Tax

EU Inheritance Law Signals All Change For Expats

Expats living in Spain who have not made a will in their new home are at risk of having their estate distributed against their wishes and their loved ones paying more tax than they need.

Spain is the number one expat retirement destinations for the British, with thousands moving to the Mediterranean country each year.

But few realise that inheritance laws are different from those in the UK – and are about to change.

Laws in Spain determine who should inherit if someone dies without a will and these rules apply to British expats.

This law changes in August when European Union Succession Regulations passed in 2012 give expats the opportunity to opt out of Spanish inheritance rules, although their heirs will still have to pay tax on their inheritances.

Tax and estate planning

The rules also apply to British expats living in France, Italy and Portugal.

Unlike the UK, spouses do not have any inheritance tax exemption and tax is paid by those receiving inheritances, not the deceased’s estate.

Other complicated local rules determine who pays how much tax.

Succession tax is payable if the inherited asset – including a pension fund – is in Spain if the heir lives overseas or on overseas assets if they live in Spain. UK inheritance tax may also be due.

So what does this mean for British expats in Spain?

First, with inheritance rules changing, expats need to review their wills – and if they do not have one, need to take professional advice in Spain about how they will affect their plans for who benefits from their estate.

Who is affected

If expats have assets, especially property, in both the UK and Spain, they need to consider making a will in each country to ensure the right heirs receive the property and minimise any taxes due.

Many could find that if they want to leave a home and other assets in Spain to family or loved ones in the UK that inheritance tax is due in Spain.

Spanish taxes depend on how long a home is owned and where the beneficiaries live, as each autonomous community has the right to levy inheritance tax and the rules vary from one region to another.

Cross-border estate planning between the UK and Spain is so complicated that advice should be taken in each country to make sure any wills comply with tax and succession laws.

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