How does one normally make provision for paying inheritance tax in Spain (IHT)?

Inheritance Law

Q. My partner (compañero) and I (not married yet) are buying a home in Spain with
both names on the title (titulo) deeds (hechos). We live here and have applied
(solicitado) for residency. We have no other ties (lazos) with England. I have 3 grown
up (crecidos) children, all married living in England. My partner has an 8 year old
who lives with us. We both want the other person to inherit (herede) the property and
to be able to (ser capaz de) dipsose of it as they think fit, i.e sell and down size etc.
one may wish to return to the U.K. (United Kingdon=Reino Unido)and would need
all the money from any (alguno, cualquier) sale (venta). When the surviving partner
(compañero) dies then the estate would be divided up accordingly (de acuerdo). We
don't want to have to live in a house purely because one can't sell.

How does one normally make provision for paying inheritance tax in spain? I find it
(lo encuentro) hard (duro) to believe that all spanish people have a stash (escondite)
of money laying (poniendo) around to pay this tax? Can you avoid (evitar) paying it
and if so how much does it cost for any scheme (esquema)?

A. In response to your queries (preguntas) I let you know the following:

Spanish inheritance tax is certainly stiff (cadaver) is the inheritor (heredero) is not a
family member and a resident in Spain. In this case, and provided (y con tal de que)
the estate is not worth (valor) more than 500.000 Euros, there will be no inheritance
tax (no habrá ningún impuesto de herencia).

You are able however to do the following: (Usted puede sin embargo hacer lo
siguiente)

If the property is owned (se posee ) by a Spanish limited company, due to (debido a)
certain exemptions on Transfer tax on shares (las porciones) (7%), it could be
possible to establish a calendar to organize the transfer of shares (porciones) from
yourself (Usted) to your children or partner, in a given (dado) period of time, at
almost (casi) no cost. Alternatively, you could also split (raja) ownership (propiedad)
(la propiedad hendida) of the shares and allocate (asigne) your children the bare
(nuda) ownership (propiedad) of the shares, you retaining a life interest on them.

o The cost of this scheme would include legal fees (cuotas) for the
incorporation of a Spanish limited company (1.500 Euros + VAT), 1%
Stamp (estampe) duty (el deber) of the value given to the property when
capitalising the company with the estate and approximately 700 Euros
for Notary and Land Registry fees.

o A second option, which would totally eliminate inheritance tax in Spain,

would be to implement the above (anteriormente) structure but including
an offshore (costanero) as the owner of 100% of the shares of the
 Spanish limited company. The costs would be higher (superior), as the
1% Stamp Duty would not longer be such, but a 7% transfer tax, and the
offshore company would cost in the region of 1800 Euros. This option is
really only suitable (conveniente)for higher (superior) priced
(preciadas=valuadas) properties (700-800k Euros and above
((anteriormente).

If you wish we can set up (preparar) a meeting, at no cost, and discuss the options
further (mas alla).

How can my heirs (herederos) avoid (evitar) inheritance tax upon (en) my death?

Q. I am UK (United Kingdom=Reino Unido) domiciled but non uk resident.

I have a property in my own name in Spain (value €1.5m - no mortgage

(hipotecado). I am not currently (actualmente)Spanish resident either
(cualuiera)- although (aunque) I may become so (asi). (I also have a house in
South Africa). I am married.
I am concerned (preocupo) about Spanish Inheritance tax on my Spanish
Property if I die. What do you suggest?

A. Due to the fact that inheritance taxes on the property you own may be very stiff, it
may be wise to look incorporating a Spanish limited company and contribute with the
asset to the share capital.

If the property is owned by a Spanish limited company, due to certain exemptions on

Transfer tax on shares (7%), it could be possible to establish a calendar to organize
the transfer of shares from yourself to your future inheritors, in a given period of
time, at almost no cost. Alternatively, you could also split ownership of the shares and
allocate your children the bare ownership of the shares, you retaining a life interest on
them.

