Please note that this entry is obsolete after changes in the law interpretation criteria by the Tax Administration following various judgments of the Supreme Court. You can read more in this entry of our blog Inheritance Tax for non EU residents
It is worth pointing out that Brexit would have a deep impact on the taxation of UK citizens that own property in Spain. Several taxes would be affected as there are some benefits for EU residents, but in particular, the administration of the estate of deceased persons is one of the fields that would be heavily affected with a huge increase in the way it is currently taxed.
The applicable regulation from 1 January 2015 states that:
a) Deceased person residing in Spain
- If the successors (heirs) are residents in a country of the European Economic Area (EEA), either resident or non-resident in Spain, they are subject to the tax regulations applicable in the autonomous region in which the deceased person was residing.
- If the successors (heirs) are Non EEA residents, they will be subject to the State tax regulation.
b) Deceased resident within EEA but not in Spain
- If the heirs are EEA residents (resident or non-resident in Spain), the values of all assets located within each region will be added up and the tax rules of the region where the assets have the highest combined value will apply. If there is no property in Spain, only those successors resident in Spain would be subject to taxation for personal obligation in their region of residence.
- If the successors (heirs) are Non EEA residents, they will be subject to the State tax regulation.
c) Deceased person residing in a country outside the EEA
- The successors shall be subject to the application of State tax law, regardless of their residency.
Therefore, in case of Brexit, all UK residents would be subject to the application of Spanish State tax law instead of to the regional laws.
Let’s see some examples:
Nowadays: A married couple owns a property in Costa del Sol valued at 1,000,000 € and the husband dies. In his last Will he appointed as beneficiaries of his 50% share in the Spanish property his wife and his two children in equal shares. Each of them will inherit 166,666 €. As the tax base for every beneficiary is below 175,000 €, i.e. under the minimum amount subject to Inheritance Tax in Andalusia, they will not have to pay Inheritance Tax.
After BREXIT, and using the same example, each of them would have to pay over 22,000 € as Spanish Inheritance Tax.
Nowadays: A couple owns a property in Costa del Sol valued at 300,000 € and the wife dies. In her last Will she appointed as beneficiaries of her 50% share in the Spanish property her husband and her daughter in equal shares. Each of them will inherit 75,000 €. As the tax base for every beneficiary is below 175,000 €, they will not have to pay Inheritance Tax.
After BREXIT, and using the same example, each of them would need to pay nearly 6.500 € as Spanish Inheritance Tax.
Nowadays: A couple owns two properties in Costa Blanca with a combined value of 900,000 € and they die. In their last Will they appointed as beneficiaries of their assets in Spain their three children in equal shares. Each of them will inherit 300,000 €. Considering the allowance of 100.000 and the bonification of the quota for EU residents, the Inheritance tax that each would have to pay in Spain would be around 8.000 €.
After BREXIT, and using the same example, each of them would need to pay over 33.000 € as Spanish Inheritance Tax.
Therefore, if you have property abroad, at least in Spain, you should think twice before opting for Brexit. Your beneficiaries might end up paying the bill.
Luis M. Vicente Burgos
VICENTE & OTAOLAURRUCHI ABOGADOS
