LEGAL4SPAIN.COM - Updates

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.

April 11th, 2014

Spanish tax law can
undoubtedly lead to very unfortunate fiscal consequences in the event of
inheritance by beneficiaries who are unrelated to the deceased- including
unmarried / same sex partners, particularly if the relationship is not
‘recognised’ with civil status.

So, the bad news is
that advisers who warn of the exposure to Spanish Succession Tax rate of 80%
(or even slightly more) are confirming what could theoretically happen.

However, it should be
stressed that such a high rate of taxation would only apply in the very worst
Spanish tax case scenario. For example, with a very high value Spanish estate;
already wealthy beneficiaries; and no family or marriage connection between the
deceased and the beneficiaries.

But in any event, even
with Spanish estates of more modest value, the impact of Spanish Succession Tax
can still be unexpectedly harsh. So, it’s clear that planning is essential in
all family situations involving Spanish property ownership, to prevent the risk
of legally avoidable Spanish tax liability arising.

Advising non-Spanish
owners of Spanish properties is complex and specialised area of Spanish legal
practice, and without the correct advice, major Spanish tax problems can easily
arise.

We are happy to talk
through any potential cases (without obligation). Together we can explore the
solutions that are available to achieve succession wishes, in a tax efficient
manner.

January 27th, 2014

In many cases, the
answer is: yes!

It is often possible
to deal with Spanish estate planning and structuring so as to reduce the impact
of Spanish Succession Tax within the Spanish Will.

If you have a Spanish
Will, this can assist in reducing Spanish Succession Tax in the following ways:

1. It ensures that you
have the flexibility you are legally allowed to select your beneficiaries; so
that the most tax advantageous succession route in the circumstances can be
identified and provided for.

2. It secures the best
legal basis for a fast and economical succession process, following a death.
This helps to ensure that the legal process can be completed within the very
tight timescales allowed under Spanish tax law. Conversely, any failure to
comply with the statutory timetable (for example, delays caused by not leaving
an up to date and valid Spanish Will) can expose beneficiaries to increased tax
liability, through the imposition of interest and penalties on the tax debt.

It is perfectly legal
and acceptable to organise your estate succession in Spain, so as to minimise
the exposure to Spanish Succession Tax- as far as legitimately possible in the
circumstances. In advising our clients, we consider all available routes to
achieve this. As our team is independent and not tied to any single process or
structure; we are able to provide objective and case- specific advice in each
individual client scenario. This ensures the most cost effective estate
planning solution within the constraints of each case.

September 16th, 2013

New European rules will come into
force on 17 August 2015, which affect the inheritance of Spanish assets of
non-Spanish individuals who die after that date.

These changes will benefit the
families of owners of Spanish properties who leave up to date, professionally
prepared and correctly worded Spanish Wills.

However, those who leave no Spanish Will;
or Spanish Wills which are out of date or do not take into account the new
Regulations, could leave significant problems and unintended consequences for
their families or chosen beneficiaries.

There are numerous benefits of the
new Regulations for non-Spanish owners of Spanish properties (provided that
their Last Wishes are validly expressed in the correct form of Spanish Will).
These benefits include:

• Non-Spanish nationals with
properties in Spain are officially entitled to exclude the restrictive Spanish
‘forced heirship’ succession law from applying to their families.
• Through Spanish Wills, significant opportunities are now allowed securely to
mitigate Spanish Succession Tax.
• Flexibility as to succession route is permitted in carefully drafted Spanish
Wills, to enable beneficiaries to elect the applicable succession route
following a death. This means the route which best suits family circumstances
and tax efficiency at the time, can be applied. This principle sits comfortably
with English nationals, who are allowed under English law to make certain
variations to deceased’s Wills, following their death.
• Confusion as to what constitutes ‘habitual residence’ (becoming the main
criteria for choice of law in Spanish inheritance) can be avoided. Certainty
and security in succession now prevails in Spanish estate planning.

Although these developments are
extremely positive for Spanish property owners (and those considering investing
in Spanish property); it must be emphasized that those who fail to obtain up to
date professional Spanish estate planning advice could fail to secure the
benefits of the new Regulations for their families or chosen beneficiaries.