Spanish Will and Inheritance Tax on Canary Islands?

Spanish succession and gift tax (SSGT) key facts:



1) SSGT applies to both inheritances and lifetime gifts.

2) It is charged to each recipient, including spouses.

3) It is due when:

  • The beneficiary is resident in Spain, or

  • The asset being gifted or inherited is a Spanish asset (Spanish property, bank account, etc).

4) Beneficiaries are divided into groups:


  1. Group I – children and other descendants under 21


  1. Group II – descendants over 21, parents and other ascendants, spouses


  1. Group III – siblings, cousins, aunts/uncles, nieces/nephews, in-laws, stepchildren


  1. Group IV – everyone else, including unmarried partners even if registered as a pareja de hecho, unless the region grants them the same rights as spouses (Andalucía and Valenciana do)


5) The tax rates and allowances are determined by the state each year, but the regions can make them more beneficial for local residents.

6) UK nationals can be liable to both Spanish and UK inheritance tax since UK inheritance tax is based on domicile not residence, but a credit is given in Spain for tax paid in the UK to avoid double taxation.

Canary Islands succession tax reforms

Following the Balearics and Valencia announcements in July 2023, the government in the autonomous region of the Canary Islands has also introduced substantial changes to its succession tax rules.

With effect from 6 September 2023, the succession tax liability is reduced by 99.9% for inheritances received by Group I, II, and III beneficiaries. In effect, no tax will arise for spouses, children, grandchildren, parents, siblings, nieces, nephews, etc.

The same 99.9% reduction applies for lifetime gifts, but in this case only for Groups I and II.

Canary Islands is now the most beneficial region of Spain for inheritance by brothers, sisters, nieces and nephews.





Will

  1. Definition: A will is a legal document that expresses a person's wishes regarding the distribution of their property and the care of any minor children upon their death.

  2. Purpose: The primary purpose of a will is to provide clear instructions on how the testator (the person who created the will) wants their assets distributed, who should manage the distribution (the executor), and who should take care of minor children (the guardian).

  3. Contents: A will typically includes:

    • Appointment of an executor.

    • Instructions for the distribution of specific assets.

    • Designation of beneficiaries.

    • Appointment of guardians for minor children, if any.

    • Funeral and burial instructions, if any.

  4. Legal Requirements: To be valid, a will must meet certain legal requirements, which can vary by jurisdiction but generally include being written, signed by the testator, and witnessed by at least two individuals.

  5. Probate Process: After death, the will goes through probate, a legal process where the court validates the will and oversees the distribution of the estate according to its terms.



Inheritance

  1. Definition: Inheritance refers to the assets and property that are passed down to beneficiaries after someone's death, either through a will, trust, or by the laws of intestacy if there is no will.

  2. Process: Inheritance is the actual transfer of ownership of assets from the deceased to the beneficiaries. This can happen through:

    • A will (testate succession).

    • Trusts, which can allow for the distribution of assets outside of probate.

    • Intestate succession, where state laws determine the distribution if there is no will.

  3. Types of Inheritance: Inheritance can include a wide range of assets such as money, real estate, personal property, investments, and more.

  4. Beneficiaries: The individuals or entities who receive the inheritance. These can be family members, friends, charities, or other organizations as designated by the deceased.

  5. Taxes: Inheritance may be subject to taxes, such as estate taxes, inheritance taxes, or both, depending on the jurisdiction and the value of the estate.

Key Differences

  1. Nature: A will is a document outlining how assets should be distributed, while inheritance is the actual process and receipt of those assets.

  2. Function: A will sets the plan for distribution, whereas inheritance is the realization of that plan.

  3. Creation and Execution: A will must be created and executed according to legal standards, while inheritance occurs as a result of the terms of the will (or trust) or state intestacy laws.

  4. Legal Process: A will typically necessitates probate, whereas inheritance might avoid probate if assets are held in a trust or other mechanisms are used.

In summary, a will is a tool used to dictate how a person’s assets will be distributed after their death, while inheritance is the end result—the actual transfer of those assets to the beneficiaries.



The Benefits of Making a Spanish Will

There are three chief reasons for having a Spanish will...

Reason One: It avoids time-consuming and expensive legal issues that your heirs will have to resolve. You can – and should – make a separate will to dispose of any assets located outside Spain. A British will, for example, has no bearing on your Spanish estate.

Reason Two: Spaniards have to divide their assets equally among their heirs, and leave two-thirds of it all to their children. As a foreigner, you are exempt from this ruling and you can bequeath your assets to whoever you want. Your estate will, however, be subject to Spanish inheritance tax, which is high when left by non-residents to non-relatives. In addition, foreigners resident in Spain are subject to the same taxes on any of their worldwide estate. Therefore, making a will allows you to navigate these various taxes at your discretion.

Reason Three: Since 28 January 2018, when a modification of the law was proposed, the “first-level” (wife/husband and children), won't pay any inheritance tax up to €1 million per heir. This is applicable to both residents and non-residents in Andalucia and some other Communities of Spain.




Pitfalls of Lacking a Spanish Will

Without a Spanish Will, unforeseen circumstances can create chaos. Here’s what could happen:

  • Intestacy: The Spanish court decides who inherits, potentially ignoring your wishes.

  • Family Feuds: Disputes can arise, leading to emotional distress and legal battles.

  • Tax Inefficiency: Assets may be distributed in a way that maximizes taxes, impacting your loved ones.


Aligning Your Wills

Having both a Spanish and a foreign Will ensures your wishes are respected in both countries. This can involve:

  • Specifying which Will applies to your Spanish assets.

  • Addressing any potential conflicts between the two Wills.

  • Seeking professional advice to ensure legal validity.

Remember, this is just a starting point. To fully understand your options and ensure your Will reflects your wishes, consulting with a qualified legal professional specialising in Spanish inheritance law is crucial.


Foreign Wills in Spain: Complications and Extra Layers of Bureaucracy


Many foreign nationals rely on wills drafted in their home countries for their Spanish assets. While the process is similar to that of a Spanish Will, additional steps, including legalization and translation, can be cumbersome and time-consuming. Ensuring that a non-Spanish Will is recognized in Spain involves meeting specific criteria and can lead to increased costs and delays.

Having a Spanish Will eliminates the need for additional processes, as it is already crafted to comply with local regulations. The convenience of a Spanish Will becomes evident when your heirs attempt to navigate the bureaucratic landscape after your passing. It streamlines the process and ensures a smoother transition of your assets to the intended beneficiaries.

Types of wills in Spain

Types of wills in SpainThere are several different types of wills in Spain. The three listed below are the most common:

  • Holographic will: a handwritten Spanish will authenticated by two witnesses and verified by a judge.

  • Open will: a Spanish will made before two witnesses and given to a notary who registers it.

  • Closed will: a Spanish will made in secret and sealed in an envelope, then given to a notary for registration. 

Other types of wills in Spain include military wills, maritime wills and wills granted by Spanish nationals in a foreign country, but these are rarely used.


https://www.expatica.com/es/finance/money-management/planning-estates-and-wills-in-spain-136218/

https://www.blevinsfranks.com/succession-tax-in-spain-update/

https://www.daviessolicitors.com/big-reduction-to-inheritance-tax-in-the-canary-islands/

https://www.sebleeson.com/inheritance-in-tenerife/?lang=en

https://www.realista.com/blog/crafting-spanish-will-for-expats/

https://www.yourviva.com/property-for-sale/information/legal/spanish-inheritance-law

https://www.judicaregroup.com/site/country/lawyers-in-spain/wills-in-spain/

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