Spain & Inheritance Tax: Reduce Your Tax Burden

Sponsored by Klev&Vera International Law Firm.

The subject of inheritance in Spain is fairly complex, however we have identified nine tips to guide you and help smooth the way for your beneficiaries, making it easier to avoid both unwanted family conflict and nasty tax surprises.

Congratulations! If you are reading this article, you are in the 40% of people that create a comprehensive plan for the future. In order to create an efficient plan, it is paramount to understand the economic consequences of joint ownership of assets and your potential beneficiaries’ personalities.

1. Make a Will in Spain for the Assets Located in Country

Having a Spanish will makes it easier for your relatives and friends to sort out all matters in Spain when you pass away. If you don’t have a will, Spanish law will automatically be applicable and all your property in Spain will be distributed according to the legitima rules or, in the worst case scenario, will be transferred to the Spanish state.

When writing a will, if you plan carefully, you can reduce the amount of inheritance tax that might be payable on the value of the property as well as on any money you have in Spain—especially if you have children.

2. Choose the Applicable Law

It is recommended that you choose the law of your country of nationality to apply to your inheritance, provided that its inheritance laws do not contradict those in Spain. If you have multiple nationalities you can choose any one of them. Whatever you choose, it must be stated clearly in your will. Please bear in mind that, in general, EU inheritance regulations do not apply in Ireland, UK and Denmark. However, each case is different and must be studied separately.

3. Identification of the Inheritance Assets

You should provide an inventory of all of your properties in Spain; personal items, such as  furniture and jewelry—unless they have a particularly high value—will not be itemized.

4. Set up a Family Company That Works as a Trust

If you have large real estate holdings, you can reduce your tax exposure by setting up a family company to hold all real estate assets. This means that when you die, the value of the assets won’t be counted when assessing your beneficiaries’ inheritance tax bill.

5. Avoid Last Minute Bank Transfers

Last minute bank transfers could be considered fraudulent by tax authorities. Tax inspections on inheritances are limited to five years from the date of acceptance of inheritance.

Please note that all Spanish assets belonging to the deceased will be frozen until the estate is settled. That is to say, beneficiaries will not have access to funds in Spanish bank accounts owned by the deceased until all legal duties have been fulfilled. This includes the acceptance of the inheritance signed by a Spanish notary as well as the filing and payment of the inheritance tax.

6. Change Your Will if You Get Separated or Divorced

If you have a will, remember that it is a legal document that will continue to be valid even if you get divorced. Often, when people get divorced they forget about changing their will, leaving their former spouse as a beneficiary. If you do not want this to be the case, you must remember to change your will.

7. Accepting an Inheritance with Inventory Benefit

In order to avoid taking responsibility for any of the deceased’s existing debts, beneficiaries have the ability to accept the inheritance with inventory benefit. This means, an inventory of the deceased’s assets and debts will be made beforehand, and if there is any debt, it would be paid with the assets. This option allows beneficiaries to avoid personal liability for the deceased’s debts.

8. Designate Clearly Your Spanish Life Insurance Beneficiaries

It seems a very obvious thing to do, but often people just tick the default beneficiaries box of the insurance contract. In Spain, beneficiaries may be subject to multiple, and possibly conflicting tax jurisdictions creating misunderstandings in the distribution of insurance compensation if not carefully planned.

9. Take into Account the Rights of Your Widowed Spouse

If you do not make any special provisions that protect your spouse’s rights after your death, local laws will be applicable. In Spain, in general, the rights of the widowed spouse are regulated in Article 467 of the Civil Code and is named usufruct. The usufruct is a special legal regulation (the provisions of which vary in each autonomous community) that entitles a widowed spouse to stay in the property with the obligation to keep it as it is. In the usufruct, the spouse does not acquire ownership of the property, but is entitled to live in or use the property. The usufruct often creates problems for the distribution of assets when there is more than one beneficiary.

If you have questions that you would like answered or are looking for professional advice about estate planning in Spain, you can contact Klev&Vera at (+34) 93 17 60 190.

For over 15 years Klev&Vera has specialized in attending the legal needs of international clients in Spain. Klev&Vera’s multilingual team of lawyers and paralegals have many years of experience in big law firms, the public sector and international projects. If you are looking for professional legal advice you can contact them at the Klev&Vera office in Barcelona.

Sponsored by Klev&Vera International Law Firm.

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