HANGES IN THE INHERITANCE TAX FOR EU NON RESIDENT PROPERTY BUYERS

The European Court of Justice has ruled that the Spanish authorities cannot charge different rates of inheritance tax for residents and non-residents. Non-residents who have been discriminated against by paying more tax than Spaniards for inheritances or gifts of property are likely to be due a refund of the difference. There is a complex range of tax relief options in Spain that can reduce the tax to almost zero for residents, and now for non-residents. Non-residents may be owners of holiday homes in Spain or expats who split their time between Spain and the UK. The court ruled earlier this month that charging other members of the EU different rates to Spanish residents went against the spirit of the European Union. It said the Spanish legislation was discriminatory and there was no reason why inheritance tax should be charged at a higher rate for non-Spaniards than for Spaniards.

The European Commission referred the case to the court in 2012 after considering that the legislation was incompatible with the free circulation of people and money within the EU.

In Spain, inheritance and gift tax (known as succession tax) is governed by both the state and the 17 autonomous communities.

Many of these communities have amended the state rules to make them more beneficial, but only for residents. In order to be classed as a resident, you must have lived in Spain for five years. Non-residents have to pay the national rate of tax which is far less favorable.

THE RESULT OF THE NEW LAW.

 

Now in Murcia, the Balearic Islands, Madrid and Valencia, up to 99pc of the deceased’s assets are exempt from succession tax where the beneficiaries are children and/or a spouse. In Andalusia, up to €175,000 (£148,000) inherited by a spouse or children can be tax-free, and in Catalonia allowances are a maximum of €650,000 (£512,000) for a spouse and €400,000 (£315,000) for a child.

“Such generous exemptions are in stark contrast to the state rules, where the allowances were very much reduced”. “Under the state rules, the general allowance were only €16,000 (£12,600) for inheriting spouses or children.” Now the INHERITANCE TAX has changed dramatically.

FOREIGNERS WHO ARE TAX RESIDENTS IN SPAIN

 

The new European Directive 650/2012 will come into effect the 17th of August of 2015. If you are tax resident in Spain, (you file your annual tax declaration), you should state on your Spanish Will that you wish THAT THE NATIONAL LAW OF YOUR EUROPEAN COUNTRY, will govern your inheritance.

Failing to do so, your estate will be distributed according to the Spanish Law of Succession in which one third of your estate will go to the children in equal parts, another third must also be left to the children and only one third left has free disposition to be left to the testator’s choice.

If somebody is living in Spain but its national of a different country, they should update their Wills. The directive EU 650/2012 estates different concepts, and they are:

 

Article 21 of the Directive:

 

“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.”

EU people living in Spain, under Spanish law they can not leave everything to the surviving spouse, as they have to follow the compulsory Spanish inheritance law. If you are resident in Spain, unless you do not establish in your Will that you wish that your national law is applicable by the time of death, you will have to follow the Spanish System

 

Article 22 of the Directive:

 

“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.”

This article explains that you can override the compulsory law of heirs by simply stating in your will that your wish  for your estate to be governed by your national law. How do you achieve this? You will have to sign a new Will.

An Existing Will can not be modified, extended or fixed. A new Will always cancel the last one and the last one duly signed in presence of a Spanish Notary Public is the one that prevails.

Every Spanish Will is registered in the Central Office of Wills which is located in Madrid independently of the city and Notary Public office where the Will is signed.

 

CONSEQUENCES:

 

If you have children but have made a will leaving all assets to your spouse, make sure that you have clearly stated on your will that you wish your national law to govern  your succession before the 17th of August 2015

Dying without a Will:

 

If a foreigner dies in Spain without a Will, his estate in spain will be distributed according to the Spanish laws of succession.

Lets suppose a husband and wife owns a house, 50% each and they have 3 children. The surviving spouse continues to own half the house, because her name is on the title deed as half owner anyway. The other half of the house constitutes the estate.

This will be divided equally among the 3 children. When the estate is settled, each child will have one-third title to half of the house, meaning that each one now owns one-sixth of the house, and the title deed has four names on it, the widow and each of the 3 children. The widow also holds a usufruct on the children’s share. This means she can use her half of the property until she dies, as well as her own half.

They must all be agreed and sign the deed if the house is to be sold.

Dying without a will can cause time consuming and expensive legal procedures for your survivors, so if you really want to care for them and if you have any definite ideas about how you want your estate distributed, you must make a Spanish will. It’s a very easy process, not expensive and you will feel more secure.