Spanish Wills & Inheritance Tax

Inheritance law.

On August 17 2015, a European Regulation on inheritance law came into force. This regulation allows European citizens to both a country of residence and a country of nationality. Therefore if you are currently a Spanish resident but you have a different nationality that you will provide you with better conditions for your will and inheritance, you can choose this simply by stating it in your will.

This came into effect in 2015 along with the European Probate Certificate. This document has been designed to make international probate procedures easier in Spain as it will a valid title to enter the land registry. For further information about this subject please do not hesitate to contact us for advice on your specific situation.

 

Spanish Wills and Inheritance Tax – Free Guide


Table of Contents

1 – State of matters after August 17th, 2015

2 – When is it neccessary to make a will in Spain?

3 – Making a Will in Spain

4 – Inheritance Tax

5 – Assessing the estate Value and filling the Inheritance tax

6 – Deductions and Tax Exemptions

7 – Other tips on wills and inheritance tax


1 – State of matters after August 17th, 2015

Since the passing of the legislation:

  1. Each inheritance needs to be treated and single and by one authority. If there are links to several countries, only the law of one can be chosen and applied
  2. European citizens can choose between the law of either their country of residence or their country of nationality
  3. There was the creation of the European Certificate of Succession

Some important reminders:

  • This European regulation does not imply the alteration of substantive national inheritance laws in any European country. Each country maintains its own inheritance law
  • Matters including who the inheritors are or how the taxes are applied are not impacted by the regulation
  • The regulation creates the European Certificate of Success which aims to ease the proving of status and rights as either the heir, administrator of the estate or executor of the will. This certificate will be issued by the country where the deceased had habitual residency. It will provide proof of entitlement in the estate to all signatory countries

These new regulations are important as there are obligatory, and by virtue of Law, they apply to all persons dying after 17th of August 2015.


2 – When is it necessary to grant a Will in Spain?

As a result of this legislation those residing in Spain will need to have a Spanish will if they decide to choose Spain as the country that will govern their inheritance affairs after they die. Without a Spanish will they will not be able to choose Spain as the country to govern their affairs.

You can also opt to have a Spanish title of will with regards to your assets in Spain. This does not mean that Spain will govern your inheritance – this is simply a tool to make probate easier.


3 – Making a Will in Spain

There are two important forms of wills that you can make in Spanish law:

  • Testamento Abierto (Open Will) – once the testator signs his/her will in the presence of the notary and witnesses, the notary keeps the hardcopy of the notary’s files, provides you with an authorised copy and sends the notification to the central registry in Madrid, which is known as the Registro Central de Ultima Voluntad
  • Testamento Credo (Secret/Closed Will) – once the lawyer drafts the testator’s will, it is taken in an envelope to the notary who seals and then signs it along with the witnesses. The notary that files it in the same way as with an open will.

Testators can either specify properties or assets to be destined to specific individuals, or simply make general statement on who their heirs are. Under Spanish law it is also possible designate one or more people to deal with the inheritance as executors. You can also appoint guardians if there are minor children. It should also be noted that the will is always revocable which means you can change it at any time.


4 – Inheritance Tax

In September 2014, the European Court declared that Spain’s tax on inheritance and gift was in part contrary to community legislation. It effectively overruled the different of residents and non-residents. The tribute is regulated by specific regions and these offer tax deductions to benefit the residents in that region. Residents in another EU country or holders of property outside the country have to pay higher taxes.

The Court of Justice of the European Union (ECJ) considers that there is “no objective difference that could justify this difference in treatment” between the situation of a resident and a non-resident or from a property located in Spain or in another country. European justice agrees with the EU executive, who brought the case to court in 2012, and believes that this involved a restriction on free movement of capital, one of the pillars of the European Union.

The judgment is now mandatory for Spain. Spain has had to modify Law 22/2009 on cession of IHT tax to regions so non-residents receiving an inheritance in Spain can benefit from regional allowances.


5 – Assessing the estate Value and filing the Inheritance Tax

Before the filing on an inheritance tax statement and paying it, it is necessary to assess the value of the estate that will be in inherited. Spain has a set system for these calculations. Tax scales vary according to the estate’s value and the nature of the beneficiaries.

How are assets valued?

Real estate: Property is valued by the greatest value amongst the market value, the Valor Catastral, and the rated value or at the value set by Hacienda for wealth tax purposes

Personal effects: Furniture, clothing, personal possessions and other personal effects of the deceased or Ajuar, are valued at a 3% of the price of the property for inheritance tax purposes. Valuable work of art or antique pieces may be valued separately.

Vehicles and automobiles: Used cars must be valued in accordance with tables published annually by the Spain Tax Agency. Other items such as yachts or airplanes will be valued separately.

