process.

Conclusion

As regards Spanish inheritance cases
currently in progress, the current Spanish legal/ fiscal obligation continues,
pending fresh Spanish legislation/ fiscal directions. So, inheritors of Spanish
assets are legally obliged to continue to pay succession tax on the basis of
the current system- even though it has been determined by the European Court of
Justice to be operating contrary to EU rules!

An uncomfortable position for
inheritors in the meantime. And furthermore, if they fail to make tax payments
when due, they may face interest/ penalties on late tax payments. But then
having paid tax sums due, although there are certainty changes anticipated to
the Spanish succession tax system, the exact nature and timing of the changes
is uncertain. And finally, if any reclaim option does arise, it is likely to be
lengthy, complex and expensive to pursue.

We will report further as soon as a
decision on the way forward for Spanish Succession Tax is announced.

This general commentary is not
intended to be exhaustive; and case-specific legal advice should always be sought.

The Legal 4 Spain team provides a
full probate service for properties and other assets anywhere in Spain. We are
always happy to provide a competitive cost estimate in the first instance, on a
no-obligation basis.



New European Law Affecting Wills and Inheritance in Spain

Spanish Wills &Estate Planning Posted on Thu, February 02, 2017 15:27:03

September 15th, 2014

A new European law will come into
full effect on August 17th 2015, with the intention of simplifying inheritance
cases across Europe.

This new law will apply to owners of
Spanish properties.

The problem the new law addresses

There has been legal uncertainty
previously in the estates of many non-Spanish owners of Spanish properties, as
to whether Spanish succession law applies or the owner’s own national
succession law.

The distinction is particularly
important for English owners of Spanish properties, where their own (i.e.
English) succession law effectively enables them freely to choose their heirs
(including as to Spanish assets), without limitation in the majority of cases.

Conversely, if an English owner of a
Spanish property were to choose (or be legally forced) to follow Spanish
succession law, then a strict division of the Spanish estate would be imposed
under Spanish law- with a minimum of two thirds passing to descendents; and
very limited discretion generally as to who receives the Spanish estate.

The solution provided by the new law

The new law gives people affected by
the problem, choice as to which succession law applies to their estate.

Well advised English owners of
Spanish properties will in any event, have already made separate Spanish Wills
in anticipation of the new law, clearly electing for their own national
succession law to apply. So they can be certain that their Spanish estate will
pass as they wish; and not pursuant to the strict Spanish legal requirements
(which in the vast majority of cases, are incompatible with English testators’
actual wishes).

In any event, English (and indeed
other nationality) owners of Spanish properties are advised to take this
opportunity in anticipation of the new law, to review their Spanish Wills with
their legal advisers, to ensure that they have clearly and unambiguously chosen
for their own national succession law to apply to their Spanish assets (if that
is what they wish). Also, to ensure that their Spanish Wills are in all other
respects, fully up to date; legally compliant in Spain; and tax efficient.

In the event of a failure of by an
English owner of a Spanish property to leave a valid Spanish Will electing for
English succession law to apply to their Spanish estate, the position under the
new law will be determined by a new statutory ‘habitual residence’ test, such
that:

• If the English owner of the
Spanish property is habitually resident in Spain at the time of death, then
Spanish succession law will apply to the Spanish estate.
• If the English owner of the Spanish property is habitually resident in
England at the time of death, then English succession law will apply to the
Spanish estate.
• If the English owner of the Spanish property is neither habitually resident
in Spain at the time of death nor in England, then it could be either English
law or the law of the actual country of habitual residence. This scenario would
need to be legally determined on the circumstances of the case.

Conclusion

In order to avoid uncertainty-
bearing in mind also that many people change residential status in the final
period of their lives, particularly due to healthcare considerations- it is
always best not to rely on the ‘default’ position under the new law. Instead,
it is always best practice for a Spanish property owner to sign a professionally
prepared, up to date Spanish Will with a clear statement of their wishes as to
the succession of their Spanish estate. This can also ensure that any up to
date tax saving opportunities are used to their full advantage.

This general commentary is not
intended to be exhaustive; and case-specific legal advice should always be
sought.

The Legal 4 Spain team provides a
full estate planning and Will writing service for properties and other assets
anywhere in Spain. We are always happy to provide a competitive cost estimate
in the first instance, on a no-obligation basis.



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