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Spanish Wills
Estate Planning
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Can Spanish Succession Tax be reduced by having a Spanish Will?

Spanish Succession Tax Posted on Thu, February 02, 2017 15:15:58

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.



Tax Shock for Poorly Advised Buyers of ‘Bargain’ Spanish Properties

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:15:12

January 8th, 2014

Expert professional
legal advice is always necessary when purchasing properties in Spain, both to
avoid legal problems; and also to avoid unwelcome tax surprises.

A detailed fiscal
analysis is essential in order to evaluate costs and taxes at the time of the
transaction. But furthermore, to assess the risk of exposure to future tax
liabilities.

Anyone who has bought
or sold property in Spain will be aware that Spanish properties have two
values- the market value; and the official fiscal value.

Prior to the collapse
in Spanish property prices over the last 5 years, in the majority of cases, the
market value exceeded the fiscal value. But now in many cases with reduced
market values, the fiscal value exceeds the market value.

Buyers of Spanish
properties pay a transfer tax of 8-10% of the declared purchase price.

But if the fiscal value
of the property is greater than the declared purchase price, during the 4 year
period following the transaction, the Spanish Tax Authority can demand an
additional amount of transfer tax, by substituting the (higher) fiscal value
for the declared purchase price.

For example, take a
Spanish house previously fiscally valued at 500,000 Euros. Quite commonly, this
may now be sold for 250,000 Euros. The buyer now pays the transfer tax of
25,000 Euros. However, the buyer must budget for a further 25,000 Euro tax
liability, which may be demanded (along with interest/ penalties) any time
within the 4 years following the purchase.

This is nothing new-
but it is convenient for many advisers involved in Spanish property
transactions to ‘play down’ the risks. Also, many advisers are inexperienced;
or lack legal and fiscal expertise; and are therefore simply unaware of the
risks.

At Legal 4 Spain, our
mission is to be clear with our clients as to the risks and liabilities in
Spanish property dealings. This ensures that all relevant legal and financial
details are ‘factored in’ to the negotiation of a price and budgeting.

Armed with the correct
advice and knowledge, property investment in Spain needn’t be viewed as the
risky proposition many commentators would have you believe.



Spanish Residents also facing 3% retention tax on property sales?

Spanish Legal Issues Posted on Thu, February 02, 2017 15:14:18

December 17th, 2013

The understanding
since its introduction has been that the 3% tax retention on Spanish property
sales by foreign owners is applied only to non- Spanish resident sellers.
Conversely, Spanish resident sellers should not suffer the same deduction.

However, the recent
tightening of the rules and practice guidelines in this area has meant that in
many cases, sellers who are Spanish residents are falling into the traps for
the unwary; meaning they are also losing 3% of the proceeds of their Spanish
property sales, in tax retention.

The reclaim process in
applicable cases can be very lengthy and convoluted. So, many Spanish property
sellers end up simply ‘writing off’ the 3% even though really, they should be
entitled to have the tax retention refunded, hence the reference to the loss of
the 3% in practice.

It is important to
appreciate that in this context, Spanish residency has two component elements.
The first is legal or factual residency (generally evidenced by a Certificate
of Residency). The second aspect, which is of equal importance, is that the
positive step must also be taken to become fiscally resident in Spain; and
annually to file the corresponding tax declaration in Spain. (In most cases,
this is an obligation of Spanish property owners, in any event).

Provided that these
fiscal obligations have been complied with in all respects and for the
requisite period; when a Spanish property sale is agreed, the Spanish Tax
Authority should issue a Certificate of Fiscal Residency. This, combined with
the evidence of factual residency, should satisfy the Notary and the Spanish
Authorities that no 3% tax retention should be made.

It should be noted
though, that even for non-Spanish residents, a later tax assessment can be made
following the sale, and capital gains tax charged, depending on the facts and
figures of the case in question.

Additionally, all
sellers (Spanish resident and non- Spanish resident alike) still have to pay
‘Plus Valia’, the municipal tax on Spanish property sales. This is calculated
by reference to Catastral (rateable) value and the period of ownership.