If you do not wish to lose control over the shares, it is also possible to have the shares
sold to an offshore company (which you would own), in a given period of time,
which can then be disposed of either in life, of after death, at almost no costs.

 Where should I pay my inheritance tax?

Q. We are worried about inheritance tax because we own property in Spain and
England. Can you clarify whether our assets in England would come under
Spanish inheritance laws as well as the Spanish house, or stay under English
law, if we became residence of Spain. We are British citizens.
S. Blake
United Kingdom

Q. We are worried about inheritance tax because we own property in Spain and
England. Can you clarify whether our assets in England would come under Spanish
inheritance laws as well as the Spanish house, or stay under English law, if we
became residence of Spain. We are British citizens.

S. Blake

Q. We are worried about inheritance tax because we own property in Spain and
England. Can you clarify whether our assets in England would come under Spanish
inheritance laws as well as the Spanish house, or stay under English law, if we
became residence of Spain. We are British citizens.
S. Blake

A. Dear S. Blake,

If you become a resident in Spain, your beneficiaries will have to pay inheritance tax
where the assets being bequeathed are located. But the same will happen if you stay a
UK resident. Therefore, we must conclude that residency does not affect the
jurisdiction where the tax is paid.

Yours sincerely

 Should I make a Spanish will if I own Spanish property?

Q. I have a property in Tenerife. I am advised to make a Spanish Will as well as my

English one. Can a Spanish Will handle this property if it is held in a UK

Discretionary Trust for the benefit of my children?

Donald Hey
Grange-o-Sands, Cumbria

A. I would like first to draw your attention to the fact that Spanish law does not
recognise the validity of trusts, and therefore in Spain you would not be able to
purchase property via this vehicle.

Secondly, considering that the property was held by an offshore entity, a Spanish will
would serve little purpose as all inheritance proceedings would take place out of the
Spanish jurisdiction and thefore the Spanish taxman would not know that the shares
of the company or entity, and ultimately the property, were being bequeathed. As far
as the spanish Land Registry is concerned, there would be not alteration of
ownership.

If the property is owned directly by a physical person/s, it is then highly advisable to

have a Spanish will drawn up, as it would avoid the need to have two jurisdictions
involved in the inheritance proceedings.

 I was designated in a will as a co-inheritor of the life interest on a property.

What is my position if I have not yet accepted the said inheritance?

Inheritance Law
Antonio Flores Vila
3rd of March 2002

Q. A Will was made in Spain relating to an apartment in Calella de Palafrugell.

The freehold to this property was left to a sole beneficiary, but 8 others were
each left a lifelong Right Of Occupation (what exactly does this mean?). Also,
in the event of this property being sold, the Will states that the freeholder keeps
50% net proceeds of the sale, whilst distributing the remaining 50% equally
among the 8 others.

The '8' have been told that the Property Registrars in Spain require that a Deed
of Ratification be signed before a Notary by those left an occupation interest.
To date, 3 of the 8 have refused to sign this, or any other document or to reveal
their passport numbers, as requested.

Given the above scenario, I would be very grateful if you would kindly let me
know what will happen to the property now? Will the freeholder and the 5
others who have signed the Deed of Ratification be able to 'remove' the interest
of the remaining 3 without their involvement. Do the '3' have a right to be
informed about what is happening as they have written to the freeholder
expressing their concerns and received no response. Is there any time limit on
all of this? As one of the reluctant '3', I would very much appreciate your
advice in relation to the above. We cannot afford a lawyer, and are based in the
UK, and we are not being told all the facts. Many thanks in anticipation. Best
wishes, Nikki Scott.

Q. A Will was made in Spain relating to an apartment in Calella de Palafrugell.

The freehold to this property was left to a sole beneficiary, but 8 others were
each left a lifelong Right Of Occupation (what exactly does this mean?). Also,
in the event of this property being sold, the Will states that the freeholder keeps
50% net proceeds of the sale, whilst distributing the remaining 50% equally
among the 8 others.

