Inheritance laws play a crucial role in determining how assets are distributed after a person's passing. Whether you are resident in England and Wales with assets in Spain or vice versa, understanding the disparities between the inheritance laws of these two countries is essential for effective estate planning and asset management. In this blog, we will delve into the key differences between English and Spanish inheritance laws to provide clarity and insight for individuals navigating cross-border estate matters.
1.Succession Laws:
England and Wales: In England and Wales, succession laws primarily follow a system of testamentary freedom, allowing individuals to distribute their assets according to their wishes through a valid will. That is, the law does not require the testator to leave a share of their estate to a close relative such as children as is the case in Spain, below. However, certain categories of people such as spouses or civil partners, former spouses or civil partners, even cohabiting partners (who lived with the deceased for at least two years prior to their death), children and other dependants who immediately before the death of the deceased had been financially maintained, either wholly or partly, by the deceased can make a claim to the court under The Inheritance (Provisions for Family and Dependants) Act 1975. This applies when a person dies domiciled in England and Wales and is survived by any of the above-mentioned categories of people.
Spain: Conversely, Spain operates under forced heirship rules, where a portion of the deceased's estate is reserved for specific heirs, such as children or spouses, known as "legítima". As established in article 807 of the Spanish Civil Code, forced heirs are the children and descendants of their parents and ascendants. Children are understood to be both biological and adopted, without any discrimination between them. In the absence of children of the deceased, the parents and ascendants of their children and descendants will be forced heirs. Likewise, the widow or widower of the deceased, to whom is attributed a right of partial life interest (‘usufruct’) of the inheritance, which is called “widow share.” So if anyone in their Will ignores this rule and goes on to state that upon death all their estate goes to a friend, the law will intervene to enforce the forced heirship rules for the benefit of the above-mentioned beneficiaries, as appropriate.
2.Intestacy Rules:
England and Wales: In the absence of a valid will, English intestacy rules dictate how assets are distributed, typically prioritising spouses, civil partners, and close relatives. The English intestacy rules can be found on Section 46 of the Administration of Estates Act 1925, which establishes that the order is:
(1) Where there is a surviving spouse and no children, the spouse is entitled to the entire residuary estate.
(2) Where there is a surviving spouse and children, the spouse is entitled to the ‘personal chattels’ (movable property, but not money) of the deceased and a statutory legacy of £322,000 (as of the date of this publication), including interest from the date of death. The residuary estate, if any, is then divided equally between the spouse (50%) and the children (50% divided between however many children there are).
(3) If there is no surviving spouse but there are children, the children of the deceased receive the estate.
(4) If there are no children, the parents of the deceased are entitled in equal shares when both are alive, or solely to the surviving parent.
(5) If no parents survive, siblings described as ‘of the whole blood of the deceased’, meaning siblings who share both parents, or their issue, are entitled.
(6) If no whole blood siblings survive, siblings of ‘half-blood’, meaning with one parent in common with the deceased, or their issue, are entitled.
(7) If there are no siblings of whole or half blood, the grandparents of the deceased receive equal shares of the estate.
(8) If there are no grandparents, then aunts or uncles of the whole blood, or their issue, will be entitled to an equal share of the estate.
(9) If there are no aunts or uncles of the whole blood (or their issue), then aunts or uncles of the half blood, or their issue, will be entitled to an equal share of the estate.
(10) If there are no aunts or uncles of the half blood or their issue, then the Crown, Duchy of Lancashire or Duke of Cornwall, will inherit.
Spain: Spanish intestacy laws also prioritise certain family members, with reserved shares allocated to spouses and children, even in the absence of a will. Some territories of Spain (Aragón, Navarra, Catalonia, Galicia, etc.) have their own intestacy rules but we will be citing only the general rules as stated by the Spanish Civil Code:
(1) Children and descendants, in equal shares. If there are children of the deceased and descendants of other children of the deceased who had predeceased, the former ones will inherit in their own right and the latter ones by right of representation (also known as ‘accretion’) (the share that their parent would have received divided equally), if there is also a surviving spouse, the spouse is entitled to a life interest (‘usufruct’) over a third of the estate.
(2) If no children or grandchildren were alive, then the ascendants will inherit. Father and mother will inherit in equal shares. If there were no parents alive, then the ascendants with more proximity (grandparents, etc). If there is also a surviving spouse, the spouse is entitled to a life interest (‘usufruct’) over one half of the estate.
(3) If no descendants and ascendants are alive, the spouse will inherit but only if they were not separated (judicially or otherwise).
(4) Siblings and nephews and nieces of the deceased.
(5) Spanish State.
