Spanish Estate Planning- The Coronavirus Effect

 In Probate, Tax

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Introduction

Understandably, the focus of British owners of Spanish properties has shifted sharply away from Brexit anxiety, to concern about the consequences of the current coronavirus lockdown.

Implications for Spanish Estate Planning and Will Writing Cases

The Spanish property market has been paralysed, in the sense that in transactional terms, without Notaries and Registries operating in the usual way, it is not possible to buy or sell Spanish properties- and this will remain the case until the restrictions are lifted. Even thereafter, it is anticipated that there will be a substantial backlog, leading to significant delays before Spanish property transactions can be completed.

With the backdrop of what many analysts are predicting will be a sharp decline in Spanish property values, it is expected that many people (without an urgent need to sell), will accept that in ownership terms, they are ‘locked in’- deciding to retain their Spanish properties for longer than might have been intended- until conditions eventually improve. (This is in contrast to a very significant percentage of cases we have seen in recent years, where overseas clients have decided to ‘sell up’ in Spain as they get older- specifically to avoid what they see as the exposure to substantial costs and complexities for their families in having to deal with Spanish inheritance).

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Indeed, we are already experiencing an increase in the number of enquiries from clients who were previously considering selling Spanish properties; but are now interested instead, in longer term Spanish Estate Planning; and mitigation of Spanish Succession Tax (‘SST’). This is a trend which we anticipate continuing during forthcoming months, possibly years.

Tax Planning

A more detailed analysis of the position will be required once the terms of Brexit have been finalised. However, the most recent Ruling of the Spanish Supreme Court is that citizens of countries outside the EU (thus including the UK, looking ahead, post-Brexit), will continue to enjoy the benefit of Regional SST Rates and allowances rather than reverting to National Rates and Allowances. So, as matters stand, it is anticipated that (post-Brexit) UK Citizens will continue to have the benefit in Spanish inheritance cases, of very substantial allowances (in some Autonomous Regions of Spain), before any SST is payable.

To take just one example, in the Autonomous Region of Andalucía, a spouse or descendent beneficiary can currently inherit assets up to the value of 1 Million € before SST is payable. This is irrespective of Spanish Resident or Non-Spanish Resident status. By contrast, the National Rates and Allowances (if they were to apply), would allow just under 16,000€ of Spanish asset value to be inherited before SST is payable.

So, on the face of it, UK Citizens now have less to be concerned about in terms of the SST / Estate Planning impact of Brexit, than had originally been feared.

But on the other hand, it is anticipated that in coming years (and logically, it should be sooner rather than later, as the current SST assessment system for Spanish nationals/ residents seemingly blatantly contravenes EU principles); there will be a unification of the SST system, meaning uniform rates/ allowances across Spain, rather than there being such vast regional discrepancies, as is the case currently. It is expected that a median will be determined; and inevitably the SST impact will decrease in some areas of Spain; but will increase in others.

As such, it remains extremely important in giving Spanish Will Writing/ Estate Planning advice, to bear in mind asset location-specific fiscal regulations; and to think long-term. Anticipating these awaited changes and incorporating in Spanish Wills, the essential legal machinery necessary (to the extent allowed within the confines of Spanish law and practice), in order to provide for flexibility in terms of succession routes- should that prove to be necessary in the fullness of time, in what promises to be an evolving fiscal environment.

Tax Planning in Spanish Property Purchases

As mentioned in previous articles, the point of acquisition of a Spanish property is the optimum moment to consider future ownership structure within a family, with a view to mitigating SST exposure. In turbulent market conditions, there are always those who are prepared to take advantage of what could possibly prove to be an astute moment to invest. But again, longer-term thinking is important in advising clients in these circumstances- especially if typical Spanish property ownership periods look set to increase. This also underlines the importance of intelligent / tax-efficient ownership structuring from the outset.

Spanish Probate

The current restrictions both in the UK (for legalising by Apostille, documents destined for Spanish legal process); and in Spain, for processing inheritance cases through the Notaries and Registries, are causing significant delays in cases (and will inevitably continue to do so for the foreseeable future- even for the first few months after the restrictions are lifted).

In the vast majority of Spanish inheritance cases, the standard deadline of 6 months from the date of death applies, to complete the Notarial process; to make fiscal submissions and to pay any tax due. Otherwise penalties/ interest are automatically added to the tax amount.

Spanish inheritance cases involving non-Spanish nationals/ residents are relatively more time-consuming (than standard Spanish cases); and generally, no material allowance is made for this in terms of time limits. As such, it is always very much in the interests of executors/ beneficiaries to commence the probate process in Spain (in Estates where there are Spanish assets), as soon as possible following the death. This will enable matters to be concluded within the required timescale and, as such, restrict any tax liability to the minimum possible.

Conclusion

The foregoing is non-exhaustive, general advice. The Legal 4 Spain team is always available to provide preliminary advice on a no-obligation basis in relation to Spanish Wills, Estate Planning and Inheritance cases where there are Spanish assets; also for Spanish property transactions generally.


For clarity and context this article was written on April 16th 2020


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