The '8' have been told that the Property Registrars in Spain require that a Deed
of Ratification be signed before a Notary by those left an occupation interest.
To date, 3 of the 8 have refused to sign this, or any other document or to reveal
their passport numbers, as requested.
 Given the above scenario, I would be very grateful if you would kindly let me
know what will happen to the property now? Will the freeholder and the 5
others who have signed the Deed of Ratification be able to 'remove' the interest
of the remaining 3 without their involvement. Do the '3' have a right to be
informed about what is happening as they have written to the freeholder
expressing their concerns and received no response. Is there any time limit on
all of this? As one of the reluctant '3', I would very much appreciate your
advice in relation to the above. We cannot afford a lawyer, and are based in the
UK, and we are not being told all the facts. Many thanks in anticipation.

Best wishes, Nikki Scott.

Nikki Scott
St. Albans

A. Dear Nikki Scott,

The beneficiaries of the ´life interest´ (or Right of Occupation, in Spanish,

USUFRUCTO), will have to sign a deed of acceptance of the will, which would then
enable them to register their interest in the property. Those who dont manifest their
acceptance of the will, will have a period of 30 years to accept the inheritance.

However, article 1.005 of the Civil Code states that

any interest person in the inheritance can file, in courts, a petition to the named
person in the will to manifest whether they accept or reject their share of the
inheritance. The judge will have to summon the
inheritor, within 30 days, in order to declare whether he/she accepts the inheritance,
with a warning that a
refusal to appear in court and decide for one or the other will amount to an
acceptance. You may well be
forced, in lieu of art. 1.005, to make a decision if other
co-inheritors requests it.

In summary, any inheritor should either reject or accept the inheritance, or

alternatively challenge the will in the courts, if they deem it is invalid according to
the provisions of the personal law of the testator. In my opinion, not doing anything is
not an approach which will benefit the passive inheritor.

Those who have accepted their inheritance portion or share of the life interest will be
able to register it, and obviously enjoy the proceeds or income from that property,
namely rental income or holiday enjoyment. The inheritors who do not accept in a
public deed but perform acts which can only be done in que capacity of the
beneficiary of the life interest will be automatically deemed to have accepted the
inheritance. For example, enjoy a holiday or receive their rental share.
As far as the beneficiary of the bare ownership is concerned, he will able to sell the
bare ownership of the house, mortgage it and do anything with it but live in it or alter
the configuration of it. Obviously, any act of disposition of the house will be
restricted to the bare ownership only, without the life interest.
If you need more help do not hesitate to contact us.

 How do we go about getting information on an inheritance in Spain?

Inheritance Law
Q. My husbands father passed away 1/10/2000. He was informed there is a
inheritance left to him, but we are unable to get any information. How do we goabout
getting this info, a copy of his death certificate and properties, wills, etc.

 Janette Salgado
Hesperia, Cali

A. Your search appears as a lengthy and challenging task. Different steps you
should follow are:
o Draw up a list of possible assets he left in Spain (real estate, cars, bank
accounts...)
o Narrow the search to a particular area where he was living or where you
think he may have left assets.
o Do a search into the different land registries of the area.
o Contact people in the vicinity to find out more.
o Apply for a death certificate in the location where he died.
o Apply to the central registry of wills for a copy of the last Spanish will
(an "open will" signed before a Notary Public, since these wills are all
registered in this administrative office).
o If there is no available open will, try to look for a private one if you
think he might have left one.

If he is a US citizen, get a copy of the will and see what are the dispositions regarding
overseas properties. If you cannot find a will, without being good news you can still
proceed: You could file an intestacy procedure in a Spanish Court in order to have the
assets transferred to the legitimate heirs. Obviously, assuming you can find assets.

____

Applicable Inheritance Law to Estate Located in Spain

Antonio Flores
16th of April 2004

The significant number of foreigner owners of property in Spain and what happens to
their property after their death has caused some debate in the past, in particular where
law in the testator’s home country and Spanish law have conflicting dispositions.
This is of great relevance for property owners as Spanish inheritance rules specify
that a part of the inheritance (two thirds of it) will have to be offered to the so-
called compulsory inheritors, which are primarily children and spouse and who
may not be the preferred choice of the testator.

