As we all know after the approval of the Brexit Withdrawal Agreement the UK now finds itself in a transition period which will last until the 31st December 2020, assuming that it is not extended. During this transition period UK citizens can continue to live, work and study in the EU as they did before the 31st January 2020, but it is important for those who have not done so yet to start preparing for their stay in Spain after the end of the transition period.
Legal residency and NIE
If you are living in Spain, but have not yet obtained your legal residency certificate (green A4 or card size document) you can still do so before the 31st December under current EU regulations, which we highly recommend. Any application made after this date, unless the transition period is extended of course, will be considered under whatever new regulation is agreed between the UK and EU, or under Spain’s current regulation for non-EU citizens if no agreement is reached on residency. This could mean a substantial increase in minimum income requirements, employment law requirements, etc. depending on the basis for your residency application.
The NIE document (white A4 document), as you will already know, is not proof of residency and is a way of assigning a legal and tax identification number to non-residents, which is required for certain transactions, such as buying a property, registering a vehicle, etc. The regulation surrounding this document will not change after the 31st December, as it is already a document which has exactly the same requirements for EU and non-EU citizens alike.
Life-long healthcare rights in Spain have been guaranteed to those who are resident in Spain before the 31st December, provided they remain a resident.
You can continue to receive and can still claim your UK State Pension if you live in the EU. If you are resident in Spain by the 31st December you will get your pension uprated each year as long as you continue to reside here, and even if you start claiming your pension on or after the 1st January 2021 as long as you meet the conditions set out in the new State Pension guidance.
Driving license and vehicle registration
Once you become a legal resident in Spain you are required to exchange your UK driving license for a Spanish one. Again, before the 31st December this can be done in the same conditions as before under the regulation of EU license exchanges, which is to say a straight exchange of one for the other.
Equally, if you are a resident or spend more than 6 months a year in Spain you are required to register your vehicle in Spain.
It is essential, even more so if you are a Spanish resident or in the process of obtaining residency, to make sure you have a Spanish will in place for your assets in Spain with an express choice of law clause allowing your inheritance to be governed by UK law. The importance of this is addressed in more detail in our post “Why is it more important than ever to have a Spanish Will?”.
The majority of regional Inheritance Tax allowances that UK citizens currently enjoy in Spain do not apply to non-EU residents. This means that, save for a tax agreement to the contrary, UK residents will have Spanish State Inheritance Tax regulation applied to their inheritance. It is therefore important to seek the right advice when structuring you will, in order to keep this in mind.
If you need help or advice with any of these proceedings, do not hesitate to contact us.
Due to the increasing amount of foreign retirees choosing it as their retirement destination, international inheritances and the issues they present have become much more common in Spain.
By international inheritances we mean any inheritance with an international dynamic (e.g. the deceased is a foreign national, a foreign law applies to the inheritance, etc.). Here are just a few of the complications that can arise.
Locating last will and testament.
When the deceased is a foreign national, the likelihood that the last will and testament was made abroad is obviously higher. Although within Spain we have an extremely effective system for the registry of wills, this is not often the case in other countries. In the event that the last will and testament has been made in Spain, any notary is able to request information from the Spanish Registry of Wills to ascertain where and when the last will was made and obtain a copy. However, if the last will was made abroad this will need to be obtained, and this can become very difficult if there is no national registry of wills.
Legalisation and translation of foreign documents.
Whenever there is an international dynamic to inheritance, some form of foreign documentation has to be submitted
(e.g. death, birth and marriage certificates, certificate of foreign law, etc.). All foreign documentation will have to legalised/apostilled, depending on its origin, unless it is an exception as regulated by an international convention. Furthermore, unless the notary dealing with the inheritance has sufficient knowledge of the language of the document, or it is a multilingual document, sworn translation will be needed.
Determining the law which applies to the inheritance.
Clauses within Spanish wills electing the law that will apply to the inheritance have become more commonplace, but when such a clause does not exist a determination will need to be made of the applicable law, according to Spanish and EU law, based on the residence of the deceased. This could create limitations for the inheritance if the applicable law establishes forced heirship, as such heirs will have to inherit a certain legal minimum by law.
Certification of foreign Inheritance Law.
In the event that a foreign law does apply to the inheritance, unless the notary is sufficiently aware of the domestic inheritance legislation, a certification of said law will need to be obtained from the appropriate authority of the foreign country. Once again, legalisation/apostille and sworn translation may be needed depending on the circumstances.
Locating inheritors abroad.
Another obvious complication of an international inheritance, is the existence of inheritors who are resident outside of Spain. This only creates a difficulty when they are unable to be contacted due to lack of information, in which case they will need to be located through the appropriate authorities for the inheritance to proceed.
POA for inheritors.
In the case of inheritors who are resident abroad, a power of attorney is often granted for a third party to deal with matters relating to the Spanish inheritance on their behalf. However, some people may not be aware that the only form of power of attorney acceptable in Spain is a notarised one. This means that the inheritor either has to grant the power of attorney before a Spanish notary, or they will need to grant it before a notary public in their country of origin, which will then need to be legalised/apostilled and translated, depending on the Spanish notary’s knowledge of the language.
NIE for all inheritors.
All inheritors, foreign or otherwise, must have a Spanish id number, which means that all foreign inheritors must obtain an NIE (Foreigner Identification Number). This is for tax purposes and the avoidance of money laundering, as the NIE becomes the inheritor’s tax number without which they will be unable to inherit, submit Inheritance Tax return or have any real-estate registered to their name.
Locating assets and liabilities of the estate.
In the event of a Spanish inheritance of a foreign national there are often assets abroad. This can become complicated if the inheritors are unaware of the existence of such assets. As regards locating debts and liabilities of the deceased, this is always difficult in and out of Spain, as there are no centralised records in these cases.
