Question to a UK solicitor: Do your clients need a Spanish will for their assets in Spain?

Phot for IHT article

It is quite likely that you will have one or two clients with assets in Spain and when it is time to deal with their estates, the probate in Spain could be a source of uncertainty or a source of conflict if there is not a Spanish Will in place. We can help you and your clients to avoid delays when dealing with cross-border estates between UK- Spain.

As you are aware, the European Regulation on Succession (EU) No 650/2012 started to create effects on 17th August 2015 (its rules are applicable to the succession of persons who die on or after 17 August 2015). The EU Regulation was ratified by Spain but not by the United Kingdom. However, English nationals can still take advantage of one of its important points which is to opt for their national law in a Will.

One of the main changes that the EU Regulation introduced is the fact that the connecting factor on applicable law has changed from Nationality to Habitual Residence. (Please note that the EU Regulation does not contemplate the concept of “domicile” that on the other hand, does not exist under Spanish law). This will help us to solve disputes on applicable law in cross border estates UK- Spain.

We should distinguee between British citizens living in Spain and British citizens living in the UK with assets in Spain.

In both circumstances, we would suggest drafting a Spanish Will along with the English Will. It will help your clients to avoid intestate successions in Spain which would turn the probate process in Spain time-consuming and complicated.

At that point, it is important that both you, as their advisor on the English side, and the Spanish lawyer, work collaboratively to ensure that the Spanish Will applies only to the Spanish assets by choosing the national law, and ensuring that none of the wills revokes each other.

A Spanish Will can be signed either in Spain in front of a Spanish Notary or in the UK, complying with certain formalities of a UK will and certain formalities of a Spanish will, which if drafted by the right professional would be easier for your clients.

A Notarial Will Signed in Spain, requires to be signed before a Notary Public, no witnesses are required and should preferably be drafted in two languages unless a translator is present. Finally, the Will should be registered with the Wills Registry, as in Spain, when a person dies we can ask for a last Will certificate that will show us when the last will was signed, before which Notary and in which date.

If your client opts to sign a Spanish Will in the UK, it should preferably be drafted in two languages, with one or two witnesses (depending if it is signed in England or Wales or in Scotland) and it should be preferably signed before a Public Notary and legalized with the apostille of The Hague Convention. Finally, the Will should be registered with the Wills Registry in Spain.

Does your client really need a Will specific for Spain? It is not compulsory but advisable. As mentioned above, it helps to avoid potential conflicts of law, allows to focus on the tax side of each jurisdiction, speeds the administration process, and last but not least avoids interpretation problems.

In terms of IHT in Spain (which is payable by the beneficiary, and not the estate), it should be noted that in Spain there are different tax laws applying depending on the location of the assets (Autonomous Regions).

If you have clients with assets in Spain we would strongly recommend them contacting a Spanish lawyer, with some knowledge of the laws in the UK, to advise on the different types of wills, tax consequences and practicalities of each will, specially now in the verge of an exit from the European Union.

Gunnercooke LLP

Spanish Desk

Antonio Guillen antonio.guillen@gunnercooke.com

Claudia Font  claudia.font@gunnercooke.com

Have your clients paid high Inheritance or Gift taxes in Spain in the past?

Gunnercooke

Pursuant to the European Court of Justice´s decision of the 3/9/2014 they could be entitled to ask for a refund

The Spanish inheritance and gift tax is a national tax but the Spanish Government transferred it to the regional bodies (autonomous communities), who have autonomy to legislate and collect the tax. The autonomous communities have legislated a number of tax benefits that are applicable to taxpayers, resident in their regions.

The key point is that most of the Autonomous Regions have introduced tax benefits to their residents, i.e. in the Balearic Islands (Mallorca, Ibiza or Menorca) the inheritance transfers between immediate family members, if they are residents, are taxed with a maximum of 1% in most estates.

The problem is when we are talking about non-Spanish residents because the tax is not transferred to the regional bodies and the state rules apply without the said benefits. This implied that in the past a person who was not resident in Spain was paying a higher Inheritance tax than a person who was resident in that country. This was clearly a discrimination within the EU and many groups of affected individuals and professionals complained before the EU Courts.