What the Spanish Civil Code Says

Under Article 9.8 of the preliminary title to the Spanish Civil Code, succession to all
property, whether movable or immovable and wherever situated is determined by the
law of the deceased’s nationality. In addition to this, the personal law of natural
persons shall be that determined by their nationality, and will as well govern capacity
and civil status, family rights and duties and succession by reason of death.

By remitting the matter to a foreign law Spanish legislators´, intentions were to

protect as much as possible the cultures and traditions embodied in foreign
legislations governing their nationals. There seems to be no room for
misinterpretations and confusion, but one cannot say this is straightforward for
UK citizens, who precisely conform the biggest foreign community in Spain.

English Law versus Spanish Law

By applying the above Spanish disposition English law takes relevance but to the
surprise of many, it conversely stipulates that for property located abroad it will be
the laws where the property is located which are to be applied.

This legal situation, known as double remission (´reenvio de retorno´ in Spanish), has
caused many to litigate endlessly in Spanish courts (Denney v. Denney-Royde-Smith
Case/ Supreme Court judgment 21 May 1999), as well as in Uk Courts (Adams Case/
Sentence of the High Court of Justice Chancery Division, Vice Chancellor Court, 31
July 1985), thus creating legal uncertainty in many thousands of British property
owners when filling out their will questionnaires before their lawyers. By virtue of
the above rulings, however, the situation was to be clarified to the effect that the
remission of Spanish law was to be only to the UK domestic law and not to their
conflict of law rules which would invariably refer back to the Spanish restrictive
inheritance rules.

Freedom of testamentary disposition for UK nationals and wills done in Spain

The guiding principle of English law on the subject of succession is the freedom to
make a will, which is a declaration of the freedom to determine ones own wishes for
after death (certain reservations are applicable in case of a situation of intestate
death). This interpretation is now prevalent and is uniformly accepted in Spain,
allowing British property owners to avoid the appointment of forcible heirs and
eliminating the likelihood of the testament being challenged by forcible heirs under
Spanish law.
The most popular form of will in Spain, the so called ´open will´, signed before a
Notary Public, is the most recommended format to give to the will as it is directly
enforceable without the requirement of grant of probate. The contents of the will are
printed out in notarial paper, observing certain solemnities so far as respects the
execution and attestation of it, and will be signed in the presence of any Spanish
Notary Public. This will can be made in a double barrel column format, in English
and Spanish.

Finally, when deciding on the disposition of one’s asset it will important to take into
account certain parameters in order to minimise the inheritance tax liability. Without
prejudice to the proposed elimination of inheritance tax between relatives in some
autonomous regions in Spain, consideration will have to be given to the following:
age of inheritor, relationship of inheritor with testator, pre-existing wealth of
inheritor, fiscal residency status of inheritor, status of habitual domicile of property
being bequeathed and number of inheritors.

Conclusion

British property owners are free to determine who their heirs will be and avoid
the appointment of forcible heirs, by means of a valid Will. Although foreign wills
are valid in Spanish inheritance cases, it is always recommendable to draw up a
Spanish will before a Notary public, to ease the inheritance process for our beloved
ones upon our death.

Spanish Inheritance Tax: How much is it?

marbella-lawyers.com
1st of February 2000

Where spanish property, and generally, the estate of a person is transferred by

inheritance, the Tax authorities charge as spanish inheritance tax (IHT) a
percentage on the tax base according to a sliding scale where different considerations
are taken into account. The same scale is applicable to donations, which is important
insofar as this tax could be applied to a purchase/sale contract where the Tax
Authority deems that the parties have underdeclared the price of the property on a
Public deed of conveyance or, in some cases, private purchase contract.

Donees and inheritors are divided into four categories, depending on the relationship
with the deceased, and allowances are conceded depending on the group.

