As speculation continues into the implications of severing ties with Europe, there are some emerging realities that we should already be contemplating. The impact on donation and inheritance tax in Spain is one.
There are many imponderables when it comes to considering what the implications of being out of the EU will mean for British people with property in Spain. However, although there are many uncertainties, there are also some areas of law in Spain that have been directly influenced by the UK’s membership of Europe and may face an about turn in the future.
One of these is that of the tax paid on donations and inheritance in Spain. Recently the European courts required Spain to modify its inheritance and donation tax laws. Previous to this non-residents were charged a much higher level of inheritance tax and donation tax than residents. However, the European court ruled that this was against European law and that Spain must comply.
Now, following Brexit, this protection could be removed from the British when it comes to inheriting or donating their property and goods. Once they are no longer members of the European Union the European laws will no longer apply and Spain will be able to reinstate the differential.
Because of this likely reversion to a higher Spanish inheritance tax and donation tax rate, if you are a non-resident or a resident leaving your estate to a non-resident, you might consider donating now rather than waiting until Britain leaves the EU with all its associated consequences. It could make a big difference to the amount you are able to leave your inheritors.
In Spain, it should be remembered that you must pay inheritance tax before the name on the title deed is changed. This means that if your inheritor has a substantial amount of inheritance tax to pay, they may find it difficult to take up possession of their inheritance at all.
If you do decide to donate your property the process is called the ‘Donación de bienes’ and involves signing a new title deed. There will still be donation tax to pay but, if you donate now, you will be charged at the same level as a resident in the area where the assets are located, even if you are donating to a non-resident, provided that the non-resident lives in the EU.
So, for example if your property is in the Comunidad Valenciana and you want to donate your property to your non-resident children in the UK before you die it may be that they currently will not have any donation tax to pay at all. This represents a big potential saving for non-residents and perhaps one to take advantage of as it could change with Brexit.
The figures speak for themselves. As things stand at the moment, if you decide to donate a property valued at €100,000 to your child the Spanish donation tax would be €0. If, however, the UK is no longer a member of the EU then the cost to the child would be €12,415. A sizeable difference.
Unfortunately, after Brexit, there will be no guarantee that you can benefit from the protection that the EU law gave. Should you decide to proceed now and donate your property, our Ábaco legal department will be ready to help.