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Spanish succession tax update – good news for the Canary Isles
By Paul Montague, Partner, Blevins Franks
We had welcome tax news this summer. The Canary Islands has virtually eliminated succession tax for close family members.
There are so many benefits to living in Lanzarote, but, as with anywhere, there are both pros and cons. Many people find Spain’s succession regime to be complex and costly, and expatriates need to understand how Spanish succession tax and law works and affects their family.
The good news is that over recent years many Spanish regions have reformed their succession tax rates and allowances to protect spouses, children and parents from this tax – and the Canary Isles is the latest region to do this.
Spanish succession and gift tax (SSGT) key facts:
1) SSGT applies to both inheritances and lifetime gifts.
2) It is charged on each recipient, including spouses.
3) It is due when:
- a)the beneficiary is resident in Spain, or
- b)the asset being gifted or inherited is a Spanish asset (Spanish property, bank account etc).
4) Beneficiaries are divided into groups:
- Group I – children and other descendants under 21
- Group II – descendants over 21, parents and other ascendants, spouses
- Group III – siblings, cousins, aunts/uncles, nieces/nephews, in-laws, stepchildren
- 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
The Canary Islands government has 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 lifetimes gifts, but in this case only for Groups I and II.
This makes the Canaries a very attractive region to live in from an inheritance tax point of view.
This recent tax reform will certainly be welcome news for anyone living in Lanzarote or planning to move here. There may be substantial tax savings if you are planning to make gifts or if you expect inheritances in the future. You also have less to worry about when it comes to your estate planning and making life easier for your heirs. But it emphasises more than ever the need for specialist advice from experienced advisers, to not only take advantage of these changes but also other aspects of the regional Spanish tax system.
You also need to be aware of how Spain’s succession law imposes ‘forced heirship’. In general terms, children are entitled to receive two thirds of an estate’s assets, so under Spanish law you cannot, for example, leave everything to your spouse. This applies to foreign nationals living in Spain by default.
You can however use the European Succession Regulation ‘Brussels IV’ to opt for the succession law of your country of nationality to apply on your death. You need to specifically state this in your will. This applies to all foreign nationals living in the EU, it is not restricted to EU citizens.
Every family is different. Take personalised advice, based on your situation and objectives, to help ensure your estate is divided as you wish and with as little tax and bureaucracy as possible. You can take steps now to make life easier for your family and heirs when you’re gone.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
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