In conclusion, it is
essential to have reliable professional guidance on tax issues and
transactional costs, before agreeing terms for a Spanish property sale.
Otherwise, there is no certainty as to the net sale price which will be
received. Please speak to our team at Legal 4 Spain, for clear advice and
competitively priced legal representation on Spanish property sales.



When to Gift Spanish Properties to Children

Spanish Wills & Estate Planning Posted on Thu, February 02, 2017 15:13:23

It occurs to many
existing owners of Spanish properties that transferring their properties into
their children’s names could provide future inheritance tax savings.

Unfortunately, once the
Spanish property has been purchased and registered in the parents’ names, it is
often too late in economic terms, to achieve this.

For non- Spanish
nationals, the tax consequences of passing a Spanish property down to the
children need to be extremely carefully considered- both in Spain and also in
their own country.

In Spain, a lifetime
gift is subject to taxation at a level which is, in many cases, even higher
than the tax payable in the event of a parent’s death. As an alternative to a
gift, a sale/purchase between parents and children can result in a lower tax
liability; but the transaction has to be meticulously executed to avoid it
being treated by the Spanish Tax Authority as a gift in any event; and
therefore taxed at the higher rate.

There does exist in
certain circumstances, however, a further alternative option- the property
ownership structure can be collapsed, to reduce the number of co-owners in a
comparatively tax efficient manner. But this only enables transfers to other
co-owners. For example, a transfer can be made from one co-owning spouse to
another; or (if children are already registered co-owners of the property), in
favour of children.

So, for families to
avoid being ‘locked in’ to a Spanish property ownership structure which stores
up unnecessarily onerous tax liabilities in the long term, careful thought
needs to be given at the outset- when the property is first purchased- as to
the most efficient holding structure.

But (as an example of
the complexities which can arise) even for English buyers of Spanish
properties, it is not simply a case of ‘buying in the children’s name’. There
are also UK taxation ‘gift with reservation’ issues which need to be addressed.
If the parents pay for the Spanish property, then register it in the children’s
name but continue to use the property themselves, they then need to pay (and
carefully document) an appropriate rent or contribution towards outgoings.
Failing that, the gift of the money to buy the Spanish property could end up
not leaving the parents’ UK IHT estate.

In summary therefore,
when acting for clients on the acquisition of Spanish properties, it is
essential that the legal adviser provides full advice both under Spanish tax
law and also having regard to the buyer’s own national tax law, as to the most
efficient way to hold the Spanish property. This enables the buyer to secure
the best overall tax position; and to ‘keep their options open’ as regards future
tax and estate planning within the family.



Avoiding the pitfalls with Estate Agents in Spain

Sale of Spanish Assets Posted on Thu, February 02, 2017 15:01:06

October 1st, 2013

In Spain, many estate agents offer a
high quality, professional service at a fair cost. But (as is also the case in
many other countries), since professional accreditation in Spain is voluntary,
there are many less reputable operators in the real estate sector; and a quick
scan of postings on the internet predictably confirms many ‘horror stories’.

Reasons for problems in estate agent
appointments include:

• A lack of clarity at the outset on
target sale price and charging structure.
• A demand for an excessive commission (bearing in mind that officially
recommended commission levels are generally 3-5% plus IVA).
• An agreement that the estate agent receives money from a buyer/ holds money
for the seller. Funds should always pass under the responsibility of a
professionally regulated lawyer; and should only go to the credit of a
designated client bank account.
• An estate agent offering to secure a fixed price for the seller, but
receiving commission instead, from the buyer. That can mean the estate agent
(and not the seller) keeps any amount secured for the property over and above
the figure stated. Instead, the estate agent should always be appointed as the
agent of the seller; and be paid an agreed percentage (or fixed fee) by the
seller, which accords with official guidelines.
• Where an estate agent says that independent legal advice is unnecessary; or
recommends the use of the estate agents’ own lawyer. This does not guarantee
best impartial professional advice; but instead creates a real risk of conflict
of interests.
• Exclusivity generally; and automatic extension of an exclusivity period.
• Failure to secure confirmation of any of the points listed at the end of this
article.