Stocks and shares: Financial assets such as stocks, bonds, mutual funds or other investment are valued at their market price on the day of the person’s death

Life insurance: If received by the deceased children, the total amount is added to the estate after subtracting the permitted reduction. If received by a surviving spouse, half of the amount is added to the estate, and the other half is taxed as capital gain in the yearly income tax

Bank accounts: The balance on the date of death is added to the estate

How is the IHT calculated?

In order to calculate the inheritance tax it is necessary to figure out the total value of the inherited estate, subtract the debts owed by the deceased, and apply the deductions and scales allowed by the authorities in accordance to your relationship with the deceased person (Groups – see below). Finally in accordance with the inheritors’ residence status, use the corresponding Region Tax Scales Tables to reach the amount that must be paid to the tax authorities.

As mentioned, the allowances and the tax rates, deductions and exemptions vary depending on the Group the beneficiary falls into. In accordance with the succession laws, groups classify heirs in accordance to their consanguinity and affinity line with the deceased.

Group I:  Children and adopted children under 21 years old.

Group II: Children and adopted children of 21 years old or older, grandchildren, parents, grandparents, spouses, unmarried partners registered as a Pareja de Hecho (only in certain regions)

Group III: Other relatives of 2nd and 3rd grade, in-law relatives. Stepchildren, cousins, nieces and nephews, aunts and uncles, siblings, and in-laws and their ascendants/descendants.

Group IV: Other further grade relatives. No reduction is applied to these cases. All others including unmarried partners, unless registered as Pareja de Hecho in certain regions


6 – Deductions and Tax Exemptions

In Valencia, tax free allowances in Group 1 and 2 are now €100,000 (plus an extra €8,000 for every year under 21). Over that there is relief on tax payable of 75%.

In Andalusia, taxable estate value amount equals 0, if assets left by the deceased have a value inferior to €500,000 provided that:

 

  • Heirs are members of groups I and II (or equivalent)
  • Specific heir´s taxable amount is inferior to €125,000
  • Pre-existent wealth of the heir is lower than €402,678.11

This also applies if the deceased’s assets are worth more than €500,000 but specific divisions of the estate among the heirs are lower than €125,000

In Murcia, from August 2015, there are new tax benefits:

In regards to real estate:

Inheritance

  1. a) 99% reduction of taxable amount on the acquisition of property for the creation or expansion of individual enterprise, professional business or the acquisition of shares in companies. This reduction must meet the following requirements:
  1. The acquisition will be formalised in notary deeds and it will be expressly stated that the building will be allocated by acquirer to the creation or expansion of an individual enterprise, professional business or acquisition of shares in entities which meet the remaining requirements.
  2. In the case of individuals, for the consideration of the economic activity, rules will be provided in the regulations governing personal income tax.
  3. The establishment or expansion of an individual company or professional business, or the acquisition of holdings, will have to occur within a maximum period of 6 months from the date of acquisition of the property.
  4. The created, extended or investee entity, whether or not a corporate entity, should not be primarily involved in the management of real estate or furniture.
  5. The property should be earmarked for that activity for the next five years from the date of acquisition, unless the buyer dies within that period.
  6. The legal address of the company, business or investee must be located in the territory of the Autonomous Community of Murcia and maintained for the next five years from the date of the deed of acquisition.
  7. In the case of acquisition of shares of an entity, except for investments in social economy enterprises, worker cooperatives or labour companies, the following requirements must be fulfilled:
  • The acquired shares must represent at least 50% of the share capital of the entity
  • The acquirer has to effectively exercise management functions of the entity.
  1. In the event that the same property is acquired by several taxpayers, this reduction shall be applied on the acquired portion, to those which individually meet the conditions specified in the preceding paragraphs.
  1. b) A deduction of 50% in the tax fee is reinstated for acquisitions by inheritance of any type of property in favour of the descendants or adopted of 21 years/old or older, spouses and parents or adoptive parents.

Donations

Reductions when an estate is donated for the development of entrepreneurship:

  1. a) It is expressly included, if used for the expansion of an individual company or business.
  2. b) Reduction is applicable to investment in any company, business or entity without having to be the first investment of the taxpayer.
  3. c) Maximum limit of the reduction base is suppressed.
  4. d) Circumstances in which the requirements of the public document formalizing the operation are fulfilled are specifically defined.

For tax allowances, reductions and deductions in other regions of Spain, please contact us.


7 – Other tops on wills and inheritance tax

A joint bank account will normally be frozen on the death of one of the account holders, although the bank will usually allow the direct debits for services to continue to be paid out of the account.

For a car to be sold following the death of the owner it is necessary for it to be detailed in the inheritance declaration and tax to be paid.

DISCLAIMER:

The information contained in this guide is for general information and interest purpose only and is not to be construed or intended as substitute for professional legal advice. The information is provided by Maria Luisa de Castro and Costaluz Lawyers and while we endeavor to keep this information up to date and correct, proper legal advice is strongly recommended before making any decision.

For more information please do not hesitate to contact us today.


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