In 2007 the European Commission sent a warning to Spain about a potential incompatibility between the Spanish inheritance and gift tax rules with Articles 21 and 63 of the TFEU and Articles 28 and 40 of the EEA. The Commission formally requested Spain on the 5th May 2010 and 17th February 2011 to take action to ensure compliance with EU rules. As Spain failed to take action, the Commission decided to take Spain to the CJEU and the European Court of Justice declared in its Decision dated 3th of September 2014 that this legislation breached the free movement of capital and it was contrary to the European laws. Spain was therefore forced to amend its legislation in that way.

Knowing that at present the inheritance or gifts between non-Spanish residents have the same benefits that residents have, the key questions are:

What about the taxes already paid by non-Spanish residents before that European Decision? Can we claim a refund for the excessive taxes?

The effects of the CJEU Decision 3/9/14 are not temporary limited and therefore if your clients have paid the inheritance or gift tax in Spain as a non-resident they should be able to claim for the reimbursement of the excess paid.

We would recommend contacting a Spanish Lawyer to review the Inheritance or Gift taxes already paid by your clients in Spain before 2014, and more importantly, if your clients are going to pay taxes in the following months, a Spanish Lawyer will also help them to decide the best way to minimise taxes, without the need to appeal for a refund.

On the other hand, we would also recommend your clients when buying in Spain, to consider the different tax rates and take into account the different regions and their tax rule, before deciding where to buy. We all know that laws can change, but why do not take this into account if it can help clients to save some money?

Claudia Font & Antonio Guillen

Spanish lawyers at gunnercookellp

1 Cornhill London EC3V 3ND 53 King Street Manchester M2 4LQ

 

E-mail: claudia.font@gunnercooke.com       E-mail: antonio.guillen@gunnercooke.com

D: 07788585115                                                  D: 07872808598

 

 

I am an Executor on a Spanish estate. Do I still need an N.I.E.?

The answer is simple: Yes.

Any person appearing in a Will that is going to be used for the administration of a Spanish estate, whether this is an English or a Spanish Will, requires a N.I.E. number. Obviously, this applies to those who inherit the asset but also to those who are not beneficiaries under the Will but have been appointed as Executors of the estate. In the event of several executors there is no need to get N.I.E. for all of them unless they have been appointed in a joint basis whereby all their signatures are required for any document with legal implications.

The above means that if Joe Bloggs died with no Spanish Will but he had an English Will that covered all his assets around the world and in that Will he appointed his brother and his trusted solicitor as Executors, both of them will need a N.I.E number and both will have to fly to Spain to attend the signing of the deed of inheritance at the Notary’s office. If this is not convenient, they can give power of attorney to someone based in Spain (ideally a lawyer or someone they trust) to sign the deeds on their behalf.

With regards to the N.I.E. this can be obtained in different ways:

– In person at the local police station in Spain

– In person at one of the Consular offices or delegations of Spain in the UK ( Aberdeen, Edinburgh, Leeds, Liverpool, London or Manchester)

– By way of granting power of attorney to someone based in Spain

For those who are not aware, there is no need to appoint an Executor in a Spanish Will as the heir/beneficiary has the same powers as a UK Executor. This is a mistake that many people make when signing their Spanish Wills. They appoint Executors when these are not necessary. Having said that, there is no harm in appointing Executors on a Spanish Will or in an English Will that is going to be used in Spain. It is just not as necessary and important as in the UK. In the end is up to the Testator or Testatrix to decide.

 

 

How to calculate the Inheritance tax in Spain for non-residents

Tulips Quite often I am asked how much is the tax payable on a Spanish estate. My first answer to that question is that the tax is not paid by the estate but is paid by each beneficiary on the basis of what he or she inherits. My second reply is that the Inheritance tax is calculated on a sliding scale where some coeficients are applied depending on the value of the asset inherited. It is therefore quite difficult to give a quick estimate without having the calculation rates next to me. Rather than using this post to talk about all the intricacies of Spanish Inheritance taxes, I think it would be useful to set up a case study with some imaginary names which would give the reader a taste of how the tax is calculated in Spain.  

