Being our specialty providing advice over the acquisition of real estate, we often advice our clients about inheritance Laws, one of the most common ways to become a property owner and something that property purchasers should always keep in mind.
The best possible advice is to bear this matter in mind at the time of purchasing the property leaving all in good order for next generations and allowing the process to be easier and cheaper.
A good strategy begins very early at the time of purchasing it, establishing a convenient structure of its ownership, sharing it with future heirs of it may be convenient enough. There are many reasons to consider this possibility, not only the possible or future amount of the inheritance tax but also towards the Spanish wealth Tax.
Let’s put the case of a family that purchases a holiday home in Spain, something done thousands of time by northern Europeans, same as locals. If the holiday home is acquired jointly between the family members, let’s say the parents and two kids in case of decease of any of the parents only one fourth of the property will be subject to the inheritance tax (quite often this fourth is distributed among the surviving property owners in equal parts).
However this is not considered and the property is purchased only by the parents in which case, the most common thing is that the spouse has to pay the inheritance tax over 50% of the property value. There is a big difference with the case study before.
As just shown, establishing a tax efficient structure of the ownership over the property can save a lot of money but whichever the structure is all inheritance processes will be developed in the same stages (1) determination of the heirs, (2) creation of an inventory of the goods to inherit and their assignment to the heirs according a testament or according to national law in its absence, (3) the final alteration of the data at all official registers and institutions to make the heirs the formal new owners.
Foreign property owners in Spain should know the laws used into the inheritance process are the national Laws. A French or British citizen will be able to do with the Spanish property exactly the same thing is allowed to do with his goods in his country of origin. The Spanish Laws will rule only in what is related to the local formalities: formalities of the inheritances process (escritura), taxes applicable, process of alteration of data, etc.
With no doubt the best way to set out the wish of the property owner in terms of who the next owners will be and what fraction of parts of the goods will be acquired is by using a will.
Determination of the heirs
Indeed, the Spanish will is the most practical and cheaper option to determine the list of heirs and leave clear instructions as to what to do when the moment comes.
The Spanish will can and should be related only to goods in Spain and it does not require to include an inventory of goods so there is no need to alter the will if some goods are sold or acquired after doing the will.
But this is not the only way though this certainly the fastest, practical and cheaper. It is also possible to use a will made at the county of origin as long as this national will include instructions over the goods left in other countries. Naturally, in cased it’s pretended that this national will has effects in other country its necessary to adapt the document to the formalities where it’s desired to have effects. The only reason for this is to preserve the rights of heirs at the final country where the local formalities have mainly this purpose: provide legal security. In case if Spain the most usual formalities required is to stick to a Notarial copy of the original will a special seal called The Hague Convention Apostille. I other cases, when the testator country hasn’t joined to the Hague’s convention International Treaty it will be required the legalization of the document at a Consulate of Spain at that country.
At the end of this article we leave for you a link to download a document where we explain a bit more in detail other advantages of having a Spanish will versus the will granted out of Spain.
But what happens if there is not a will to use at the inheritance process?
If there is not a will or testament available the thing changes. Under this scenario we would be in a case on an inheritance “ab intestato”, without testament.
Under this scenario we would have then to ask for the help of the local authorities (usually a Notary or a Court house / tribunal) . Those authorities must be the ones at the country of origin of the testator.
These processes end with a final document issued by the local authority that declares who the heirs will be. IN case this document is intended to have effects in Spain then, same as the wills, the document has to be either legalize at a consulate of Spain or include the Hague convention Apostille.
The distribution of the goods
Once the heirs have been listed it’s possible to proceed with the distribution of the goods left to inherit. The first thing to do is an inventory and the creation of lots for each of the heirs in case there are several.
Please note that this inventory will be made not only of goods but also from any debts. If the heirs accept the goods of the inheritance they must also accept the debts (though in Spain it’s possible to accept them but only in a provisional way, to make the inventory only). As an example if a property is left to inherit with a mortgage, in case the heirs wish to keep the property they must also accept the mortgage.
This production of the inventory, goods and debts, and its assignment to the heirs is done in practical terms with a deed, the deed of “manifestation and assignment of goods to inherit” always signed before a Public Notary. This deed is extremely important and not only since it’s the start of the legal new ownership of the goods but also because the value given to the goods at the deed will the taxable base for the Spanish inheritance tax.
The alteration of public data – The payment of the inheritance tax
Once the goods have been distributed it’s the time to make it public. In our experience as legal advisors specialized in non residents, the most usual goods left to be inherited are real estate, cars and Money at Spanish banks. Taking this inventory as an example the next thing to do at the process is to send a copy of the inheritance deed to the Land register, the Traffic Authorities and the bank. It’s in this very moment when the inheritance tax becomes due.
Talking about the Spanish inheritance tax we can only bring good news. The Spanish Laws offers good discounts that can vary depending at the Autonomous region where the goods are located. In Spain each of the 17 autonomous regions has legal powers to reduce or increase the Inheritance Tax. The inheritance tax is regulated at the same time as the Donations being the same law applicable to both issues.
As said, foreigner resident within the EU territory can benefit for the discounts allows to locals in each Autonomous regions. In Andalusia, we where are based at, the Law offers the possibility to have a NIL tax to pay if the value of the goods received is below 175.000,00 € (as long as the existing personal wealth in Spain does not exceed 400.000,00 €).
We can connect this with what we said before in relation with the structure of the ownership at the time of purchasing so we can conclude the when a property is purchase if you keep the portion assigned to each of the owners below 175.000,00 € is more than likely that no inheritance tax will be payble in the case of a decease (though it’s also interesting to keep the rule in mind for future property assignments through another inheritance process).
Plese note that this does not work as a reduction of the tax ofr as a threshold. The key thing is to receive less than 175.000,00 € since in another case the acquisition will be entirely subject to the Spanish Inheritance tax. You will find further interesting information related to the Spanish inheritance tax.
To calculate and pay the Inheritance tax its important to be properly guided. This tax is paid at the offices of the regional Government (Junta de Andalucía). Only when the inheritance tax is paid (or in those cases where there is nothing t pay when it’s presented the necessary tax form) the deeds can have access to all those data basis or registers where the alterations have to be made. Each institution, following is own formal requirements will proceed to change all the data concerning the ownership of the goods left to inherit.
At Criado & Kraus we would be delighted to assist you through the process, from the configuration of the formal ownership until the enforcement of wills, oftenly done as executors what we have proudly been doing now for two generations of local Solicitors.
If you are seeking advice in relation with subject don’t hesitate to contact us through the form below.
If you with to organize your Spanish will with us please access to the client’s area and download the form you will find there that includes clear guidance as to what is required as well as other forms to instruct us to draft your Spanish wills. Once filled out, dated and signed please send it to us by e-mail to firstname.lastname@example.org.