A client of ours who is an elderly
widow, asked us to address this subject. Unfortunately she had consulted us
only after being persuaded to sign (incredibly) a legally binding automatically
renewable exclusive term contract with a city centre estate agent in Spain,
which effectively guaranteeing a minumum property sale commission of 21% plus
IVA.

By way of a contrast, having
consulted one of the principal (voluntary) professional bodies in Spain (the
Colegio Oficial de Agentes de la Propiedad Inmobiliaria); their recommended fee
scale for a property sale in an equivalent case is usually in the range of 3-5%
plus IVA.

So, whilst clients are best
protected by appointing an estate agent who is officially an ‘Agente de
Propiedad Inmobiliaria’ (or proven current member of equivalent professional
body or association); the points you should check with an estate agent in Spain
before appointing them include:

• Proof of relevant official
professional qualification by a nationally recognised academic/ professional
body.
• Confirmation of professional regulation and complaints procedures.
• Certification of current valid professional indemnity insurance, to provide
cover in the event of negligence.
• Demonstration of experience and knowledge of the market generally, in order
to be able to provide reliable advice, so as best to protect clients’
interests.
• Demonstration of detailed knowledge of the title to the property in question;
and its local and regional planning law status.
• Confirmation of willingness to work alongside and cooperate with other
professionals (e.g. lawyers) involved in the transaction in question.
• A clear explanation of the nature and extent of the service to be provided-
in writing; in a form approved by your lawyer; in your own language; and signed
as agreed. The terms must include full details of all applicable charges.



European Inheritance Law Changes- Avoiding Spanish Inheritance Problems

Spanish Succession Tax Posted on Thu, February 02, 2017 14:23:37

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.



New energy law exposes Spanish property owners to risk of fines and legal action

Spanish Legal Issues Posted on Thu, February 02, 2017 14:18:39

May 16th, 2013

From 1 June 2013, a new legal
obligation arises for sellers and landlords of Spanish properties to obtain an
Energy Performance Certificate. Failure to do so can expose the Spanish
property owner to the risk of very high fines (3,000€- 600,000€); and also the
risk of legal action from buyers/ tenants.

There are undoubtedly multiple
benefits from improvements in energy efficiency. However, just at a time when,
more than ever, Spanish property owners need reductions in costs and complexity
in dealing with Spanish properties, this change has been met with dismay by
many property professionals and economic commentators alike. The definitive
step of immediately imposing a ‘sellers’ obligation’, rather than making a
‘buyers’ recommendation’ as a first step at least; at this difficult juncture
for the Spanish property market generally, is quite baffling.

Cost estimates for obtaining the
certificate are varying significantly at the moment, as the market for this
relatively new service settles. For example, estimates we have seen for a small
flat have ranged (for an identical service) from 150€- 500€ plus IVA. Obviously
the type of property; size; age; and location will have a bearing on the cost.

Nevertheless, the Spanish legal
position is as it is. So, owners of Spanish properties who have a view to the
sale or rental of their property need to bear this requirement in mind; and
always to raise the issue with the estate agent/ representative prior to any
marketing campaign for sale or letting.

The other consequence of this new
law is that the issue of energy efficiency is going to be higher on the agenda
of buyers and tenants. So, Spanish property owners will need to consider more
carefully the cost/ benefit of energy saving property improvements during
ownership and in anticipation of sale/ letting. Energy inefficiency will
clearly place yet another potential bargaining chip in the hands of buyers and
tenants.



Am I forced to leave my Spanish house to my children under Spanish Law?

Spanish Wills & Estate Planning Posted on Thu, February 02, 2017 14:11:06

March 11th, 2013

For English nationals with property
in Spain, in the majority of cases we deal with, the answer to this question
is: no. Most English nationals are not subject to the Spanish law of succession
(which would otherwise require parents to leave specified proportions of their
estates to their children).

However, individual circumstances
have individual legal consequences. So, this is a matter which has to be
considered carefully in each client case in dealing with Spanish Wills and
estate planning- both from the Spanish and UK legal perspectives. This ensures
that correct legal advice is given; and appropriate and secure legal
documentation is signed.