Paul Herbert, British national, resident in Manchester dies in the UK on the 18th March 2012. He was divorced and had one daughter. He had assets in the UK and in Spain. There was a Spanish Will dealing with the Spanish assets and a Will dealing with the UK assets.

He left all his Spanish assets to his daughter, Isabel, who is 40 years old and lives in Birmingham. The funeral took place in the UK. The estate comprises a property in Marbella worth 295,000 euros and a bank account with 5,000 Euros. The property had no mortgage.

The house did not have any valuable assets, just the usual furniture for a house of this type.

The daughter is British and has never lived in Spain.

INHERITANCE TAX CALCULATION RATES (€)

 

Tax Base 
up to (€)

Tax liability
euros

Remaining Tax base up to
(€)

Applicable Rate

 

0.00

7,993.46

7.65

7,993.46

611.50

7,987.45

8.50

15,980.91

1,290.43

7,987.45

9.35

23,968.36

2,037.26

7,987.45

10.20

31,955.81

2,851.98

7,987.45

11.05

39,943.26

3,734.59

7,987.46

11.90

47,930.72

4,685.10

7,987.45

12.75

55,918.17

5,703.50

7,987.45

13.60

63,905.62

6,789.79

7,987.45

14.45

71,893.07

7,943.98

7,987.45

15.30

79,880.52

9,166.06

39,877.15

16.15

119,757.67

15,606.22

39,877.16

18.70

159,634.83

23,063.25

79,754.30

21.25

239,389.13

40,011.04

159,388.41

25.50

398,777.54

80,655.08

398,777.54

29.75

797,555.08

199,291.40

onwards

34.00

 

We know that the property was worth 295,000 Euro and that there was 5,000 Euro in the Spanish bank. The tax calculation would be as follows:

 

Real value

300,000

Chattels

9,000 (300,000 x 3%)

Gross Estate

309,000

Expenses  

0

Net Estate

309,000

Taxable Base

309,000

Allowances

Kinship (descendants)

15,956.87

Final taxable Base

293,043.13

Tax liability

 

Up to 239,389.13
Rest up to 293,043.13 (53,654) x 25.50%

Total

  40,011.04
                                                13,681.77

53,692.81

Multiplying rate

1.00 (She has no pre-existent estate in Spain and is the daughter of the deceased)

 

Inheritance tax

 

53,692.81

 How did we get this figure?

The real value is 300,000 € and this includes the value of the property (295,000 €) and the balance in the bank account (5,000 €). When there are no relevant chattels Spanish laws consider that the value of the chattels is 3% of the real value. That is why we have this amount of 9,000 € shown as chattels (300,000 € x 3%).

The funeral expenses were incurred in the UK and therefore cannot be deducted as an expense. We are then left with a Net Estate of 309,000 € which will be used as the Taxable base to which the necessary bases and percentages apply. But before applying any bases or percentages we need to apply the necessary allowance which will vary depending on the kinship. Children have an allowance of 15,956.87 € and therefore the final taxable base will be 293,043.13 € (Taxable base – Allowances).

It will then be a case of applying the tax base and percentages indicated in the table at the beginning of this document. This is done in two stages:

–       Up to 239,389.13 € the amount to pay will be 40,011.04 €.

–       The rest up to 293,043.13 € (in particular 53,654 €, which is the difference between 293,043.13 € and 239,389.13 €) will be calculated applying the appropriate percentage which is 25.50% leaving a second amount of 13,681.77 € to pay.

The tax liability will be the sum of both amounts (40,011.04 € + 13,681.77 €) = 53,692.81€.

Finally, a multiplying rate has to be applied depending on two factors: kinship and the value of the previous estate of the beneficiary in Spain. If the latter is less than 402,678.81 € then the multiplying rate will be 1 (which is the case of the daughter as she has no previous assets in Spain)

The Inheritance tax to be paid by Isabel will be the tax liability (53,692.81Euro) multiplied by the multiplying rate 1 = 53,692.81

Tax to pay is 53,692.81 €

The IHT paid in Spain can be offset in the UK to avoid double taxation.

