INHERITANCE AND STEPCHILDREN IN SPAIN

12th April 2013

It is almost a year since changes to the laws relating to inheritance within the EU were introduced.
Reading through some posts from 2012 time has made us think.

We bought our apartment after an inspection tour with one of the agencies which no longer exists.
We were bundled off to a legal advisor (solicitor?) who whistled through the order process.

When we returned to occupy our new apartment for the first time, our legal advisor advised and drew up a Spanish wills and took us to have them notarised.
These Spanish will mirror the wills we have in GB.

After some years of getting no younger, we are considering our situation in the light of some articles we have read:

My wife has 4 children who will inherit her estate. They are my stepchildren. They will also inherit my estate.

We are NOT Spanish residents. We spend less than 6 months a year in Spain.

Our estates include two properties in GB which we own in equal shares.

Our property in Spain is owned 90% by my wife and 10% by me.

When we bought our apartment we do not remember any discussion as to the proportion of ownership. We can’t see any reference to it in the Spanish documents, Escritura or wills.

Why the worry?
We understand that stepchildren are not considered as relatives when inheriting estates in Spain.
They do not get the benefits of the discounts allowed to relatives.

QUESTIONS ARISING

1.       How do we ensure that the Spanish system recognises the proportion of ownership of our Spanish property?

2.       If the Spanish system does not recognise it, how do we make sure that it does?

3.       If it becomes necessary to transfer my share of our property in Spain to my wife:

3.1. How is this done?

3.2. Are transfers between spouses free of tax in Spain as they are in GB?

3.3. If transfers of property between spouses are taxed, how is the property valued? (an apartment in our Community changed hands recently for less than 40% of its original  price 6 years ago)

3.4. What rate of tax is payable?

3.5. What is a reasonable rate for a solicitor to charge for making the transfer arrangements and registering the transfer at the Property Registry?

3.6. Is it reasonable for me to have a usufruct if my wife predeceases me?

3.7. My wife’s daughter enjoys visiting our apartment in Spain. The other children are not in a position to visit as frequently. Would there be any advantage of my wife giving her daughter a usufruct if she dies after me?

If you could point us the direction of some answers we would be very grateful.

I am sure that it would have been better to sort all this out at the time of purchase, but, as with many things, advice was expensive and either short, not existent or plainly incorrect at that time.

Hindsight is a wonderful thing, but even now we can’t see a way through this potential problem.
We don’t want to hand on a problem to our heirs.

We are even considering organising NIEs for our heirs to give them one less thing to worry about when they inherit.

Here Here

Im with you on this one John

Rod

12th April 2013

Dear Johnzx and Rod,

Thank you both for your contributions.

Clearly, the title of the thread I opened was of sufficient interest to you both for you to look at it.

I agree that there is no substitute for proper legal advice for which one should expect to pay a reasonable fee.

I asked for a pointer to references to help me find the answers to the questions I pose.

I did not ask for free legal advice.

Our experience in Spain is that the majority of couples we have met are potentially in a very similiar sitiuation to us.

Any information through this thread may be very helpful to many of them.

I also notice that many professionals read and put forward very helpful contributions to threads on the Eye on Spain forum platform.

Keep safe and well,

Best wishes,

Dai.

14th April 2013

If you have stepchildren to whom you wish to leave part of your estate in Spain, the following search through Google may help:

Deed of Dissolution of Joint Property Ownership

It should lead you to opinions dating from 2008 up to the present time.

It may be a way to save your heirs a considerable amount of Inheritance tax.

I have yet to find out if it applies nationally, regardless of region.

That is one of the questions we have listed for our solicitor to answer.

I hope you find this helpful.

Dai.

Dai,

                Well your post gives a new slant on questions. 

By you answering your own question

14th April 2013

Dear Johnsx

Time passes and with luck each day and in some way we become a little wiser.

Just because I ask questions does not mean I cease looking for answers.

If the search I suggested helps you, all well and good I hope.

Keep safe and well,

Best wishes,

Dai.

14th April 2013

Dear Johnsx,

Thank you very much for that.

My aim is to find a way to optimise a situation in which we find ourselves as a result of insufficient information when we first made our wills in Spain.