To have clear, correct and
individual advice on this point, helps to avoid anxiety and uncertainty when it
comes to Spanish estate succession.



How can I be confident about professional standards and expertise in Spanish legal services?

Spanish Wills & Estate Planning Posted on Thu, February 02, 2017 14:08:34

February 22nd, 2013

Back in 2011, a widely
publicised BBC television programme, Panorama, highlighted concerns about the
levels of professionalism and regulation of will writing and probate services
under English law. Following that, a major regulatory review was undertaken in
the UK, which concluded with much stricter regulatory controls. So, effective
consumer protection in the UK for this area of legal services is now firmly
established.

It is equally
important (if not, even more so) when choosing your Spanish legal adviser, that
you make the same enquiries of your Spanish legal adviser, as you would make of
professional advisers in your own country.

Due to the
professional background of our team (see “Our Team“), these are matters which have always been
extremely important to us.

Our professional body
in the UK is The Society of Will Writers and Estate Planning Practitioners
(www.willwriters.com). Also, the Spanish lawyers handling our Spanish legal
cases are fully qualified and highly experienced in Spanish legal matters. They
are accountable to; regulated by; and professionally insured through their own
professional body in Spain (the Colegio de Abogados).

In addition to this,
every single Spanish legal document we provide for execution in Spain is
specifically approved by an authorising Notary- and in the case of Wills, also
accepted by the Central Wills Registry in Madrid. As such, the level of
accountability and professional protection afforded to our clients is second to
none.

It is essential if you
are not a Spanish national, but have assets in Spain, that the legal advice you
receive is from legal professionals, who are appropriately qualified and
experienced in Spain. But equally importantly, your Spanish legal professionals
must also have the necessary qualification and experience of such matters in
your country of origin. Otherwise, it is impossible for you to be confident
that your legal position and responsibilities in Spain are correctly
“dovetailed” with your legal position and responsibilities in your country of
origin. Getting it wrong by not having proper professional advice could end up
being very costly for you and your family.

Also, it is important
to note that before confirming instructions in any Spanish legal matter, you
must be certain that you are completely clear about all applicable charges and
costs and how they are calculated; and further, you should ensure that any
client monies will be securely held on your behalf, in a designated client
account.

We are more than happy
to give our clients the comfort they need on all these matters, as we are
dedicated professionals, committed to 100% client security and satisfaction.



Professional Conduct Risks in Estate Planning Cases with Spanish Assets

Spanish Wills & Estate Planning Posted on Thu, February 02, 2017 14:02:14

Professional
Conduct Risks in Estate Planning Cases with Spanish Assets

November 29th, 2016

The existence of
Spanish assets in cases handled by UK practitioners can give rise to specific
considerations, which can be professionally risky to disregard. A few of the
key stages requiring particular care are as follows:

Spanish Property
Acquisition

Estate Planning
assessment and advice can be critically important at the point of Spanish
property acquisition. It has to be borne in mind, that in the event of
subsequent inheritance, there can be significant exposure to Spanish Succession
Tax- even potentially between spouses. Lifetime changes of ownership of Spanish
properties can be extremely costly to transact, so it is important to have
matters structured correctly- and tax efficiently- from the outset.

It is fundamentally
important that, prior to completing the purchase of a Spanish property, the
proposed ownership structure is very carefully thought through- and the future
succession route (and fiscal consequences) are factored into the purchase
process. Otherwise, unnecessary/ avoidable fiscal exposure can arise.

Fiscal Compliance

Owners of Spanish
properties (both those who are resident in Spain; and those who are not
resident in Spain) have a series of fiscal obligations in Spain, which must be
performed correctly and promptly, otherwise there can be significant
repercussions in terms of exposure to escalated costs/ Spanish fiscal
liability. It is important that estate planning advisers in cases where there
are Spanish assets are aware of these responsibilities, in order to provide
correct cross-border advice.

