As we get older, we think more about our legacy and how it will pass to our loved ones. You should have a suitable will in place, but effective estate planning needs to go beyond that. You’ll want to ensure your wealth is transferred to your chosen beneficiaries in a timely and efficient manner, without large inheritance tax bills. Your estate plan should take account of tax and succession laws in both the UK and Spain, and more complex families require particularly strategic advance planning.
Spanish succession tax
Spanish succession and gift tax is due if the asset being inherited or gifted is located in Spain, or if the recipient is resident in Spain. The tax is calculated on each recipient. Rates and allowances vary according to the level of kinship and which Spanish region you live in.
Under the state rules, tax rates start at 7.65% and rise to 34%. Multipliers based on the familial relationship and the beneficiary’s net worth can take tax rates much higher. Reductions and allowances are low, and there is no blanket spouse-to-spouse exemption.
The autonomous communities (regions) can adjust the tax rates, allowances and reductions to make them more beneficial for residents. In the Balearic Islands, spouses, descendants and ascendants are effectively exempt from succession tax. In the absence of descendants, other relatives may benefit from a 50% or 25% reduction. Unmarried couples within an officially registered relationship (las parejas estables) are treated as spouses for tax purposes.
UK inheritance tax (IHT) liability has been determined by domicile rather than residence, but a new residence-based system will replace this from April 2025.
On leaving the UK, you remain liable for inheritance tax on worldwide assets for between 3 and 10 years. If you return to the UK after living abroad, you will be assessed for IHT on worldwide assets once you have been living there for 10 out of the last 20 years. Assets in the UK always remain within the scope of UK inheritance tax. This will include pensions from April 2027, and the freeze on the IHT thresholds has been extended to April 2030. Both measures will increase inheritance tax bills. If you intend to continue living in Spain, now is the time to review your cross-border estate planning to take advantage of the new inheritance-based system, for example, by shedding UK assets.
My next article will look at succession law, wills, and transferring your wealth.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
No comments
To be able to write a comment, you have to be registered and logged in
Currently there are no comments.