Why is it more important than ever to have a Spanish Will?

Why is it more important than ever to have a Spanish Will?

por | Dic 15, 2016 | Inheritance

You may or may not know that a European regulation has been approved to regulate questions of jurisdiction, applicable law and enforcement of all successions where the deceased has passed away on or after the 17th August 2015 (Regulation No. 650/2012 of the European Parliament and of the Council of 4 July 2012).

This regulation can cause difficulties for those foreigners who have not made certain provisions regarding their last Will and Testament, especially for those habitually resident in Spain.

We must pay particular attention to the provisions of Articles 21 and 22 of the regulation. On the one hand, Article 21 establishes that “Unless otherwise provided for in this Regulation, the law applicable to the succession as a whole shall be the law of the State in which the deceased had his habitual residence at the time of death.” But on the other hand, Article 22 points out that “A person may choose as the law to govern his succession as a whole the law of the State whose nationality he possesses at the time of making the choice or at the time of death.”

But what is the difference between these two options? And how can this be resolved?
For those of you who don’t know, Spanish inheritance law provides a certain amount of protection for legal heirs which, to those who originate from other jurisdictions, seems completely foreign. Certain inheritors are deemed, under Spanish law, to be what are called “compulsory heirs”, entitling them to a legal minimum share of the deceased’s estate.

The new European regulation sets the place of habitual residence of the deceased as the sole criteria for determining jurisdiction, as well as the applicable law. This being the case, it means that any foreigner that is deemed to be resident in Spain who does not make the necessary provisions in their Spanish Will to ensure the application of their national law on their death, as opposed to that of their habitual residence which is automatic, will be limited regarding the distribution of his/her estate. Even if you are not legally registered as a resident here, the Spanish authorities may consider you to be resident here based on other external factors.

To help you understand this better, here is a practical example of what the application of Spanish law to your inheritance entails.

Let us imagine that you are married with 2 children and the total value of your estate amounts to 150,000 €. Spanish law would require, upon death, that your estate be divided in the following way:

  • «Legítima»: 1/3 of estate (50,000€) must be left to all your “compulsory heirs” in equal parts (25,000€ each).
  • «Mejora»: 1/3 of estate (50,000€) must be left to “compulsory heirs” but may be distributed in any way the testator sees fit (you can leave it all to one child, to two of them or to all three of them, but to no-one else).
  • «Libre disposición» or «Tercio libre»: 1/3 of estate (50,000€) can be disposed of however, and to whomever, the testator wishes (legal heir or not).

There are autonomous regions with their own civil law in this matter, and they are Aragon, the Balearics, Catalonia, Galicia, Navarre and the Basque Country.

What does this all mean? It means that if you have made a Spanish Will, but not included the proper provisions to ensure the application of your national law on your death, any provisions for the distribution of your estate that overstep these limitations under Spanish law will be ignored. This could mean a great amount of inconvenience for your heirs in trying to have your Will recognised on your death.

It is for this reason that it has become strongly advisable for any foreigners with assets in Spain to make a Spanish Will for their property in Spain, or update it if necessary. Make sure to seek appropriate legal advice to make sure it complies with the new requirements of Regulation No. 650/2012 and to avoid the automatic application of Spanish law on death, which can result in your wishes not being abided by because of the legal restrictions Spanish inheritance law places on the freedom of the testator to dispose of his estate at his own discretion.

Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería

Inheritance Tax reform in Andalucia

Inheritance Tax reform in Andalucia

por | Nov 5, 2016 | Inheritance, Tax

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.

 

Higher threshold

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.

 

Main residence

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.

 

Gabriella Mary Trussler Rowland
Lawyer
4408 Ilustre Colegio de Abogados de Almería