Viewing posts categorised under: Spanish Succession Tax

The challenges faced when Downsizing

By David Hattersley
This article is published on: 20th September 2022

20.09.22

For many of those that are considering downsizing numerous factors influence this decision. Offspring have grown up and follow their own paths, the need for a family home is surplus to requirements. The death of a partner, or their worsening ill health is also a major factor in making changes. The ageing process makes it harder to “self maintain”, therefore external contractors are required. Recent extreme weather conditions have contributed to additional maintenance requirements around the home. High demand has also reduced the availability of professional contractors and trying to find them can be frustrating and expensive.

Having made the emotional decision , to downsize does it get any easier ? Moving to a smaller property might seem easy, but one has to decide which accumulated treasured possessions and artefacts will be disposed of or left behind.

The next question is where are you going to live? Trying to predict the future is difficult, trusted close friends have died or moved away. Potential reduced mobility, death of a partner,lack of easy access to healthcare and amenities and public transport facilities must be considered .No longer can one live up the side of a mountain, in the country or away from a central urban hub when one will depend on the aforementioned facilities. Very few residential “warden assisted community retirement” homes exist in Spain, unlike the UK.

The next consideration once the property is sold, is what to do with the capital. Does it make economic sense to buy yet another albeit smaller property, or rent ? With the average life expectancy being in the mid 80’s, for those in their late 60’s does it make sense to buy ? With the cost of purchase estimated at between 13% -14% *, and subsequent disposal costs of 7% due to a future change of circumstances does it make sense to “waste” this residual capital when it could be invested to provide an income ? Bear in mind many smaller properties here still require maintenance. If it is a proprty that has a communal pool and gardens, there are annual maintenance fees and in the summer when hordes of holiday makers “invade” what was peaceful and tranquil for 10 months of the year can suddenly become stressful. Having experienced both owning and renting I understand the upside and downside of both scenarios.

Finally the last and most important element is the investment of the capital. There are a viable sensible solutions instead of Spanish banks. With rising inflation sensible capital growth and income are vital as is the relative ease that after the death of a partner the investment can be passed to the survivor without unnecessary complications. The same can be applied to leaving this to one’s heirs. It is both tax efficient and compliant and is accepted by the Spanish regulators. Finally should one eventually move back to the UK, it can be taken with you. It is essential the that your investment has been set up correctly as it is currently not treated as a capital asset when calculating the costs of living in a care home. This means that it stays intact to pass onto one’s nominated heirs. My own experience with my in-laws proved this was the case.

So if you have any concerns, doubts or interest please contact me to arrange a no-obligation initial meeting over a cup of coffee.

UK Inheritance Tax and Spanish Succession Tax

By Charles Hutchinson
This article is published on: 5th August 2020

Much has been written and said on this subject, particularly in many of a 19th hole. There is a fundamental difference between the two:

The UK Inheritance Tax is upon the deceased’s estate
The Spanish Succession Tax version is upon the inheritors

UK Inheritance Tax Liability is on the worldwide estate of the deceased and all global assets are assessed and ‘gathered together’ for the purpose of probate. Once fully quantified and valued, the tax is levied at a (current) rate of 40%. There is a nil rate band of (currently) £325,000 estate value below which no tax is payable. The tax has to be paid BEFORE the estate is distributed.

Spanish Succession Tax is payable on EITHER assets being located in Spain OR on global assets if the inheritor is a resident of Spain. If neither is the case, then there is no liability. If one or both is the case, then Spanish Succession Tax is payable by the inheritor(s) whether they be a resident or non resident of Spain.

There are some essential measures one can take to either mitigate or avoid these liabilities.

One of the best and most effective is the use of (Spanish compliant) investment bonds. In Spain for example, Succession Tax is payable on assets passing between spouses (this is unlike the UK where assets can pass between them untaxed). Where an investment bond is jointly owned, the deceased’s half can pass to the spouse untaxed.

An even greater advantage is that the bond can pass down the generations with the possibility of continuing investment growth free of both UK Inheritance Tax and Spanish Succession Tax. For as long as the policy holders and lives assured continue to be appointed, the bond will continue and each generation of policy holders can enjoy capital withdrawals on both a regular or intermittent basis. Thus all inheritance tax is avoided by an unlimited number of generations.

Furthermore, should a Spanish resident bond owner pass away and their beneficiaries are non residents of Spain, there would be no liability to Spanish Succession Tax because the bond is also domiciled outside of Spain (e.g. Dublin).

For the moment, Spanish Succession Tax in the region where I live (Andalucia) is virtually non existent. There is a €1m allowance between close family members, providing their individual existing wealth does not exceed that figure. The remaining assets are also liable to a 99% exemption.

These two taxes are the only ones not included in the UK/Spain Double Tax Treaty. However, there is an unwritten rule that if it has been paid in one country, then it will not be charged again by the other. To my certain knowledge, this informal agreement has always been observed.

For information and assistance with your inheritance planning, please contact me by completing the form below of email/call:
charles.hutchinson@spectrum-ifa.com
Tel:(+34) 952 79 79 23
Mobile: 605 903 472