AN OVERVIEW ON SPANISH WILLS Whereas the law of England, Wales and Northern Ireland (‘English law’) allows you the freedom to bequeath your property to whomever you so wish (Scottish law is slightly different), the Spanish law of obligatory heirs or herederos forzosos obliges you to bequeath two thirds of your estate to your children. However, in practice, English ex-pats are able, be they resident or not, subject to a number of qualifications and considerations, to bequeath their Spanish estate in accordance with English law i.e. you may bequeath your estate to whomever you so wish. Although, one should be aware that if you exclude a child or children from your Will, they will be able to issue legal proceedings on the basis that they have been unlawfully denied their legitimate share. There are ways to avoid such unseemly litigation, the most common of which is to sell one’s title whilst still alive and maintain a lifetime usufruct or the right to live in the property until one dies. As a general rule of thumb, you are best advised to prepare an English Will for your English estate and a Spanish Will for your Spanish estate. It is possible to bequeath your Spanish estate through an English Will, but such will entail added expense, extra delay and unnecessary stress for your inheritors as they will need to satisfy a number of procedural hurdles in order that your Spanish estate may be distributed. The sensible option, which is relatively inexpensive and straight forward, is to prepare a Spanish will with a Spanish lawyer and have it formally sworn before a Spanish notary. Your lawyer will advise upon and frame your Will in accordance with your intentions and the law, advise how to minimise your inheritors’ Spanish tax liabilities (impuesto sobre sucesiones y donaciones (ISD)) and ensure that the Will is drafted in both English and Spanish. Unlike in the UK, Spanish Wills sworn before a notary do not require witnesses as the notary acts as a witness of the State. If one dies without having made a Will, the Spanish law of intestacy will apply wherein the estate is divided in equal shares amongst the children or, if there are no descendants, amongst the parents. Only when there are no descendants or ascendants will one’s spouse or registered partner (see below) inherit the estate. Unlike the UK, which offers zero inheritance tax on the first £300,000 of the estate and a flat 40% thereafter, Spain does not offer such a generic allowance rather it offers smaller particular tax allowances for the individual heirs. Depending upon the beneficiaries’ degree of relationship with the deceased, their pre-existing wealth and the value of the legacy, they may avail themselves to various tax allowances. Structuring your Will with prescient forethought can save your inheritors significant Spanish tax liabilities which can rise as high as 80% and beyond. Legacies to parents, children, spouses or registered partners (see below) and siblings attract no tax on the first €15,956; children under 21 benefit from an additional allowance of €3,990 for each year they are older than 13 – with a cumulative maximum of €47,858; and uncles/aunts, nephews/nieces and cousins enjoy allowances of €7,993 each. It should be noted that those of you who co-habit, either in a heterosexual or homosexual relationship, can benefit from the married couples’ allowances (see above and below) by registering with your local Town Hall as a common-law couple (pareja de hecho). In Andalucia, one may reduce one’s spouse or children’s inheritance burden with regard to one’s principal residence by 99.9% - up to a maximum of €120,000 each. However, in order to benefit from this allowance one need satisfy a number of conditions. First, the property bequeathed must have been one’s principal residence for the three years prior to dying; second, the testator must have been an official resident for 3 years; third, the inheritors must have been one’s spouse or registered partner at the time of death or child and; fourth, the inheritors must undertake not to sell property for 10 years. If the property is sold within the stipulated 10 year period, inheritance tax as would have been due at the time of death need be paid. Further, again particular to Andalucia, one’s inheritors may also enjoy a 100% tax allowance when inheriting up to €125.000 of the wider estate. Again, there are a number of conditions one need satisfy in order to so benefit. First, the testator must have been an official resident; second, the inheritor need be a resident, unless the testator had been a resident for the previous 5 years and; third, the inheritor need be a direct family member. However, if the total value of the deceased’s estate is more than €500,000 or each inheritors’ existing registered assets are more than €402,678 or each inheritor’s legacy exceeds €125,000, this particular allowance falls away in its entirety. There are other legitimate ways by which one may avoid, as opposed to evade, ones inheritors’ inheritance tax liabilities. For example, as stated above, one may sell one’s property whilst still alive, pay the transfer taxes which may be significantly less than inheritance tax, and maintain a lifetime usufruct. However, one need be aware that in order for this to be successful, the testator need live for five years post-sale otherwise the full inheritance tax as would have been due will be levied.
Myles G. Jackson 22 June 2007 Although we hope this article will be of interest to readers, the author accepts no liability and offers no warranties in relation to it and its content, to the fullest extent such liability can be excluded by law. The article is not a substitute for legal advice, and is not intended or offered as such. The author excludes and does not accept any duty of care to anyone who makes use of, or seeks to rely on, material detailed in this article. |