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.

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.

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

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
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.