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The possible effect of Brexit on inheritance in Spain

A video guide to the possible effect of Brexit on inheritance in Spain
Transcript: 

Hi.  I’m Jonathan Eshkeri, an English solicitor and Spanish abogado.  I practise law in England and in Spain, with offices in London and in Tarragona, just south of Barcelona. 

So, here I am on the 9th of November 2016 speaking about how things may change for UK citizens when the UK leaves the EU.  Clearly I can only make a series of educated guesses, as at this stage the government is keeping its cards very close to its chest as to what it intends to attempt to negotiate, the UK parliament may have an important say in any event, and we certainly have no idea of how the EU will respond or what the final position will be. That said, what I can do is to look at what is likely to be the most extreme change in each aspect of life for those who either live in Spain currently, or who are hoping to live here.   

Whether you’re looking at buying and selling property in Spain, or your continued ownership of property here, inheriting property located in Spain, or moving to Spain to live, whether to work or to retire, it’s likely that whatever “Brexit” finally looks like there’ll be consequences to grapple with.  In this series of videos I’ll be taking you through the current position, as well as what I consider to be the worst- case scenario in respect of each of these areas.  

The possible effect of Brexit on inheriting in Spain

This video will focus on inheriting property situated in Spain and the changes that UK citizens may experience once the UK has left the EU, on whatever basis we finally leave. There are two main issues to be considered.  On the one hand we have to think about who’ll have a right to inherit your assets when you die.  On the other hand we need to look at the liability to tax that the beneficiaries of your estate will have to bear upon your death. 

Determining which law will apply to your estate

Turning first to who will have a right to inherit, since 17th August 2015 the EU Succession Regulation, known as Brussels IV, has been in force throughout the EU, other than in the UK, Denmark and Ireland, that do not participate in the Regulation.  In essence, the effect of Brussels IV is that the succession law applicable to your Spanish estate will be the law of the country in which you’re habitually resident, unless you’ve made a Will declaring that you wish the succession law of the country of which you’re a national to apply.  So, if you’re a UK citizen living in Somerset and you own property in Spain, the succession law applicable to your Spanish estate will be English law.  That is whether you’ve declared your wish for your national law to apply, or not, because you’re habitually resident in England.  This means that you benefit from what we lawyers call freedom of testamentary disposition, so you can leave your Spanish assets to whomever you wish.  

However, while you currently live in Somerset, in the future you may decide to spend more time in Spain and when you die the beneficiaries of your estate may find that you were in fact habitually resident in Spain.  The result will be that unless you made a declaration in your Will that English law was to apply to your estate, Spanish law will apply.  Spanish law provides for rights of forced heirship, meaning that certain members of your family will have a right to a part of your estate. Which members will have a right and in what proportion will vary according to the Spanish autonomous community in which you were living upon your death.  You can easily avoid that potential problem by making a declaration in your Will that English law is to apply.  That declaration may be made in your English Will or in your Spanish Will.  As an aside, it makes good sense to have a Spanish Will if you own Spanish assets.  

You may be pleased to know that Brexit will have absolutely no effect on the succession law applicable to your Spanish estate.  That’s because Brussels IV will continue to apply in Spain, as Spain is not leaving the EU, so that no matter which country in the world is your country of nationality, you’ll be able to choose for the law of that country to apply.  Further, as I’ve already mentioned, the UK doesn’t participate in Brussels IV, so the UK leaving the EU will not mean that anything changes in that regard.  

The liability to tax of the beneficiaries of your Spanish estate

Now turning to the tax liability of the beneficiaries of your Spanish estate.  On 3rd September 2014 the European Court of Justice held it unlawful for Spain to discriminate against non-residents in relation to inheritance tax.  Hence, Spain passed a new law 26/2014, the effect of which is that if the deceased was resident in Spain, or resident in one of the member states of the European Union, or the European Economic Area, then the beneficiaries of the estate who are either resident in Spain or resident in either the European Union or European Economic Area will become liable to inheritance tax at the rate established by the Spanish autonomous community in which the greater part of the deceased’s Spanish assets are situated.  

There are 17 autonomous communities in Spain, each of which may offer its residents an extra reduction in the amount of inheritance tax payable.  There are those that do not offer any such extra reduction, such as the community of Murcia for example.  The other extreme is the autonomous community of Madrid, that offers its residents benefiting from an estate a reduction of 99% of the tax payable if they’re either the spouse or the children of the deceased.  There are a number of other possibilities between the two extremes. The result of what we’re calling a harsh Brexit, such that the UK is no longer considered to be in the European Economic Area perhaps, would be that if you’re a UK citizen and are not resident in Spain as at the date of your death, then those of the beneficiaries who are not resident in Spain will not benefit from the reductions provided by the Spanish autonomous community in which the greater part of your Spanish estate is situated, resulting in a higher inheritance tax liability. 

Double taxation arrangement between the UK and Spain

Of course, it may be that inheritance tax would also be payable in the UK to HMRC in relation to Spanish assets, in which case you’re able to benefit from the provisions of the double taxation agreement between the UK and Spain, whereby HMRC will apply a tax credit to the account of the estate of the deceased in the UK, once the executors of your UK estate are able to present a receipt for the inheritance tax paid in Spain on assets that have been declared as assets of the deceased’s universal estate.   

If you’re resident in Spain upon your death and all of the beneficiaries of your estate are also resident here, then it matters not that they are UK citizens, because they’ll all be treated as Spanish residents and will pay tax on the same basis as Spanish nationals.  The same would apply if say you were resident in Spain upon your death and the beneficiaries of your estate, although British, were all resident in other parts of the EU or the EEA.  Your beneficiaries would benefit to the greatest extent possible from any reductions available. So, as you can see, whatever the terms of the Brexit there’ll be no impact on the extent to which you can determine with certainty who’ll inherit your Spanish assets. 

On the other hand, the impact of Brexit on the inheritance tax payable by the beneficiaries of your Spanish estate might be considerable.  In that regard it’s very important to bear in mind that even if more inheritance tax is payable in Spain after Brexit than would be payable currently, if the beneficiaries of your Spanish estate are your children or your spouse, and if inheritance tax is payable in the UK on your Spanish assets, then the beneficiaries of your Spanish estate will not pay inheritance tax twice.  The double taxation arrangements between the UK and Spain are bilateral and so are not dependent legally upon the UK’s membership of the EU, or its inclusion within the European Economic Area. Of course, it is essential to stay up to date and to know what impact Brexit does have finally.  

Next steps

We will be publishing articles and releasing further videos on this subject as the UK’s departure from the EU develops. You’ll be able to access the information on our website, that is www.solicitorsinspain.com.  You can also watch one of the other videos in this series, which focus on the potential implications of Brexit in relation to buying, owning and selling Spanish property, and the changes that Brexit may cause to your right to spend time in Spain.  Please see our website for links to those videos. If you have any queries that have not been covered in this video, or if you need any advice at all regarding Spanish matters, please contact me directly.  My contact details are to be found on our website.  Thanks for watching.

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