This guide covers…
This guide is about preparing your inheritance in Spain in a way which can save your heirs a great deal of time and money.
It describes, in particular, how to plan your inheritance in the area of Andalusia/Andalucía – which contains the Costa del Sol. See a map here. Please note that certain aspects of the law in Spain vary from one “autonomous community” (comunidad autónoma) to another.
Inheritance (estate) planning is a concept that does not have a universally agreed definition.
Most people would agree that it is a process by which an individual (or, in some cases, a whole family) arrange their affairs so that, on a death, there is a sensible transfer of assets and one which preserves as much of their wealth as possible: usually by reducing to a minimum the tax that would have to be paid.
Many people would also agree that a sensible part of inheritance (estate) planning is preserving as much flexibility as you can for the person making the plan up to the time of their death.
A much smaller number of people would add that the process also ought to take into account administrative and practical issues relating to dealing with a death.
For more information about the things you will have to do when dealing with a death, see our Guide to Dealing with a Death in Spain.
Inheritance is regulated differently in each one of the 17 Comunidades Autonomas (Autonomous Communities – equivalent to States) of the Spanish territory. We have studied Inheritance Planning in Andalucia, as we are based in the Costa del Sol.
The importance of inheritance (estate) planning in Spain
In each one of the Spanish regions, inheritance (estate) planning is very important and has three huge advantages.
It can save you huge amounts of money. Do not underestimate the amounts involved. They can amount to hundreds of thousands of euros.
For example (and it is an extreme example), if you are a foreigner living in Spain and you have net assets (after payment of your debts) of €1million you might choose to do one of the following:
- You might leave everything to the person with whom you are living but to whom you are not married (and who you have not registered with as a de facto couple or pareja de hecho).
- You might decide, instead, to leave everything to your four children in equal shares.
If you chose to leave everything to the person with whom you were living then, under Spanish law, they would inherit €1million.
They would enjoy no tax free allowance.
The applicable inheritance tax rate would be on a sliding scale (where you pay a lower rate of tax on small inheritances and a much higher rate on larger sums) but, on most of the inheritance, it would be 36.5%. This would mean a huge amount of tax payable.
On the other hand, if you left to your children, they would each have a tax-free allowance of (2017) €250,000. So, between them, they would inherit tax free.
This is the reason why people get interested in inheritance (estate) planning!
Of course, there is a lot more to it than this but it is fairly easy to achieve major tax savings by arranging your affairs in a sensible way.
You could make an even bigger saving (depending upon where you and the children lived) if you gave away all of your assets before you came to Spain. If, for example, you were British then that gift would be a tax-free gift, provided the giver survived for more than seven years.
However, this is not flexible. Once you’ve given the assets away you’ve given them away and, if you later need them, tough – unless the recipient will give some of the money back to you.
It is a much more flexible approach to give away small parts of your assets when you are sure you will not need them and leave the rest to be dealt with on your death.
Most people find that flexibility is very important.
There are many ways of ensuring flexibility. Cash gifts, wills, trusts and so on. Which is right for you will depend upon your personal circumstances – and that is something for which you will need proper professional advice.
The third objective of inheritance (estate) planning, at least under my definition, is to make it as simple as possible to deal with your affairs when you die. It is stressful enough when a loved one dies without you having to make trips half way around the world to deal with mountains of paperwork.
Although the legal responsibility of dealing with a death in Spain rests with the individuals who inherit, it is sensible to make arrangements for a local lawyer to deal with these things on their behalf. It will also be much cheaper.
Part of your inheritance planning should be to do this – which means briefing the lawyer as to your circumstances, and then keeping them up to date with any changes – and then to tell the people who you want to inherit that you have done so. They’re not bound to use the services of this lawyer if they don’t want to do so but most will be grateful to you for making the arrangements in advance.
Part of keeping things simple also involves telling your heirs what you want to happen on your death. Do you want to be buried or cremated? Do you have any special wishes? Is there anything that you particularly do not want to happen? I remember a Spanish client who insisted that his coffin should not be carried in a Mercedes!
Another aspect of keeping things simple is to make sure that you, your heirs and your lawyer all know about your assets and liabilities. Some people are reluctant to tell their heirs about their financial circumstances. If that is so in your case, at least tell your lawyer.
Of course, your financial circumstances will change all of the time and so the best way of dealing with this is simply to have a file (paper or digital) in which you keep an updated list of all of your possessions and liabilities. Say in the list where the paperwork relating to them all is stored.
Tell your lawyer and your heirs where the file is kept.
Most importantly, do keep it up-to-date. Having this list can save large amounts of time (and so cost) but it has precisely the opposite effect if you say that you have (for example) 1,000 Rolls Royce shares and that the certificate is in your filing cabinet when you have actually sold them.
There is no escaping the fact that proper inheritance (estate) planning requires professional help. Because of the way in which international legal and tax systems interact it will usually require help from someone familiar with the laws and tax in Spain and with at least a passing knowledge of the laws and tax in your own country – or at least with a contact over there who does know them.
If your affairs are complicated – particularly if you’ve been married several times and/or have children by multiple relationships – it can be complicated getting such advice. That can make it somewhat expensive, but the savings you are likely to be able to make are likely to be many, many times the cost of the advice.
The good news is that if your affairs are relatively simple, your adviser – usually your lawyer or your financial adviser – will be able to identify this very quickly and so the advice can be very inexpensive.