Spanish Wills
Apr 17th 2007, 9:54 am
#1
Lost in BE Cyberspace
Thread Starter
Joined: Jun 2005
Location: Puente Esuri
Posts: 6,904
Spanish Wills
Hola to the Brains Trust,
I think I am going to need the best brains on this one (Fred, Beachcomber and Unexpat sharpen your wits).
We signed for our plot in late February and did not have time to make Spanish wills. We are out again in early May so want to get on with this morbid aspect asap.
Having read all six of my books on "Buying in Spain" on this topic they all recommend writing separate Spanish Wills to cover our estate in Spain. We will be Tax Resident in Spain since we intend to spend more than 184 days of each year at Ayamonte. So far so good.
Our intention is to leave our estate to our 3 children and not to each other. The Spanish have a wonderful system called a "Usufruct" which gives the surviving spouse the right to occupy the villa until the second death or they voluntarily give up that right. It also has the magical effect of reducing the value of the property just as it would in UK since the property has a lifetime tenant. The Hacienda even produce a table of reductions dependant on the age of the surviving spouse at first estate. This will reduce the Spanish IHT to be paid by the children to almost zero.
Now the problem arises since we are domiciled in UK and will have assets here the HMRC will look at our worldwide assets and take in our Spanish assets in to account. They will regard the "Usufruct" as a gift with reservations and add the total value of the villa into the second estate for IHT in UK.
Has anyone else seen this problem and is there a way to deal with it tax advantageously?
Regards,
John.
</IMG>
I think I am going to need the best brains on this one (Fred, Beachcomber and Unexpat sharpen your wits).
We signed for our plot in late February and did not have time to make Spanish wills. We are out again in early May so want to get on with this morbid aspect asap.
Having read all six of my books on "Buying in Spain" on this topic they all recommend writing separate Spanish Wills to cover our estate in Spain. We will be Tax Resident in Spain since we intend to spend more than 184 days of each year at Ayamonte. So far so good.
Our intention is to leave our estate to our 3 children and not to each other. The Spanish have a wonderful system called a "Usufruct" which gives the surviving spouse the right to occupy the villa until the second death or they voluntarily give up that right. It also has the magical effect of reducing the value of the property just as it would in UK since the property has a lifetime tenant. The Hacienda even produce a table of reductions dependant on the age of the surviving spouse at first estate. This will reduce the Spanish IHT to be paid by the children to almost zero.
Now the problem arises since we are domiciled in UK and will have assets here the HMRC will look at our worldwide assets and take in our Spanish assets in to account. They will regard the "Usufruct" as a gift with reservations and add the total value of the villa into the second estate for IHT in UK.
Has anyone else seen this problem and is there a way to deal with it tax advantageously?
Regards,
John.
</IMG>
Last edited by EsuriJohn; Apr 17th 2007 at 9:57 am.
Apr 17th 2007, 11:18 am
#2
Lost in BE Cyberspace
Thread Starter
Joined: Jun 2005
Location: Puente Esuri
Posts: 6,904
Re: Spanish Wills
Anybody?
John.
John.
Apr 17th 2007, 12:58 pm
#4
RETIRED ;-))
Joined: Jul 2003
Location: Benalmadena Pueblo,Spain
Posts: 20,156
Apr 17th 2007, 1:46 pm
#6
Joined: Jun 2006
Location: Granada Costa
Posts: 10,904
Re: Spanish Wills
Now the problem arises since we are domiciled in UK and will have assets here the HMRC will look at our worldwide assets and take in our Spanish assets in to account. They will regard the "Usufruct" as a gift with reservations and add the total value of the villa into the second estate for IHT in UK.
I'm not sure I quite understand your problem. A gift can only be made while you are alive but in this case your children are only gaining anything when you die. It would be different if you put the house in their names when you were alive. Or are you saying that a spouse inheriting a Usufruct could be considered an inheritance in itself - it certainly cannot be a gift.
You are right to point out that you can pay IHT twice - both in Spain and in the UK but even though there is no double taxation treaty that applies for IHT there are still ways you are allowed to offset the UK tax against the Spanish tax.
I would imagine that the UK taxman would value the inheritance based on the figures used in Spain.
Last edited by Fred James; Apr 17th 2007 at 1:50 pm.
