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Viewing posts categorised under: Succession Planning

Save Thousands in Gift and Inheritance Tax in Spain

By John Hayward - Topics: Inheritance Tax, Spain, Succession Planning, Tax
This article is published on: 27th February 2020

27.02.20

In Spain, you can transfer money or other assets to your children or grandchildren during your lifetime, but these transfers can be subject to gift tax. Tax on gifts in Spain is payable at the time they are made.

However, many autonomous regions have special tax allowances or deductions for these gifts. In the Valencian Community, for example, each child or grandchild could be eligible to receive €100,000 without attracting any gift tax, whereas the tax on €100,000, without any allowances, would be at least €12,000. Also, gifting an asset now will mean that any growth on that asset will be free of any future inheritance tax.

The same allowance is available on inheritance, which means each child can receive €200,000 of your wealth, tax free, saving many thousands in inheritance and gift tax.

Gifting your property whilst you still live it in it, with rights to remain, is another option which many people consider. Known as usufructo, children will inherit the bare ownership of the property, possibly paying some gift tax now, but freeing property from the estate when considering inheritance tax.

As with most things relating to Brexit, what will happen next year is not known publicly at the time of writing. Also, it has been suggested that gift and inheritance tax is about to change in Spain. Therefore, if you are thinking of gifting money, or other assets to your children or grandchildren, this might be an opportunity that will not be around for much longer.

Planning for the Inevitable

By David Hattersley - Topics: Inheritance Tax, Spain, Succession Planning, Wealth Tax, Wills
This article is published on: 13th February 2020

13.02.20

The Grim Reaper is not a nice subject, but its finality remains. There are those left behind, alone after the loss of their Spouse or Partner. There is a grieving process. But at the same time is the harsh reality of due process. Wills, Probate, Succession Tax, Inheritance Tax and Death Certificates spring to mind, with added complication in a “Cross Border” society. One hopes that we can offer sympathy, support and help, but trying to soften the blow for loved ones is best prepared for with forward planning such as Wills, Funeral Plans, Life Insurance and Estate Planning.

Circumstances prior to death take many forms. Recent family experience has bought all of this into sharp focus; there was the duality of emotions, allied to the need to help in a professional capacity in what was a complex mire. The double edged sword of living longer applies. Death can be quick, or prolonged due to substantial improvements in many critical fields such as cancer treatment.

“Lingering Death” can take months or years. Drugs can help alleviate Dementia & Alzheimer’s, but do not provide a cure. These illnesses are certified causes on a Death Certificate. What isn’t is the loss of “Independent Existence”. This is a gradual erosion; loss of a lifetime spouse/partner, location, loss of mobility and simply carrying out simple day to day tasks all take their toll. It creates an immense strain on the family, financially and emotionally. ”Long Term Care” often starts in the home, but eventually Long Term Care in a Residential Nursing Home can become the only option.

In Spain costs are substantially less than the UK, but for some the UK becomes the only option due to language and family support. Careful planning in advance can sometimes mitigate the more onerous UK costs and “taxes” or help prolong the benefits of living in Spain. But it is complex and many factors need to be considered well in advance, taking into account “Cross Border Taxes” and differing rules.

It is hard to consider the impact of all the above and many people prefer to ignore it, but I feel compelled to bring this important subject into the open. There are things you can do to make things easier for your loved ones; if financial and legal aspects are well planned out, that is one less thing for them to worry about. I will be posting a series of articles dealing with the many differing issues that I have come across and the steps you can take to overcome them, as it will affect us all one way or another.

Don’t despair or defer; positive steps can be made to mitigate future headaches as much as possible and we are here to help. One of the best ways forward is to sit down with someone who understands the possibilities and to make a plan. Contact me now if you would like to discuss what you can do to make the future easier.

Spanish Succession and Gift Tax boost for non-EU beneficiaries

By John Hayward - Topics: Costa Blanca, Estate Planning, Inheritance Tax, Spain, Succession Planning
This article is published on: 6th December 2019

06.12.19

Imagine that it is Saturday 1st February 2020. Britain has calmly left the European Union with trade deals in place with Australia, Canada, South Africa, the USA, China, Cuba, Afghanistan, Iraq, Iran, and Columbia (I did say imagine). It is possible that you have children who live in one of these countries and you are resident in Spain. 2 years ago your children would not have benefited from the European Court of Justice ruling (2014) which stated that children who live in an EU/EEA country should benefit from local Spanish rules and allowances when calculating Spanish Succession and Gift Tax. Since the decision in 2018 in favour of a Canadian (Canada is not due to join the EU), the Spanish Supreme Court have ruled that “connected” non-EU beneficiaries will also benefit from the rules of each Autonomous Region in Spain. What this means is that, even if there was a hard Brexit, your child in London would be treated as fairly as one in Valencia, Havana, or Beijing.

