The excitement of moving to Spain – or any other foreign country – can sometimes mean you overlook the more serious matters that come with relocating, including inheritance tax and estate planning. Here, an expat in Spain who works for a financial advisory firm outlines some key points he has learned from experience…
and Fiduciary Wealth
There’s no getting away from it – moving to a new country means getting to understand a different tax regime. For me – and I am sure for many other expats in Spain – the biggest problem has been getting to understand succession taxes (or death taxes). Here are my top tips for the key points you need to be aware of when buying property in or moving to Spain.
1. Check your domicile status
I was very concerned to find out that even though I had left the UK I could still potentially be liable for UK Inheritance Tax (IHT), as well as the Spanish succession taxes. Having investigated the matter further, I got to understand that I was domiciled in UK through birth; so, even though I was now officially living in and tax resident in Spain, this bore no relation to my domicile, which apparently can take years to change. Anyone who is UK domiciled is also required to pay UK Inheritance Tax on their worldwide assets.
2. Be aware of who is liable – the beneficiary or the deceased?
I also incorrectly assumed that because there is a double taxation agreement between Spain and the UK that Spanish succession tax would not apply in my case. However – and this is the key issue for us expats to understand – in Spain, succession tax is payable by the beneficiary, whereas it is the estate of the deceased that pays any tax due in the UK.
3. There are no spousal exemptions
There is also no exemption in Spain where assets can pass freely between spouses without any tax consequences, so a situation could occur where someone who retains the status of UK domicile will pay both UK IHT and the Spanish succession tax.
4. Succession taxes vary across Spain
I also realised that the succession tax in Spain varies between regions. The lucky residents of Madrid get away with minimal succession tax – no wonder the area is popular with wealthy Spanish people! In Andalusia, also popular with many British expats, you are required to pay succession tax if you inherit more than €175,000. The rules on this are stringent – if you inherit €175,001, you still pay tax on everything!
5. Remember gift tax liability
It’s also really important to be aware that succession tax is a gift tax, so if you benefit from a legacy in, say, Bermuda, you must declare it – and you will need to pay tax on it as well.
It is clear that there are a number of complex financial issues to navigate when living in and owning property in Spain. Getting sound financial advice and, where possible, mitigating your death tax liabilities both in the UK and in Spain is advisable. Download the Spain Buying Guide or contact the Resource Centre for more information.
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