Apr 17th 2007, 2:18 pm
#7
Lost in BE Cyberspace
Thread Starter
Joined: Jun 2005
Location: Puente Esuri
Posts: 6,904
Re: Spanish Wills
I'm not sure I quite understand your problem. A gift can only be made while you are alive but in this case your children are only gaining anything when you die. It would be different if you put the house in their names when you were alive. Or are you saying that a spouse inheriting a Usufruct could be considered an inheritance in itself - it certainly cannot be a gift.
You are right to point out that you can pay IHT twice - both in Spain and in the UK but even though there is no double taxation treaty that applies for IHT there are still ways you are allowed to offset the UK tax against the Spanish tax.
I would imagine that the UK taxman would value the inheritance based on the figures used in Spain.
You are right to point out that you can pay IHT twice - both in Spain and in the UK but even though there is no double taxation treaty that applies for IHT there are still ways you are allowed to offset the UK tax against the Spanish tax.
I would imagine that the UK taxman would value the inheritance based on the figures used in Spain.
You are right to point out that the term "gift with reservations" only occurs on the first death which brings the usufruct into being but the way the HMR&C look at it they would say the children did not receive clear title to their inheritance on the first estate and therefore that amount had not fallen out of the UK estate for IHT purposes and would add the two halves back together for tax on the second death.
That is the way it is being suggested it would work which has surprised me and thrown a great big spanner in the work of planning our wills.
Regards,
John.
Apr 17th 2007, 2:24 pm
#8
Joined: Dec 2006
Posts: 5,359
Re: Spanish Wills
I may be completely wrong here, I most probably am as I seldom get anything right but I thought I read somewhere just recently that the IHT law here in Spain has been or will be changed and that the remaining spouse and or children will not pay IHT on said property, it will only be due on other named people. As I said I do have very vivid dreams and this could have been one of them.
Apr 17th 2007, 2:29 pm
#9
Joined: Jun 2006
Location: Granada Costa
Posts: 10,904
Re: Spanish Wills
UK IHT is not something that affects me greately and anyway I intend to spend it all first!
I think professional advice in the UK is called for on this one.
Soprry I can't help any further but I will be interested in the outcome.
Apr 17th 2007, 2:34 pm
#10
Joined: Jun 2006
Location: Granada Costa
Posts: 10,904
Re: Spanish Wills
I may be completely wrong here, I most probably am as I seldom get anything right but I thought I read somewhere just recently that the IHT law here in Spain has been or will be changed and that the remaining spouse and or children will not pay IHT on said property, it will only be due on other named people. As I said I do have very vivid dreams and this could have been one of them.
It is fair to say that there are general moves to abolish it or at least minimise it for most normal cases. Andalucia has some of the most generous allowances against IHT and other regions are doing the same.
There are already many situations where no IHT will be charged to spouses or children - we can only hope it continues to improve.
Keep dreaming - it may well come true!
Apr 17th 2007, 2:41 pm
#11
Joined: Dec 2006
Posts: 5,359
Re: Spanish Wills
Don't worry, nobody in Spain understands IHT fully as the rules seem to change daily. Also it varies from region to region.
It is fair to say that there are general moves to abolish it or at least minimise it for most normal cases. Andalucia has some of the most generous allowances against IHT and other regions are doing the same.
There are already many situations where no IHT will be charged to spouses or children - we can only hope it continues to improve.
Keep dreaming - it may well come true!
It is fair to say that there are general moves to abolish it or at least minimise it for most normal cases. Andalucia has some of the most generous allowances against IHT and other regions are doing the same.
There are already many situations where no IHT will be charged to spouses or children - we can only hope it continues to improve.
Keep dreaming - it may well come true!
Thank you Fred, you are so kind and I will take your advice about the dreaming.
Apr 17th 2007, 2:53 pm
#12
Concierge
Joined: May 2006
Location: ex ex-pat, in Taunton
Posts: 27,217
Re: Spanish Wills
I look at it this way, the house will go to my wife, or vice versa, when we are both gone it will go to those named in the will, then it's their problem, and I won't be around for it to affect me. So really it's 'no problemo'
Apr 17th 2007, 3:33 pm
#13
Lost in BE Cyberspace
Thread Starter
Joined: Jun 2005
Location: Puente Esuri
Posts: 6,904
Re: Spanish Wills
I have been looking into this in some detail as you can see and I can confirm what Fred says with regard to Andalucia. 99.9% of IHT is disregarded if 1) you are a "resident" in Andalucia at your death and you only own the one main residence 2) those who inherit are also resident in Andalucia and remain so for 10 years after the death and are very close family such as sons or daughters.
Regards,
John.