In many cases, a
Spanish property owner remains responsible for fiscal compliance obligations in
Spain until the end of the calendar year following the year of sale of a
Spanish property. It cannot therefore be assumed that the completion of a
purchase or a sale of a Spanish property concludes matters for the professional
adviser.

Residency

Many people-
particularly in their retirement- dream of a move to a warmer climate and the
more relaxed- and economical- lifestyle Spain seemingly offers. However, making
a full time move to Spain; and becoming an official Spanish resident, can cause
specific complications in the fiscal affairs and liabilities of non-Spanish
nationals. Also, for their families in the event of inheritance.

Any Estate Planning
advisers involved in the context of their clients considering moving to Spain,
need to ensure that the clients have a full understanding of the fiscal
consequences for them and their family of taking Spanish residency- both in
Spain and in their home jurisdiction. In many cases, the fiscal consequences
(and some of them being fairly oblique to the uninitiated), are so far reaching
that it is better to remain UK resident whilst enjoying lengthy stays in Spain-
to the extent legally permitted, without triggering Spanish residency.

Spanish Wills and
Estate Planning

Many UK Estate
Planning professionals seemingly continue to be unaware of the risks of
endeavouring to deal with Spanish assets in English Wills- rather than
following the correct convention of advising that separate Spanish Wills should
be made in respect of Spanish assets.

It continues to
surprise us in taking on Spanish probate cases, how many UK practitioners
endeavour to ‘muddle through’- seeking to deal with Spanish assets in English
Wills. This gives rise (in the event of probate) to additional procedural hurdles
in the Spanish process. Furthermore, it is typical in these cases, that Spanish
assets are implicitly (or even explicitly) placed in Trust structures, which
are incompatible with Spanish law.

In any event, the
risks of delays, complications and additional costs in the legal probate
process in Spain where there is no Spanish Will have been widely covered in
articles in the professional Press over the years. But there are also
situations in which the absence of a separate Spanish Will can have the effect
of an increased Spanish Succession Tax liability. Hence, UK professionals need
to be completely clear and accurate in their advice as to Will structuring, to
avoid the risk of exposing their clients to unnecessary/ avoidable fiscal
exposure and costs.

In principle,
post-death variations to Wills are not permitted under Spanish law. So, that
sometimes-useful fiscal device in the UK does not exist as a facility in
respect of Spanish assets. However, UK testators (for example) with Spanish
assets are entitled to include in their Spanish Wills (along with a properly
drafted choice of law clause), a certain amount of flexibility in the
succession route, enabling their beneficiaries to elect for the most tax
efficient succession route to be applied at the time.

So, this enables post-
death up to date fiscal advice to be obtained, in order to select the most
expedient succession route/ structure. But a Will writer who does not take into
account this highly valuable facility which is available to non-Spanish owners
of Spanish assets, can leave the testator’s beneficiaries exposed to a
significantly greater fiscal liability than might otherwise be the case, with
correct advice and a thorough approach to Spanish Will writing.

Probate

In the Spanish probate
process, it is essential that the practitioner engaged to deal with the Spanish
Estate is professionally regulated, PI covered; and specifically experienced in
the conduct of Spanish probate cases for the estates of non- Spanish
individuals. This type of case is significantly different to a ‘regular’
Spanish probate case; and if the case is not conducted absolutely correctly,
this can not only cause problems in the Spanish process, but can also impact
adversely on the home jurisdiction probate case.

The practitioner handling
the home jurisdiction probate case and the Spanish process need to liaise
closely- especially on fiscal issues. Particular regard must be had to: the
succession route of the Spanish assets (and evaluation of the fiscal
consequences of any discretion as to the succession route); how asset values
are assessed and declared; and the availability of any deductions/ credits
under dual jurisdiction taxation treaties.

A failure by a UK
practitioner (for example), to agree to the appointment of an appropriately
qualified and experienced practitioner in Spain; or to liaise closely with the
appointed Spanish practitioner to achieve the best result overall for the
estate, can leave the Estate/ beneficiaries financially disadvantaged.

The above is a non-exhaustive
list of situations requiring particular care and attention.

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.



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