 

DEATH, BANK STATEMENTS AND TAXES IN SPAIN

When the Spanish estate is not only made of properties 

morguefile com1 (2)

 

 

 

 

 

When inheriting assets in Spain, the first thing that comes to mind is property but the truth is that assets also involve bank accounts, shares and other type of properties such as a car or even a boat.

We have written various posts about the procedure of dealing with inheriting a residential property but not enough posts on a related matter like the money in the Spanish bank. These accounts are often used to pay utility bills and taxes related to the property. However, some people who have been living in Spain for long periods of time end up, understandably, gathering important amounts of money in the bank. 

Whether you are dealing with an estate with both property and bank accounts or just a simple estate with a bank account, it will be necessary to contact the Bank in order to obtain a certificate showing the balance at the time of death. In certain regions of Spain, like the Balearic Islands, the bank will also provide you with a statement showing the transactions that took place in the 12 months before the death.

Banks generally will want to see the original death certificate, the certificate of last will and the last will of the deceased. Don’t be surprised if the bank only accepts to release information to a beneficiary or to a person that holds power of attorney from a beneficiary. This is also applicable to lawyers. Contrarily to what happens in the UK, where the solicitor’s word indicating that he/she is acting for the beneficiary or the personal representative is sufficient for the bank, the Spanish Banks will want to see a letter of authority or a power of attorney from the beneficiary to the lawyer. In certain occasions, the bank will only accept to release the information if the documentation is presented at his branch in person by the beneficiary or his lawyer! Finally, some banks will charge a fee for opening a “testamentary file” and producing the certificate, something that is clearly unfair and abusive and that should be challenged if demanded.

All the UK documentation, such as the death certificate, Grant of Probate and UK Will (if applicable) needs to be   translated by an Official Translator and legalised with The Hague Apostille to be valid in Spain.

Once the bank is informed about the deceased’s demise, the account will be frozen until the Inheritance Deed is signed and the Taxes paid. Once all this happens, the beneficiaries or the lawyer holding power of attorney will appear in person at the bank supplying the Inheritance Deed, the certification of the payment of the inheritance tax and they will sign a document agreeing the destination of the money, either transferring this directly to a UK bank account or keeping it in a Spanish account.

The above can seem complicated and the fact that each bank (and branch!) operates differently can make the whole procedure look far more complex than what it really is but in the end everything is down to providing the bank with the documentation requested and fulfilling its criteria so funds can be released as per the beneficiaries wishes.

Can I renounce to an inheritance in Spain?

A Business Men Climbing a Pile of Papers

 

 

 

 

 

 

 

 

In most occassions, inheriting from a dead relative or friend comes associated with an increase in wealth. The heir or beneficiary inherits the assets or money that the deceased had and once the inheritance tax is paid, which sometimes can prove very expensive, the heir is left with a property in Spain and hopefully some money in the bank. This, once we dettach it from the pain and grievance caused by the death of the loved one, usually has a positive side. There will be a property in Spain that can be sold, let or used during holidays. If the property is sold, the heir will be able to get some money after the sale and hopefully spend it or save it as he wishes.

However, this is not always the case. In some cases the property might be charged with a Spanish mortgage leaving no equity for the heir. In other occassions the property could be subject to very high maintenance expenses such as community fees, golf course fees, etc that make the whole thing of owning the property more burdening than having no asset at all. Finally, it may be the case that the inheritance tax due on the Spanish assets is extremely high and the heir is unable to pay it without selling the property. In those circumstances it is normal for the heir to question his intentions and weigh the possibility of renouncing to the Spanish estate.

In general terms, renouncing to the Spanish estate is not a good idea because in most of the cases there will be a property that can be let out or sold. Sometimes it will be a matter of waiting a few years until the market picks up or the mortgage is paid off, but most people do not renounce to what they inherit in Spain. Notwithstanding this, it is true that there is a small percentage of heirs that are not interested in inheriting the assets in Spain and who see the Spanish property more as a burden than an asset. In those circumstances, the heirs can renounce to the Spanish estate and their rights will pass to either the substitutes under the will or to their own beneficiaries, which usually means their children. This is something that needs to be considered before making any renounciation because the renounciation can trigger further consequences that may prove even more detrimental. For instance, imagine that Joe Bloggs dies with assets in Spain. His Spanish will states that everything will go to his daughter Isabelle. She is not interested in the Spanish property and therefore decides to renounce. However, the will states that if Isabelle renounces, everything will go to her children (the grandchildren of Joe Bloggs) and the said children are minors. Under Spanish law, minors cannot renounce to an inheritance without the consent of a Judge. This means that the inheritance will reach a dead point where the minors can accept the estate but not reject it without the consent of a Judge. As you can see this has caused an even bigger problem.