It is possible to reclaim overpaid Succession and Gift Tax. Please get in contact if you know anybody who has been a beneficiary of an inheritance using the allowances under the old rules. The claim could amount to many thousands of Euros.

Gifting your Spanish property can save tax

Investing some time in estate planning now will help to make certain that your wealth is distributed the way you want it to be and not end up in the taxman´s pocket. One example is where we have helped parents in Spain gift their properties to their children, who live in the UK, whilst the parents continue to live in the property. This could save thousands in future inheritance tax.

Positioning investments in tax efficient structures can also help protect against inheritance tax. We have the solutions.

Inheritance Tax in Catalunya

By Barry Davys - Topics: Barcelona, Catalonia, Catalunya, Inheritance Tax, Spain, Succession Planning, Tax
This article is published on: 28th April 2019

28.04.19

Inheritance Tax in Catalunya

So, we have now managed to control the amount of wealth tax due (Wealth Tax in Catalunya). However, when we receive an inheritance or leave something to our family, we are taxed again. Inheritance tax or ‘impuestos de successiones’ feels even worse than Wealth Tax. At this point we have now paid savings tax, income tax AND wealth tax. Now there is IHT on top! Like Wealth Tax, though, it is possible to manage your liability.

Inheritance Tax in Catalunya – How it works
Perhaps the most important aspect is that tax is charged to the recipient of a bequest or property physically located in Spain. For UK nationals living in Catalunya, this is a surprise, as in the UK it is on the estate of the person who has passed away.

Tax is due on the value of the bequest but the rate of tax is dependent on your relationship with the person who has passed away. A spouse, child, sister, uncle or non-related all have different methods of calculating the tax due. Once the tax has been calculated, there may be discounts to be applied to reduce the amount. Indeed, it takes at least four different steps when working out the tax due to end up with the final figure. Fortunately, help is at hand in calculating the amount.

It is also very important to understand that the tax return has to be submitted within 6 months of the death and the tax has to be paid by the same day. A common situation we see is where a person is due to inherit a share of a property but the property has not been sold within 6 months. The forms still have to be submitted to the Hacienda and tax paid based on an estimated value. Failure to do so results in a fine and interest.

How to Manage Your IHT
There are numerous strategies, but for British people, careful planning is required. In the UK it is the estate of the person who has passed away that is taxed, but in Catalunya it is the recipient; so we have two different systems with two sets of rules. Care is needed to ensure that planning in one system does not increase the liability in the other. Fortunately our qualifications and experience in the UK and in Catalunya mean we understand this issue.

Another issue specific to British people living in Catalunya is that they do not plan for RECEIVING a bequest. When asked to assist with planning for inheritance tax it is nearly always from a view of “what can I leave to my children?”. Yet before then people often receive bequests from their parents and family which triggers a tax charge. Planning for receiving a bequest can be as important as planning for leaving a bequest.

Certain assets are exempt from Inheritance Tax. Careful choice of where investments are kept can also help. Finally, dovetailing UK and Catalan Inheritance planning can also make a difference.

If you would like to discuss how to manage your Wealth Tax liability, please email me at barry.davys@spectrum-ifa.com, call me on 00 34 645 257 525, or use the contact form below.

Inheritance Tax in Catalunya

By Barry Davys - Topics: Barcelona, Catalunya, Inheritance Tax, Spain, Succession Planning
This article is published on: 12th November 2017

12.11.17

So, we have now managed to control the amount of wealth tax due (Wealth Tax in Catalunya). However, when we receive an inheritance or leave something to our family, we are taxed again. Inheritance tax or ‘impuestos de successiones’ feels even worse than Wealth Tax. At this point we have now paid savings tax, income tax AND wealth tax. Now there is IHT on top! Like Wealth Tax, though, it is possible to manage your liability.

Inheritance Tax in Catalunya – How it works
Perhaps the most important aspect is that tax is charged to the recipient of a bequest or property physically located in Spain. For UK nationals living in Catalunya, this is a surprise, as in the UK it is on the estate of the person who has passed away.

Tax is due on the value of the bequest but the rate of tax is dependent on your relationship with the person who has passed away. A spouse, child, sister, uncle or non-related all have different methods of calculating the tax due. Once the tax has been calculated, there may be discounts to be applied to reduce the amount. Indeed, it takes at least four different steps when working out the tax due to end up with the final figure. Fortunately, help is at hand in calculating the amount.

It is also very important to understand that the tax return has to be submitted within 6 months of the death and the tax has to be paid by the same day. A common situation we see is where a person is due to inherit a share of a property but the property has not been sold within 6 months. The forms still have to be submitted to the Hacienda and tax paid based on an estimated value. Failure to do so results in a fine and interest.