Co-ownership of property among inheritors.
What many, who are unaware of the Spanish inheritance system, do not appreciate is that Spanish wills very rarely assign an executor, as it is not a common role in Spain due to the necessary execution by notary public. This means that in such cases there are no means by which part or the whole estate is liquidated before each inheritor acquires their share. Therefore, in the case of real-estate, it can lead to a situation where a property is co-owned by several inheritors, the obvious implication of which is that the property will not be able to be subsequently sold without the agreement of all parties.
Inheritance Tax jurisdiction.
The residence of the deceased and the inheritors will determine whether jurisdiction over Inheritance Tax lies with the appropriate regional tax authority or the central tax authority.
These and other complications are why it is very important in these cases to seek appropriate legal advice from professionals who specialize in such international cases. The inheritance process in Spain is not as straight-forward as in other jurisdictions, and without the correct guidance can be unnecessarily complicated and delayed.
As you may also have heard, thanks to a political agreement between PSOE and Ciudadanos, further improvement on this legislation came into effect on the 1st January 2018 and April 2019, by which a tax allowance of 1,000,000 € was introduced for some direct family members, as well as a fied 1% tax rate in all cases.
Who does this apply to?
This news, as often happens, has given way to some confusion that this in fact refers to a general tax allowance, which is not the case. The 1,000,000 € exemption per beneficiary (in Spain each beneficiary is taxed rather than the estate – for more information check out our post “Inheritance Tax reform in Andalucia”) will only apply to family members that come under Group I and II in accordance with Andalucia’s Inheritance Tax legislation. The groups under this legislation are as follows, and are based on the beneficiary’s relation to the deceased:
Blood or adoptive descendants under 21.
Blood or adoptive descendants 21+, spouses and blood or adoptive ascendants.
Collateral relations of 2nd and 3rd degree (siblings, nephews, nieces, etc.), and other ascendants and descendants (stepparents, stepchildren, etc.).
Other collateral relations (cousins) and strangers.
This means that the 1,000,000 € tax exemption does not apply to siblings, nephews, nieces, cousins, strangers, etc. These have their own, much lower allowances.
Finally, a further condition to being entitled to this exemption is that the beneficiary’s existing assets are no more than 1,000,000 €.
In addition, a reduced tax rate of 1% applies to these types of beneficiaries, as far as any amount that surpasses this allowance.
Changes to Gift Tax
The 1,000,000 € tax allowance will also apply to the direct family members described above, only in the event that a living gift is made for the purpose of the beneficiary purchasing his/her first home, or for a business startup or expansion. Obviously certain conditions are put on this exemption that will ensure the gift is being made for that purpose.
Once again, the 1% tax rate applies in the case of a living gift to these beneficiaries from Group I and II
In conclusion, despite having some limitations, this is a welcome change that effectively does away with Inheritance Tax in Andalucia for direct family members, except in the case of the “super rich”. It is important when dealing with an inheritance in Spain that you seek the appropriate legal counsel, who is aware of these and other benefits, and who knows how to apply them in both the resident and non-resident field.
Finally, a much needed change to Inheritance Tax in Andalucia has arrived and will be coming into effect on the 1st January 2017. With Andalucia being one of the poorest regions of Spain it was becoming increasingly difficult to justify it being the region with the highest level of Inheritance Tax, forcing many inheritors to renounce their inheritance because of the unaffordable tax bill that came with it. Consequently, a restructuring of the tax had long been a matter of debate and negotiation, on a regional as well as a national scale.
The main change brought about by the new Inheritance Tax reform is the increase of the general threshold from 175,000 € to 250,000 € for each individual beneficiary. This means that as long as the value of the part of the entire estate being inherited is under this amount, no Inheritance Tax will be owed by said heir.
In addition, to inheritances of between 250,000 € and 350,000 € a 200,000 € reduction is applied (e.g. if an inheritor’s share is valued in 270,000 € tax will only be due on 70,000 €). The effect of this change is to correct the leap that currently exists where, the moment the inheritance is even a euro over the threshold, Inheritance Tax is owed on the entire amount. This circumstance quite clearly placed inheritors at a comparative disadvantage, and was one of the main criticisms made of Inheritance Tax regulation in Andalucia.
Another important change is the introduction of increasedallowances for the inheritance of the deceased’s main residence by spouses, ascendants or descendants, or collateral relations over 65 years-old. Specifically, a 100 % allowance is applied when the value of the property is under 123,000 €, which reduces 1 % each time as the property value band increases, with the minimum allowance being 95 % when the property is valued at anywhere over 242,000 €.
Furthermore, as of the 1st January the beneficiary will now only be required to maintain ownership of the property for 3 years, as opposed to 10 years as it stands at the moment.
How is the tax rate calculated?
The above allowance, together with any other allowance the heir may be entitled to, is applied to the amount above the general threshold to determine the taxable amount.
Once we have the taxable amount the Inheritance Tax scale is applied, as well as a coefficient that depends on the relation to the deceased and the inheritor’s existing assets, to determine the tax rate that applies. All of these aspects remain unaltered by the tax reform.
Will this apply to UK residents post Brexit?
The regional allowances for Andalucia in the event that both the deceased and the beneficiary are EU residents. When this is not the case, only state allowances may be applied, which are far fewer.
Therefore, depending on the result of the negotiations between the UK and the EU, these regional allowances will continue to be applied to UK residents post Brexit, or not.
It is important that all of these circumstances and potential costs are taken into account when preparing your will, so as to organise your will and manage your wealth in a way that will be most beneficial to yourself and your inheritors. All of which makes seeking professional assistance in these matters essential, to avoid any unexpected and costly surprises when it’s too late.