The above is one of the scenarios that can arise. The important thing is to seek legal advice before making any decision in this regard. Do not listen to those who say that you cannot renounce to a Spanish inheritance because this is not true. Anyone, who is of age, can renounce to the Spanish inheritance but before doing it they should seek legal advice to ensure that they understand the consequences of the renounciation and see the different options available. The heirs might be surprised to see that they can transfer their rights to a specific person who might be more interested in the property than them.

 

Lets talk about gifts

 

 

 

In this space I have talked about wills and inheritances very often but never, as far as I can recall, about gifts. Is it generally a good idea to gift assets in Spain? The answer is also generally no. Why? For one simple reason: taxes.

 

A gift will always be subject to gift tax which is also higher than the inheritance tax. This means that if you gift your property in Spain to your children, they will pay more taxes that what they would have paid should they have inherited this property after your death. This clearly puts off many property owners from gifting their properties in life rather than on a will, and therefore on death. However, this option can still be considered if the recipient of the gift requires the property now rather than later. For instance, if you have a property in Spain that is empty and your daughter has moved to Spain and wants to settle there, gifting the property may prove useful for her. Ok, she will have to pay gift tax but on the other hand she will not have to get a mortgage and buy the property paying high interests to the lender.

To summarise, a gift is not always a “no-no”. In some certain cases can prove useful and the high tax payment can be offset by certain advantages of transferring the property now rather than later but careful consideration should be given before embarking in this transaction. Otherwise, it could prove unecesarily costly.

Picture provided by www.dreamstime.com

Daddy, where is my money?

 

This week a Spanish national from Castilla but living in England for many years came to see me for advice on wills. In fact I was the second solicitor to be consulted. The other one recommended him, without taking into account his national law, to grant an English will and leave everything to the surviving spouse.  There is an attractive reason to do so and this is making use of the inheritance tax exemption between spouses. The idea may seem clever if we obviate a detail: my fellow countryman is the proud father of two children. Given the fact that under Spanish law his nationality determines the law governing his estate, the children are entitled to get what is called a forced share on the estate (legítima) which in this case equates to 2/3 of the estate.

English law gives to the testator freedom to dispose of his assets on his death. Spanish law, on the contrary, places some restrictions on the testator and therefore he is not free to dispose entirely of his estate and he has to ensure that certain beneficiaries such as children, spouses and, in certain cases, even parents receive their forced shares. The forced share is not a typical English legal concept. That is the reason why this concept may seem odd for a solicitor who is used to prepare English Wills for English clients. However, the origins of the forced shares are old. It is a concept developed in Roman law, but if we consider it from a sociological point of view it is clear that the forced share appeared in earlier societies to protect family welfare after the death of a relative.

A forced share is the right of the next of kin to receive freely a share of the deceased’s estate (unless they have been given this share by a previous gift). Although it may seem strange for an English person, this concept is very important in inheritance issues, not only inSpainbut in other countries.

Most of the legal systems based on Roman law have preserved this succession system. We can mention France, Germany or the countries which continued with Spanish law in South America. The forced share or “legítima” is not a controversial topic in Spain, but there are obviously different opinions about it. On one hand it has a good reason to exist: protecting the future of the descendants and the spouse. If we accept that the Laws should always safeguard the interests of the weakest parties, then forced heir-ship is a good idea that helps to avoid unfair situations. On the other hand it is clear that the forced shares restrict freedom to dispose and in the event of this Spanish person, in particular, it may affect his plans to protect his children from potential inheritance taxes.

