Spanish executry law – cross border issues

Spain is the sixth most popular destination for ex-pats leaving the UK. As more and more people are choosing to live their lives abroad, there is an increasing need for the provision of legal advice which covers both Spanish and Scots law, and the interaction between the two.

It would be impossible to examine fully this relationship in a short article; however, using Spanish probate (i.e. executry) law as an example we can give you an idea of the complexity that cross border elements can bring to a situation.

There are three main questions that should be tackled in the early stages of providing advice to ensure that the correct legal criteria are met:

1. Does Scots or Spanish law apply either to the matter as a whole or any specific issue?
2. Is there a Spanish asset in the estate?
3. Is there freedom of disposition under Scots law or will it be subjected to rigid Spanish law?

Applicable law – key issues

Under Spanish law, the national law of the deceased at the time of his/her death governs the succession to all property irrespective of the nature or situation of the property in question. The unity of succession according to the law of nationality is a basic principle of Spanish law, but the following questions must be taken into account:

(a) The deceased’s wish. Any disposal made in life according to the applicable law at that time shall be valid even if at the time of death the applicable law is that of another country. Any inheritance proceedings are subject to the application of the deceased’s current national law. For example a disposal of assets made by a Scottish citizen during life, who acquired Spanish nationality just before death, is valid as long as Spanish rules such as those relating to inheritance by children (known as “legitima”) are observed.

(b) The jurisdiction. The Spanish courts have jurisdiction to carry out inheritance proceedings either if the deceased lived in Spain just before they died or if they owned real estate in Spain. The Spanish courts have jurisdiction to deal with the whole succession and can apply the deceased’s national law.

To deal with any conflicts of law that may arise as a result of jurisdictional issues, the courts will consider relevant international law. Such issues may also give rise to conflicts of interest between the parties involved. This is particularly common where:
(a) the estate comprises both Scottish and Spanish assets; and
(b) there is a spouse and children involved.

The rights of the surviving spouse are guided either by the law of the country in which the marriage took place or by the law of the country where the spouses were resident. This means that though Scots law may be applicable to the surviving spouse, the Spanish rules relating to the inheritance rights of children may also come into play, resulting in a situation where the rights of the children and spouse are in conflict. More complications arise where the deceased dies without a will, as the law on intestacy is also different in Spain and Scotland.

It is also essential to remember that the validity of a will is governed by the principles set out by the Hague Convention dated 1962 (ratified by both Spain and the UK):

• The Convention lists a number of criteria which can be alternatively applied in order to prove the validity of a will. A will form is valid if it observes the applicable law in the country where the testator granted the will, or where he/she was nationalised or domiciled, or where he/she had permanent residency, or where the real estate included in the will was located. The aim of the Convention is to provide as many alternatives as possible, to avoid a will which is valid in one country not being considered valid in another one just for mere formal reasons.
• Therefore, if according to any of these criteria the will is valid in one country, then it must be generally considered as valid in the other countries (principle of uniformity in the inheritance proceedings).
• There are certain exemptions to that general rule, for example if the application of the selected law clearly contravenes the law of the country where the form of the will is to be enforced.

Again, it is necessary to establish which body of law is applicable. The formal requirements relating to wills differ under Spanish and Scots law. For example under Spanish law, the standard will is notarised and registered and for the handwritten will signed by the testator in private there are certain requirements to be observed, while in Scotland the typewritten or handwritten will signed in the presence of a witness would be the standard one.

Existing Spanish assets – what to do in practice

In order to ensure that the transfer of a Spanish property to a beneficiary is successful, the change in ownership should be registered with the Spanish Land Registry.

Even if the distribution of the estate will be generally ruled under Scots law, there are certain formalities and steps to be completed in Spain in order to change the ownership, and also deadlines and costs that should be taken into account by the executor(s) in Scotland. Even if the survivor spouse is the beneficiary the formal procedure must be followed. As a survivorship rule does not apply, therefore the spouse’s share on the Spanish property would not pass automatically to the survivor spouse and it is subject to tax in Spain.

To this end, the following formal requirements must be met:

(a) Relevant documents such as the death certificate and grant of administration/confirmation of executor must be translated into Spanish and legalised for validity in Spain. It may be necessary to obtain a certificate of law verifying Scots law to be the law, which should be also translated and legalised.

(b) The certificates confirming the existence of a Spanish will and Spanish insurance policy must be obtained from the Spanish registries.

It is necessary to verify whether the deceased granted a Spanish will as per the Spanish last will registry records. This is essential as the distribution of the Spanish estate will be subject to the Spanish will, as long as it is valid and it has not been revoked. If there is not a Spanish will, it needs to be confirmed whether the Scottish will, if any, refers to the Spanish assets. If that is not the case, intestacy distribution rules will apply to the Spanish estate.