At Lopez & Moreno Associates, Notaries & Spanish lawyers, we highly recommend clients to have separate wills in place, one for their assets in Spain and another for their assets in the UK. Please contact us here if you would like to obtain a quote for drawing up your Spanish will.
3.Treatment of Spouses:
England and Wales: Spouses and civil partners are entitled to inherit under English law, with the amount varying depending on whether there are children and the value of the estate, as explained above.
Spain: Spanish law grants significant protection to surviving spouses, ensuring they receive a portion of the estate, often referred to as the "vital minimum" or "usufruct" (life interest) allowing them to use assets during their lifetime. However, if both systems are compared, it can be stressed that English intestacy rules afford more benefits and priority to the surviving spouse than its Spanish equivalent.
4. Inheritance Taxes:
UK: Inheritance tax (IHT) is levied on estates above a certain threshold, with rates varying depending on the value of the estate and the relationship between the deceased and the beneficiaries.
At the time of this publication, if the value of the estate is below the £325,000 threshold there will not be inheritance tax to pay, this is called a “nil-rate band”.
So there is normally no tax to be paid if:
The value of your estate is below the £325,000 threshold.
You leave everything above the threshold to your spouse or civil partner (spouse or civil partner exemption -there is no inheritance tax payable between spouses or civil partners), or
You leave everything above the threshold to an exempt beneficiary, such as a charity or a community amateur sports club, or
If you give away your home to your children or grandchildren your threshold can increase to £500,000.
If the value of your estate is above the £325,000 threshold, the part of your estate above it might be liable for tax at the rate of 40%. The Nil Rate Band (NRB) is fixed at £325,000 until 2026, but your NRB might be increased if you are widowed or a surviving civil partner. Couples can transfer any unused NRB when the first person died to the survivor.
This can double the amount of NRB available up to £650,000. This extra transferable element is known as transferable nil rate band (TNRB).
However, there exist a number of reliefs and exemptions that mitigate the amount of inheritance tax payable. Some gifts and property are exempt from Inheritance Tax, such as some wedding gifts and charitable donations. Relief might also be available on certain types of property, such as farms and business assets. If the person who died gave a gift in the seven years before they died, it is counted as part of the estate, and likely to incur IHT. How much tax is due depends on the value of the gift, when it was given and to whom.
NB: the liability to pay the inheritance tax when there is a Will lies on the Executor(s) of the will. When there is no Will it is the Administrator of the estate who does it. As opposed to the Spanish system explained below, the English IHT is calculated on the overall value of the estate.
Spain: Spain also imposes inheritance and gift tax (ISD), with rates dependent on factors such as the relationship between the deceased and the beneficiary, the value of the assets, and regional regulations. The Spanish Inheritance Tax Rules are very complex if they are compared to its English equivalent because every element described in this paragraph (value, type of beneficiary, regulation applicable in the region of Spain where the assets with the combined highest value are located) will trigger a different inheritance tax figure as different regions apply different deductions and nil rate bands which can result in substantial differences in the amount of inheritance tax due. We shall not describe here every allowance given by each region but, at Lopez & Moreno Associates, we can calculate how much inheritance tax (if any) you might have to pay as a result of the death of a deceased with assets in Spain.
When a Spanish property is transferred as a result of an inheritance, it will also trigger local ‘plusvalia’ tax payable to the Local Authority.
NB: in Spain the liability to pay the inheritance tax lies on the beneficiary and is calculated on the value of the share of the estate to be inherited by such beneficiary.
5.Treatment of Foreign Assets:
UK: UK inheritance laws apply to worldwide assets of UK domiciled individuals, subjecting foreign assets to UK inheritance tax. potentially resulting in dual taxation in some cases. It is important to mention that there is dual taxation relief between Spain and the UK.
Spain: Spanish inheritance laws for UK residents apply only to assets located in Spain, regardless of the deceased's nationality or residence status, potentially resulting in dual taxation in some cases. For residents in Spain, likewise in the UK, Spanish inheritance laws apply to worldwide assets of individuals habitually resident in Spain, also potentially resulting in dual taxation in some cases. It is important to mention that there is dual taxation relief between Spain and the UK.
Navigating inheritance laws can be complex, particularly when dealing with assets spanning multiple jurisdictions. Understanding the key disparities between UK and Spanish inheritance laws is crucial for effective estate planning and ensuring the orderly distribution of assets according to your wishes. If you are a UK resident with assets in Spain, seeking professional legal advice tailored to your specific circumstances is essential to mitigate risks and optimise asset management strategies.
By shedding light on these key differences, we aim to empower individuals and families to make informed decisions regarding their estates, safeguarding their legacies and providing peace of mind for generations to come. For personalised guidance and assistance with cross-border inheritance matters, do not hesitate to reach out to our experienced team of Spanish lawyers and Notary Public in the City of London.