Returning to the main subject of this article, in the end I informed the Spanish national that he had restrictions to his capacity to make a free will and recommended him to comply with Spanish law and therefore provide for the children’s rights in the will. If not, on his death his children could challenge the will and demand the mother and surviving spouse, the payment of their rights under Spanish law. This, which may be difficult to believe if you have a happy family, does happen in real life and as lawyers our obligation is to inform the client appropriately and try to avoid potential problems. The client’s will might not be as tax efficient as he wanted but at least is a legal will that complies with his national law. As a colleague of mine said the other day: you can’t always win!

 

 Photograph by www.dreamstime.com

Wills, wills, wills…

As one of the few Spanish lawyers living and practising in this country, I often come across international probate matters where the deceased had assets both in Spain and in the UK. In certain occasions, the deceased is a Spanish national who moved to the UK for work and ended up owning assets in this country but in the majority of cases the situation is the reverse; a British person moved to Spain (seeking sun and more gentle weather) and kept assets in both countries.

When the said person dies there is a probate procedure to be dealt in Spain but also in the UK. If there is a will for each country then great but quite often this is not the case and conflicts of international law start to arise. Last week I saw a case where an English national who died in Spain had a Spanish will, which was only applicable to the Spanish estate, but no English will at all. The Spanish will could not be applied to the UK assets as it clearly stated that it was solely restricted to Spain and therefore a partial intestacy procedure needs to be started in the UK in order to get what is called letters of administration.

The above scenario reminds me how convenient is to seek the advice of a professional who is qualified to deal with both jurisdictions or if this not possible, at least try to get separate advice from a Spanish lawyer and UK solicitor and, hopefully, get them to work together in order to ensure that both wills are in accordance and do not create any unnecessary problems in the future. In my opinion, many problems take place because there is no communication between the two different lawyers or because the wills are signed at different times and places. This can be avoided by appointing a law firm with solicitors of both jurisdictions or by simply asking the lawyers, if they are based in different countries, to liaise and work together.

As we say in Spain”más vale prevenir que curar” which means something like “it is better to be safe than sorry”.

More next week.

Photograph from www.dreamstime.com

 

To value or not to value? That is the question.

 

The other day a client was in the process of filing an Inheritance tax form and he asked me which value he had to give to a Spanish property he had just inherited. In England the answer is quite simple: you must use the open market value. This generally means getting the property valued. In Spain the situation is, as usual, quite different.

Spanish law states that it should be the “real value” but there is no clear definition as to what the real value is. There is some guidance as to what could be understood as “real value”. For instance, the price shown on the deeds when the property was purchased or the value used by the tax office the last time the property was assessed by the tax man. However, the most common practice is to use the fiscal value. This is obtained applying a specific multiple to the rateable value of the property, which is usually shown on the annual property tax receipt.  

In the end, what happens in most of the cases is that the beneficiaries give the values that they consider appropriate and then these values are assessed by the Tax office. If the Tax office believes that the property is worth more, the Tax office will issue a tax request for the difference and any interest accrued.

In my opinion, it is advisable to use the market value and ensure that this value is definitely higher than the fiscal value. However, each case needs to be looked separately as there could be many factors affecting the final decision i.e. was the property  purchased a few years before the death? is there an intention to sell the property in the short future, etc.

What is clear is that if you are an executor of the estate, both English and Spanish, then the best way to proceed is to get the property properly valued and use that value for tax purposes, both in England and Spain. Otherwise, there could be some personal liabilities for the executor.

Picture by www.dreamstime.com

To be, or not to be, that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them? To die, to sleep,
No more; and by a sleep to say we end
The heart-ache, and the thousand natural shocks
That flesh is heir to: ’tis a consummation
Devoutly to be wished. To die, to sleep;
To sleep, perchance to dream – ay, there’s the rub:
For in that sleep of death what dreams may come,
When we have shuffled off this mortal coil,
Must give us pause – there’s the respect
That makes calamity of so long life.
Hamlet by William Shakespeare

 Amazing monologue of the genius William Shakespeare. By the way, who do you think has best incarnated Hamlet on the silver screen? Many generations think of Laurence Olivier.  Personally, I really enjoyed Kenneth Brannagh’s take on Hamlet