True it is possible to opt to make ones UK will the dominant will.

Those wills can be challenged in UK and Spain.

The threshold for inherintance tax is high in GB compared to Spain.

Stepchildren in Spain are considered as class 4 heirs who may be subject to as much as 60% inheritance tax.

Some readers may not realise that.

Between the two systems, GB and Spain, there are so many possibilities.
Some may minimise parts and others will maximise parts but usually only one set of options Optimises things.

The aim here is not to evade or even to avoid but to make prudent arrangements that will allow our heirs to benefit rather than to suffer the disbenefits of inappropriate arrangements.

If we can get our own minds clear before we make an appointment with our solicitor it will save us repeated trips by train and many kms of walking if we can sort it all out in as few appointments as possible.

I hope readers will find what you have said helpful.

Keep safe and well,

Best wishes,

Dai.

14th April 2013

I am sorry, I should have avoided any possibility for confusion by stating again:

We are UK residents and taxed in UK.

Dai.

14th April 2013

Dear Johnsx,

Thank you very much indeed for that information.

As the man leaning on the five barred gate said when asked for directions:

'If I were you, I wouldn't start from here.'

Brits are supposed to be good at making the best of a bad job.
We hope we can do a bit better than stitching our children up with a proportionately massive inheritance tax bill.

When we bought our property, there was little choice of what to do with the money.
Invest it in UK and the banks would have had it.
Buy more property in UK and we wouldn't have seen as much sunshine during the winter.

As it is, at least we have had a great deal of enjoyment out of it and still have something to show for our investment which, rather like the pound in our pockets after devaluation in the 1960's, is worth no less unless we are forced to sell it.

It would be good if the children could afford the continued enjoyment of it but they may have to be philosophical about it if there is no way to arrange things optimise on the IHT they would need to pay.

Perhaps someone will read your advice before buying property in Spain and act accordingly.

Keep safe and well,

Best wishes,

Dai.

28th April 2013

After considerable research, I discover that stepchildren are classed as Group III heirs as descendants by marriage.

It looks as if, Spanish Residents or not, they qualify for a personal Inheritance Tax Allowance of €7,993.

It also looks as if they also qualify for a personal wealth surcharge ranging from 59% for assessed wealth of up to €402,670 to 91%.

All of which is considerably more encouraging than we had feared.

The actual amounts payable depend on the valuation of the property.

There appear to be several possibilities:

1. Purchase Price - unless re-valued for taxation purpoises

2. Valor Catastral - a rather low figure used as the tax base for calculating taxes like IBI (rates)

3. The Hacienda's (local treasury) valuation for Wealth Tax purposes - does this apply only to Spanish Residents?

4. Market Value - there have been 2 recent sales in our community, one last year at 48% of the new price in 2005 and one this year at just 40% of the new price in 2005.

We have done our sums based on the price we paid in 2005 and discover that when we include all the different aspects, including the 3% addition for personal property, that the total of the Inheritance Tax payable by all my stepchildren heirs would be less than the cost of dissolving the partnership of Owners (myself and my wife).

If yu do the calculations for the potential laibility of your own stepchildren heirs, you well find that the situation is not as bad as we had feared.

We found some links which may help you - you may need to copy and paste them into your browser:

http://www.spanishsolicitors.com/services/spanish-inheritance-tax-wills-probate-intestacy/

http://www.myadvocatespain.com/spanish-inheritance-tax/inheritance-tax-murcia

http://www.financial-pages-in-spain.co.uk/home/spanish-inheritance-tax-isd

We think that we unable to benefit from from any Regional (in our case Murcia region) tax allowances because we are not Spanish Residents and think that only the general Spanish State allowances and rates apply to our situation.

It has been difficult to identify the dates of the references above, but they looked as if they were currently effective.

If you think I have got the wrong end of the stick, please say so and be kind enough to point me in the right direction.

I hope the information above may be of help to you.

Dai.
 

 These guides might be of help:

http://issuu.com/mariadecastro/docs/inheritance_law_and_wills_in_spain_for_dummies

http://issuu.com/mariadecastro/docs/spanish_wills_and_inheritance_tax_r_