Thank you to Raquel at Perez Legal for the following information. Raquel has kindly provided some of this previously but this is the most complete and up -to-date and supersedes all other inheritance tax information published on this blog.
Inheritance issues are something you may not want to think about, but you should plan ahead especially when you own any assets outside your home country.
This is a brief overview of certain facts and figures related to Spanish inheritance law and tax.
Foreign nationals enjoy free disposition of their assets in Spain
A foreign national can make a Spanish will leaving his Spanish estate to any person of his choice. The Spanish Registrar will accept its terms and, when the time comes for the will to be executed, the inheritors can take possession of their new property.
In practice, the authorities do not ask if the testator is an official resident or not. They accept the Spanish will as valid. The only requirement enforced by Spain is the payment of Spanish inheritance tax, which will be different for residents and non-resident inheritors.
Not leaving a will
If a foreign national dies in Spain without a will, his estate in Spain will automatically be distributed according to the prevailing Spanish laws of inheritance.
If, for instance, a husband and wife own a house 50% each and they have 3 children, the surviving spouse will continue to own half the house as their name is on the title deed as half owner already. The other half of the house constitutes the inheritable estate.
Under the standard state laws, the estate will be divided equally among the 3 children. When the estate is settled, each child will have a one-third title to half of the house, meaning that each one now owns one-sixth of the house, and the title deed has four names on it – that of the widow and each of the 3 children. The widow also holds a usufruct right on the children’s share, which means that she can use their half of the property until she dies, as well as her own half.
In practice this means all parties must be in agreement and sign the deed before the house can be sold.
Dying without a will can result in time consuming and expensive legal procedures for your survivors, so if you want to make sure they are taken care of and if you have definite ideas about how you want your estate distributed, you should prepare a Spanish will. It’s a very easy and inexpensive procedure that ensures you control the process and can have complete peace of mind.
Costs and fees associated with a Spanish will
The normal cost would be between 160 euros up to 250 euros, depending on the lawyer’s fees. In addition to this, you should count on Notary fees of approximately 50 euros.
Your lawyer will prepare your will as a double-barrel document in English and Spanish, and will take it to the Public Notary Office in order that you can confirm your identity (with a passport) and sign the will in front of the Notary. Unfortunately, no one can substitute you in the signing of a will, so it will have to be done in person.
Advantages of signing a Spanish will
There are several key points to bear in mind:
- It is advisable to make a Spanish will disposing of your Spanish assets in order to avoid time consuming and expensive legal procedures for your heirs. Make a separate will to dispose of assets outside Spain.
- You will be exempt from the Spanish law of compulsory heirs, according to which you are automatically obliged to leave two thirds of your estate to your children. Instead, a personal will allows you to leave your estate to whomever you choose, and apportion it as you see fit.
- You can plan ahead your Spanish inheritance tax. Spanish law provides exemptions for family members such as spouses and children. As a result, there is a tax deduction of 16.000 euros for the surviving spouse and approximately 11.000 euros for the children.
- If you are an official resident in Spain, leaving your property to a spouse or child that is also a resident can result in a reduction of 95% in inheritance tax. It is, however, an advantage that is not available to non-residents, and the reduction is applied to the first 175.000 euros of value.
Does my will in my home country cover my Spanish assets?
Foreign wills can be probated in Spain, but there are a number of steps that must be followed, and they are complicated.
If you have lived in Spain for a long time, you will need to review your legal domicile in your home country.
Your lawyer back home will need to prepare a letter of intent on your behalf, confirming that even though you hold a Spanish residence permit now you intend to return to your home country eventually.
Setting tax values
Another issue is obtaining the official value of assets of different nature, such as real estate, personal belongings, automobiles, stock and shares, life insurance or bank accounts. All of these are necessary to make the Inheritance Tax declaration. They are obtained from different sources and subject to individual tax scales.
For non-Spanish citizens, the incorporation of an offshore company in order to own real estate has been a much-used way to avoid inheritance tax.
When the founder of the company dies, he leaves his shares in the company to whomever he chooses by means of a will made outside of Spain. However, as far as Spain is concerned, the same company continues to own the property and no transfer has taken place (which means there is no need to pay transfer tax or capital gains tax), yet such companies are liable for a special tax on property held by corporate entities registered in tax havens. This tax is normally 3% of the value of the property and is payable once a year.
There is a statute of limitation on inheritance tax and it is 4 years. This means that the state cannot collect inheritance tax more than four years after a person’s death. If the deceased’s will is lost during this period and found and presented by the inheritors after the four-year period has lapsed, it can be possible to apply to re-register the property free of inheritance tax.
Spanish law requires that inheritance tax should be declared within six months of the date of death. If an inheritor is found tampering with legal material in the manner described above, they can be subject to a surcharge of 25% on the tax due, or even higher penalties. This six-month period is then added to the statute of limitations of 4 years so in reality its 4 years and 6 months.
While it is also possible to give pre-inheritance gifts while you are alive, this does not provide any form of exemption from inheritance tax, as such gifts are governed by the same conditions as inheritance itself.
How to minimise your inheritance tax liability.
A lot of people think that having a Spanish will in place means there will be no tax to pay. Although this is unfortunately not the case, having such a will saves a great deal of trouble, expense and, if done properly, can reduce the tax bill significantly.
There is no one-fits-all solution, it depends on individual circumstances, but some alternatives are:
- Incorporating a Spanish company.
- Incorporating an Offshore company.
- Or becoming a resident in Spain. If this is your preferred option, you should hold an official residence permit for at least 3 years. The home you live in will be your official residence and you must have lived in it for at least 3 years. Officially, your inheritor must undertake not to sell the property within a 5-year period, though this is not enforced in practice
Get the facts right
- In Spain, death certificates must be applied for within 24 hours otherwise the application will be more difficult.
- All inheritors must apply for a NIE number and will have to give power of attorney to the Spanish lawyer representing them to arrange it.
- A lot of people don’t plan ahead and make it difficult for their inheritors to find documents such as title deeds to produce to the authorities in time, yet the law requires the inheritance tax to be paid within six month’s of the date of death.
- The deceased’s bank accounts will be frozen until the will’s conditions are satisfied and inheritance tax is paid.
- After the inheritance title deed is registered (within 30 days of payment of the tax and presentation to the Registrar Office), the Plus Valia tax will have to be paid to the town hall. This sum depends on the number of years that have passed since the last sale of the property.
- Inheritance Tax is payable to the central government in Madrid.
- If you don’t process the change of ownership of the property in the name of the new inheritors, they will not be able to rent or sell your property, and it is in danger of remaining in limbo for a long time.
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