Needless to say, the Spanish will facilitates the process, not only because there is usually less paperwork involved (i.e. the confirmation of the executor and will do not necessarily need to be legalised and translated; there is no need to prove Scots law), but also because under a Spanish will the testator can directly appoint the beneficiary(ies) so the executor does not necessarily need to become involved.

(c) The beneficiary must request a Spanish tax certificate (NIE). He/she will be classed as a taxpayer in Spain and should therefore register with the Spanish Revenue.

(d) The Spanish assets must be duly identified.

- Holiday home: it is important to confirm as soon as possible the current situation of the property as per the Spanish Land Registry records, in order to ascertain that it is currently registered in the name of the deceased and to ensure that it is free from charges. The valuation of the property will be also required.

- Bank account: if there is a Spanish bank account involved it is advisable to find out the bank account current balance; furthermore if there is a mortgage loan, monthly charge and direct debits will have to be met while the estate is being wound up. The balance on the date of death will need to be certified.

(e) The deeds transferring the property to the beneficiary(ies) must be signed by the executor/heir or their representatives in the presence of a Spanish notary public who will verify that legal requirements are met.

(f) Inheritance tax and any other tax/rates should also be paid at this stage. Further advice on Spanish IHT is detailed below.

(g) The final task is to ensure that the Land Registry has received all of the relevant documents to complete the transfer of the property to the beneficiary being either the executor or heir. At this final stage, having complied with the steps above, the Spanish bank will be prepared to release funds.

Spanish inheritance taxation – essential questions

Once the distribution is clear, either subject to Spanish/Scottish will or to intestacy rules, and therefore the beneficiaries are identified and the shares corresponding to each one defined, as long as the value of the Spanish estate is confirmed it is strongly advisable to calculate the Spanish inheritance tax (IHT).

It is necessary to underline that Spanish IHT is generally payable upon the transfer of any estate which is located in Spain, regardless of nationality/residency/domicile of the deceased and beneficiary/executor. So as long as there is any asset in Spain the beneficiary/executor will have to calculate the payable tax and file the tax return at Madrid tax office within six months from the date of the death. This term can be extended under certain circumstances. If the six months term is not observed there will be penalty interest and surcharge.

Therefore if the deceased and the beneficiary/executor were both tax residents in the UK, the tax upon the transfer of Spanish property is payable in Spain, that is to say the beneficiary/executor is subject to tax here and there is no possibility of deducting any tax paid abroad so no relief is allowed. However it may happen that the tax payable in Spain is reduced or there may even be an exemption in some particular cases depending on the applicable allowances/deductions/reductions in each case.

Some essential considerations on the IHT calculation are mentioned below:

• The tax is commonly calculated by the taxpayer, but Spanish tax authorities reserve the right to revise figures afterwards and they can initiate an inspection proceeding if they are not in agreement with the values or figures used. As an alternative it is possible to request the IHT prior calculation of the tax authority (although it usually takes a certain time, a disadvantage as the property registration cannot be updated until IHT is calculated and paid).
• There is not a fixed rate or percentage but a variable one depending on the taxable base. It grows higher if the estate value grows higher. 
• The taxable base is basically the total value of the assets inherited by the taxpayer at the time of the owner’s death. To that there will generally be added the 3% index (which is a tax regulated legal assumption of the estimated value of the contents, i.e. furniture, utensils, clothing etc, known as "ajuar") as estimated property value. To the resulting figure allowances or deductions would apply. For example for children and survivor spouse there is a 15,956.87 euro reduction.
• The resulting tax must be updated with "pre-existing wealth" index, meaning that the beneficiary's existing wealth is taken into account, i.e. should it be therefore with less than 402,678.11 euro, the index factor applicable would be 1.
• Calculation example: If the "resulting figure" is 70,000 euro, the applicable band is that beginning at 63,905.62 euro. According to the tax table, the inheritance tax on that figure is 6,789.79 euro, and to the balance of 6,094.38 euro (70,000 - 63,905.62) the rate of 14.45% is applicable, equalling to 880.64 euro. Therefore inheritance tax would be 6,789.79 + 880.64 = 7,670.43 euro. Please note such resulting tax would be updated with the "pre-existing wealth" index.

In addition to the IHT there is also a local rate known as plusvalia tax, which also arises upon the transfer of the property resulting from the inheritance procedure, apart from other usual costs arising from the formalisation of transfer in Spain, i.e. notary and registry fees.

As the above points demonstrate, what may seem like a straightforward legal situation, can in fact become extremely complicated.

To avoid potential pitfalls, the recommendation is to always seek legal advice.