This was of course before the scandals surfaced about houses in Spain being built by developers on land they did not own, or without planning permission, with no recompense available and in some provinces threats of demolition.
Those who needed to return to grey old England found that they could not sell their Spanish home, even in some of the prime second home areas.
But for some lucky buyers things were good, and life over there has worked out well, so well that they need to make sure they are up to date on tax and wills.
Most buyers knew that they should make a Spanish will, limited to their assets in Spain, and nearly all advisers active in the areas usually settled by Brits make basic sensible wills for their clients which do exactly what they should do.
However, if our happy resident thinks beyond the will, he may find that not everything is quite as cheap as he believed.
Most people here are vaguely aware that there is no UK Inheritance Tax as between husband and wife. This is not the case in Spain. In Spain the tax is a true “inheritance” tax and it is levied on the beneficiary, not the estate.
It is calculated by taking into account, firstly thhe value of the assets, and secondly, the closeness of the relationship of the beneficiary to the deceased and thirdly, the assets in Spain of the beneficiary.
And the spousal exemption in Spain is only €16,000. The good news is that, if not a Spanish tax resident, the beneficiary element of that calculation is restricted to the beneficiary’s Spanish assets only.
But even if the Spanish revenue can’t get you, our’s will. If you are not “domiciled” in Spain then your worldwide assets may be liable to tax here.
There is a double taxation treaty in force between the UK and Spain – and an update is in the pipeline – but it does not deal with Inheritance Tax (called ISD in Spain).
So we are left with a rule that allows you to be given credit here for tax paid in Spain on your Spanish assets. But if the Spanish tax is higher than the tax here, and it may well be, since the spousal exemption in Spain is so low, that is tough. You only get a credit here for the tax that HMRC would have levied here on an asset of the same value going to the same person.
There are some ways of reducing the amount of Spanish tax, but the Spanish tax authorities, like ours, are keen to find ways to increase their tax take, and as a result are looking very carefully at some of the arrangements accepted and recommended until now. The Eurozone crisis hasn’t helped, either.
Spain, like France and most of continental Europe, has what is called a “civil” legal system which is descended from the law of the Roman empire, though of course much changed over the centuries.
The so-called civil systems do not use or understand trusts or executorships, and they do not recognise the difference between legal and beneficial ownership. So in Spain the basic rule is that the property goes straight to the heir and the heir gets the tax bill.
The executor is of no importance, as in Spanish eyes he doesn’t exist. Here, the executor gets the tax bill, and the heir doesn’t get the property until the tax is paid.
So if you do own a property in Spain it is essential to make sure that your arrangements there are as tax efficient as possible, and when making or updating your will here, that you make sure your English adviser is fully aware of the Spanish property, its value, the people who will inherit it and their legal residence.
Helen Rowett is a partner in the private client department of Lodders Solicitors.
