Spain- Succession Tax and Inheritance Planning Update

 In Tax

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Introduction

The major changes introduced in Andalusia at the beginning of 2018 for the calculation of Spanish Succession Tax (SST) liability are of note generally when dealing with estate planning and inheritance cases, which include Spanish assets.

Andalusia is only one of 17 Autonomous Regions within Spain

The individual Autonomous Regions set their own exemptions/ allowances in Spain and a very significant proportion of Spanish properties owned by British nationals are actually situated within Andalusia. Hence, an awareness of the SST rules in Andalusia is particularly important for estate planning professionals who deal with cases including Spanish assets.

Movement towards reduced SST Impact

The recently introduced fiscal changes in Andalusia followed a concerted social and political campaign in Spain against the previous rules- which in many cases, led to inconsistent and onerous treatment of beneficiaries. Several other Autonomous Regions had previously capitulated to this type of pressure; and had taken steps to reduce SST Impact.

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Now that Andalusia has similarly acted, it is anticipated that other Autonomous Regions, which (for now), continue with harsher SST rules, could over time, also introduce less stringent rules. In general terms, the policy trend in Spain certainly appears to be towards reducing SST impact.

Also, many commentators continue with the view that the imposition by Autonomous Regions of different SST rules also creates discrimination between EU citizens- depending on where in Spain their property is situated. The view being that it is inevitable eventually, that Spain will be forced to centralise or standardise the SST policy across all the Autonomous Regions, to bring an end to this anomalous situation.

Andalusia’s New SST Rules

The effect of the new rules is that spouses and parents/ children/ grandchildren who individually inherit assets within Andalusia which do not exceed 1 Million Euros in value, pay no SST- by way of an exemption. But as always, there are various important ‘small print’ points:

  • The new rules only take effect in relation to inheritance which arises for deaths occurring after 1 January 2018. There is no retrospective effect.
  • The new rules do not benefit beneficiaries who fall outside the strict marital and ascendency/ descendency relationship groups indicated.
  • Any beneficiary who has wealth above 1 million Euros in value before the inheritance in question does not have the benefit of the new exemption.
  • For cases where the actual amount inherited exceeds 1 million Euros in value, then it is only the amount above 1 million Euros which is taxed. (Previously this was not the case. To exceed the exempt amount even by one Euro meant that tax was then paid on everything- subject only to very small allowances).

Issues for British owners of Spanish Properties

  • As was previously the case, EU individuals inheriting properties in Spain continue to have the benefit of the individual Autonomous Regions’ SST exemptions and allowances, irrespective of their country of actual residency. This extends to the new rules of Andalusia, including the 1 Million Euro exemption.
  • However, once Brexit occurs, (as British owners of Spanish properties will then no longer be EU individuals), it is anticipated that they will only have the benefit of the individual Autonomous Regions’ SST exemptions and allowances provided that they are fiscally resident in Spain.
  • So post-Brexit, family owners of Spanish properties who continue to live mainly in the UK (and, for example, just have a holiday home in Andalusia), will instead of having an SST exempt amount per beneficiary of 1 Million Euros, have an SST exempt amount per beneficiary of just under 16,000 Euros!
  • In estate planning terms therefore, it is essential to bear in mind where potential beneficiaries are fiscally resident. In many cases of English individuals who have retired to Spain, for example, if their children remain living in the UK, then the family Spanish assets remain very much exposed to SST.
  • For this reason, although the headline-grabbing increase in the SST exempt amount has come as a relief to many families, there are a very significant number of British families with properties in Spain where (and even more so, anticipating the post-Brexit situation), there is very little in the way of SST protection. So, intelligent estate planning; and having in place tax efficient Spanish Wills, remains as important as ever, for English families with properties in Spain.

The Legal 4 Spain team is always available to provide preliminary advice on a no-obligation basis in relation to Estate Planning and Inheritance cases where there are Spanish assets.

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