Should I have a Spanish will?
If a non-resident dies in Spain, without a will, the estate in Spain will be distributed according to the Spanish laws of inheritance.
Let us take as an example a man who dies leaving 3 children and a spouse. The only property is the house they are living in. If the widow’s name is in the title as half-owner, she continues to own half the house. The other half of the house constitutes the estate which is divided equally between the 3 children. When the estate is settled, each child will own one third of the title in half of the house, i.e. each of them owns one sixth of the house, and the title deed has four names on it (the widow and each of the three children). The widow is, however, entitled to hold a usufruct (lifetime use) of the children’s share. This means she can stay in the property until she dies.
However, all parties must then agree and sign the deeds if the house is to be sold. It is this provision of inheritance law that causes the situation frequently seen in the Spanish countryside and villages where six brothers are part-owners of a finca.
Dying without a will can give rise to time-consuming and expensive legal procedures for your heirs, so if you really want to look after them and if you have definite ideas about how you want your estate to be apportioned, you should make a Spanish will. It is a simple procedure and you will feel more secure.
All the tax rates and exemptions refer to national inheritance law, and apply to almost all non-residents. Residents will find regional differences.
There are four points to consider:
- You should make a Spanish will which disposes of your Spanish property in order to avoid time-consuming and expensive legal problems for your heirs. Make a separate will to dispose of assets located outside Spain.
- As a foreigner, Spanish law does not require you to be subject to the Spanish law on the statutory division among the heirs according to which you must leave two-thirds of your estate to your children. Most foreigners enjoy free disposition of their estate so that you can bequeath your Spanish property to any person of your choice as long as your own national law allows this. Your estate will, however, be subject to Spanish inheritance tax, which can be high when property is left by a non-resident to non-relatives. The law also states that any foreigner officially resident in Spain is subject to Spanish inheritance tax on his worldwide estate. However, in practice the authorities will not ask the testator if he or she is an official resident or not. The only requirement enforced by Spain is the payment of the inheritance tax on the property or assets held in Spain.
- There are a few ways around the inheritance tax and these legal ways require advance planning. Spanish law does not allow any large exemption from inheritance tax, as many other countries do where the family home is concerned. Tax is payable after the first 16,000 euros for each beneficiary.
- If you are an official resident of Spain leaving your property to a spouse or child who is also resident, you may be eligible for a 95% reduction in the value of the property for inheritance tax calculation. This is not available to non residents, and the reduction applies to the first 120,000 euros.
Amongst the perfect legal possibilities is the formation of a family corporation or “trust”, in which the family’s assets pass into the hands of the company, with each family member becoming a director of the company. So when one member of the company dies, it involves only a reorganisation of the board of directors and a transfer of some of the company shares, thus ensuring very little tax.
However, in Spain, trust documents do not exist under Spanish law, so instead a Spanish company is used.
Equity Release, Reverse Mortgage
A wide variety of plans are now available from Spanish lenders. You may borrow half the value of the property and pay back nothing until the property is sold or you die, at which time the full amount plus interest becomes due. Your heirs can repay the loan and take possession of the property or sell the property and repay the loan, dividing up whatever is left over. As the loan is a charge against the property, the inheritance tax is greatly reduced.
For non-Spaniards, the constitution of a Gibraltar based company or other offshore operation in order to own property in Spain has been another way to avoid Spanish inheritance taxes. When the founder of the company dies, he leaves his shares in the company to whomever he chooses, in a will made outside Spain. As far as the Spanish authorities are concerned, the same company continues to own the property and no transfer has taken place, hence there is no tax or any other costs to pay.
Four Year Limit
The statute of limitations on inheritance tax runs out after four years. The state cannot collect the tax once four years have elapsed. At the end of this time the beneficiary opens the will and applies to register the property, free of any inheritance tax, in his name. Spanish law requires that an inheritance be declared within six months of the death. If not you can be subject to a surcharge of 35% on the tax due. This period of six months is included in the statute of limitations, so in reality four years and six months is the period for prescription.
Power of Attorney
Many foreigners have been confused by the reference in English to an “enduring power of attorney”. This POA does not mean that it endures beyond the death of the person who grants it. A POA dies with its maker, in Spain and in the UK. The “enduring” only means that it has no other fixed date of expiry.
Part8: Spanish Bank Accounts – Available Wednesday 28th
The accounts of residents and non-residents differ in that different regulations apply to money transfers for the resident and the non-resident. The main difference is that Spanish withholding tax of 19% is not withheld from the non-resident account. Continued tomorrow…
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