 Group 1: Descendants and adopted children under 21: 15,956.87 €, rising to

47,858.59 €, depending on age.
  Group 2: Descendants and adopted children over 21, spouses, parents and
adoptant parents: 15,956.87 €,
 Group 3: Relatives in second and third degree, that is, brothers/sisters and
nephews/uncles, respectively. 7,993.46 €.
 Group 4: Relatives in forth degree, or withourt any relationship, for example,
a friend. Nought.

Once the appropriate allowance has been deducted, the following tax rate is applied
to the remainder:

When the tax has been calculated , a multiplicand is applied to the figure, taking into
account pre-existing wealth as well as relationship with the deceased. It has to be
noted that Spain does not recognise the concept of partners or common law spouse
when aplying inheritance tax.

An inheritor who qualifies for the bottom of both scales and falls in group 4 will find
the Tax Authority demands from him prior to registering the property under his name
a monstrous percentage of 81.6 of the estate left.
Fortunately, very few people qualify in such groups, and if they do, there are
legitimate ways to get round the bite. A versed lawyer on inheritance matters will
assist you in order to mitigate the exposure to this tax.

Is a Spanish will necessary if I am a foreigner?

A spanish will is not absolutely necessary althouth it is highly recommendable. The

truth of the matter is that many people avoid drawing up such documents since death
is not an issue at a certain period of life. However, any asset proprietor in Spain
should arrange his post-death affairs in a neat way, inasmuch as the heirs would
otherwise be involved in consuming and expensive legal procedures which would
attract different legal jurisdictions. An experience not recommended by those who
have experienced it.

Furthermore, so far nobody has died from drawing up a simple will.

If I have a foreigh will?

A foreign will may cover your Spanish assets but again the procedure involves
obtaining the probate of will in the jurisdiction of the will, legalisation, translation
and a lot of legal assistance througout the procedure that most certainly will amount
to a prohibitive legal fees bill.

Where are spanish wills registered?

A most widely used type of will is signed before a Notary Public, who keeps the
original. A copy is then sent to a central registry of wills which is located in Madrid.
This registry issues a certificate upon death of the testator with the contents of the
will and is necessary in order to procure the transfer of the assets on to the inheritors.

 How do I stand with regards to a will done in Spain?

Inheritance Law

Q. What is the position of the Spanish Law with regards to inheritance law for
English nationals?
James Sutton
Norfolk
A. Spanish law recognises that in the case of an English person English law is to be
applied in order to decide what should happen to their estate on their death. Their
English will will be accepted as valid in Spain. Unfortunately, English law in turn
states that in the case of real property in Spain then it is the local law, i.e. Spanish
law, which is to determine what should happen to it on death. Of course, for most
English people there only substantial asset in Spain is their home. What happens to
that home will therefore be determined by Spanish law. Even if you think you know
that there is no Spanish will it is required to make a check with the Spanish central
wills registry to ensure that this is the case. In practice, however, a combination of
both laws is applied, and unless the will is openly unfair for one of the heirs
according to Spanish law and he does challenge it, the will is valid and it will be
upheld by the Courts.

 Can I transfer a property from myself to a company owned by me?

Property Law

Q. We are group of individuals who came together to fomr a club and bought two
properties in the names of two members and this is affecting their personal records
and which to transfer the property back to the club since we are thinking of
incorporating the club to a limited liability company.

We would be grateful if you can advise us on how to go about it.

A. You are able to form a company (Spanish Limited Liability Company) and
transfer the properties to it by means of a capitalisation of it, against fully paid shares.
The cost of this scheme would include legal fees for the incorporation of a Spanish
limited company (1.500 Euros + VAT), 1% Stamp duty on the value attributed to the
property when capitalising the company with the property and approximately 700
Euros for Notary and Land Registry fees.

In addition to the aims you wish to attain you can also avail of other interesting
situations, for example, inheritance tax.

In this regard, if the property is owned by a Spanish limited company, due to certain
exemptions on Transfer tax on shares (7%), it could be possible to establish a
calendar to organize the transfer of shares from the current owners to the named
inheritors, in a given period of time, at almost no cost. Alternatively, you could also
split ownership of the shares and allocate the inheritors the bare ownership of the
shares, you retaining a life interest on them.