How to be prepared for an Inheritance Process
Also other Important Interesting Points (Inheritance and Property Ownership.)
We recently had a case whereby a gentleman came to us for help with completing an inheritance from his wife to him, after she had passed away in Spain. There was just a bank account. When we asked him if his wife had any other assets in Spain to take into consideration, such as a property in her name, or in joint names he said “No, because I was advised, well, I was pressed, into her gifting her half of the property to me before she died. Now I realise that this was not the best thing to do.”
We are writing this article partially as warning to exercise caution when someone is very ill not to feel panicked into taking action without being very sure it is the right course of action, and also for information that people can take heed of.
In the Valencian community where we are based, and which is a very large community of Spain, there is a fairly generous tax-free allowance for spouses of 100,000€ (plus additional allowances when you are resident). This means that if you are married and leaving your assets in this Valencia region of Spain to your husband or wife it is very unlikely that there will be a shock regarding inheritance tax.
However, and this is very important, there is no allowance at all in making a lifetime gift (or transferring assets) when you are alive to a spouse. Our gentleman, when they arranged for the transfer of his wife’s half of the property in Spain to him when she was ill, had to pay a substantial amount of donation tax, which would not have been incurred if matters had taken their natural course and the transfer had been done as an inheritance or probate after she died.
Please note that there are many things to put in order when you are aware that one of you is ill (making Spanish Wills is a good idea) such as making sure that all important documents such as deeds, NIEs, SUMA/IBI bills, passports, Wills can be easily located. However, transferring property ownership by a gift to a spouse is not one of them. It is a grave error and a waste of money. Our gentleman received very poor legal advice, unfortunately.
This leads us onto two other important points:
1) What is the process in Spain?
Please be aware that in Spain ownership of a property is NOT automatically passed to a spouse on death when it is jointly owned. We have written another article on this matter. Please check it for further info.
Therefore when joint assets are owned a probate process has to be done and assets transferred via a deed at the Notary and if a property, also at the Land Registry. For the joint account in the bank, our gentleman has to do a Spanish probate to prove to the bank that he is the heir. It is just different (and more burdensome) than the UK and Ireland, but unfortunately that is the way it is. If there are assets, after death a probate has to be done to transfer them to the next of kin.
2) When should a lifetime gift or donation of property be made?
In the past two years we have been very busy with donations in this region. As each child (children of the property owners but adults) gets a 100,000€ tax free allowance at the present time in the Valencia region (it varies elswhere), this generally means that a property can be passed onto the next generation with little or usually no inheritance tax. It is not posible to get better ever than no inheritance tax!
Thus it has led to a lot of people thinking we will pass on the property into our childrens’ names now, with minimal expense (there are still going to be notary fees, land registry fees, solicitor fees and some other ad-hoc expenses but there will always be these costs, now with a donation or lifetime gift, or in the future with an inheritance/probate).
3) Transferring Ownership due to other reasons
Isn’t there a way of transferring ownership of half of our jointly owned property to one of us, not because one of us is ill, but because of another reason, such as divorce, in a less expensive manner than one of us buying the other out?
Yes. In Spain, transfer tax on buying a property or share of a property is fairly high, and fortunately for changes of ownership such as when a couple are divorcing or separating, co-owners do not want to own together anymore, or business partners are going separate ways there is a method of division of property ownership whereby only stamp duty and expenses are paid.
Stamp duty in the Valencian region is currently 1.5% on the tax value of the property; transfer tax on a property is 10%, so you can see there is a considerable saving. If two or more people do not want to be owners (as long as a sole owner is left), this is a very good way to alter the ownership of a property. In addition, whatever another lawyer says plusvalía (land tax) and capital gains tax do not need to be paid when property ownership is being divided in this way.
When someone is ill, if possible it is wise to make a Spanish Will: it saves hassle and expense. It is not a time to take immediate action to avoid inheritance tax without double-checking any advice or referring to another solicitor or an independent body such as the Citizens Advice Bureau in Spain , but bear in mind that after a spouse passes away if they have assets in Spain a probate will need to be done and any inheritance tax paid within six months. It is therefore best to contact a solicitor fairly quickly after a death.
Secondly, now is a good time in the Valencian region to consider donating a property to your adult children. We are happy to calculate the costs and explain the benefits and any drawbacks to someone free of charge.
Thirdly, if you wish to change a joint ownership arrangement, contact us to check your options. No one should have to be joint owners of a property if they do not want to be and there are other alternatives to a sale. Again, we are willing to calculate costs and help anyone in this respect or any other issues with regard to property ownership.