April 18th, 2016


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

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

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

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.