How to Manage Your IHT
There are numerous strategies, but for British people, careful planning is required. In the UK it is the estate of the person who has passed away that is taxed, but in Catalunya it is the recipient; so we have two different systems with two sets of rules. Care is needed to ensure that planning in one system does not increase the liability in the other. Fortunately our qualifications and experience in the UK and in Catalunya mean we understand this issue.

Another issue specific to British people living in Catalunya is that they do not plan for RECEIVING a bequest. When asked to assist with planning for inheritance tax it is nearly always from a view of “what can I leave to my children?”. Yet before then people often receive bequests from their parents and family which triggers a tax charge. Planning for receiving a bequest can be as important as planning for leaving a bequest.

Certain assets are exempt from Inheritance Tax. Careful choice of where investments are kept can also help. Finally, dovetailing UK and Catalan Inheritance planning can also make a difference.

If you would like to discuss how to manage your Wealth Tax liability, please email me at barry.davys@spectrum-ifa.com, call me on 00 34 645 257 525, or use the contact form opposite.

 

 

 

 

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Successful estate planning in France – Having a will is just the beginning

By Sean Webb - Topics: Estate Planning, France, Succession Planning, Wills
This article is published on: 16th October 2017

16.10.17

When I left school, I knew more about Shakespeare than I did about personal finance. While we gain academic knowledge through education, and professional knowledge through work, there is no formal channel for learning the key life skill of money management. Most of us pick it up in the same way we acquire our wealth – very few have a strategy, even fewer have a plan.

The problem is that personal finance can be complex, sometimes very complex. Mistakes can be costly. This is especially so in France, even for the French themselves. How much more so then for those of us whose first language is not French. And one of the most complicated areas of personal finance in France is estate and inheritance planning.

Successful personal finance is not just about organising our financial affairs so that, while we work hard for money, our money works hard for us. It is also about putting in place arrangements to transmit that resultant wealth in the best conditions to the chosen ones we leave behind.

The passing of a loved one can be one of the most stressful moments of our lives, one where our families are at their most vulnerable. It is then that we need to rely on the robustness of the arrangements that we have already put in place. In spite of this, most of us do not have even a basic will.

The starting point of any successful estate planning starts with defining the ultimate goal. There are three aspects: –

  1. The capacity to transfer at death whatever assets remain to your preferred beneficiaries in proportions of your choosing
  2. In the most cost efficient and tax intelligent manner with the minimum amount of deductions
  3. While ideally retaining and maximising as much control as possible during your lifetime

The bad news is that in France ‘forced heirship’ succession law and inheritance tax rates of up to 60% can make this difficult to achieve. For families with complicated situations, such as step children, this can be especially problematic and UK arrangements will not necessarily function in France and may have unpredicted results. Moreover, finding a proactive English speaking French lawyer prepared to take the time to fully understand your situation and needs can be both challenging and expensive.

The good news is that there is also a complexity of legal and financial planning strategies that can be used when defining your plan to help you achieve your goals and get you nearer to the ideal goal, as defined above. Here are some examples: –

  1. A will with the possible addition of a ‘clause d’attribution intégrale au survivant’ or ‘clause de préciput’. Given Brexit, hand written wills in English should not be relied on in practice.
  2. A change of marriage regime, typically from ‘séperation de biens’ to ‘communauté universelle’ to protect the surviving spouse
  3. Brussels IV (EU Regulation 650/2012) allows you to avoid French succession law (not tax) by opting for the law of your country of nationality rather than of your residence
  4. Adoption of step children
  5. Gifts (‘donations’)
  6. A strategy of dismemberment (‘démembrement’) of real estate into life interest (‘nu-propriété) and usufruct (‘usufruit’). This can significantly reduce the inheritance tax bill, especially if done sooner rather than later via a will at time of death
  7. Use of assurance vie as tax optimisation wrapper for financial assets, ideal for transmitting inheritance to distant relatives, friends or third parties
  8. Careful editing of the beneficiary clause within an assurance vie policy
  9. A strategy of dismemberment can also be applied to certain assurance vie policies.
  10. Use of inheritance tax free allowances –the standard 100,000 EUR per child per parent and a second one via assurance vie adds another 152,500 EUR per beneficiary.

So make it easier on your lawyer and help him to help you. Given the complexity of both the issues and the solutions, ask for a free holistic review of your situation from your financial adviser so you can already begin to define your needs and goals, and have an idea of what strategies are possible.

Thus prepared, you will make your lawyer’s job easier and so less time consuming. As well as achieving peace of mind, you might even save yourself some fees!

Preparing your loved ones for life after your death

By John Hayward - Topics: Costa Blanca, Estate Planning, Spain, Succession Planning, Wealth Tax, Wills
This article is published on: 9th September 2017

09.09.17

Having recently attended a funeral for a good friend of mine, I was reminded of the problems a death can create, aside from the actual act of dying. It appeared that, although he had organised a funeral plan, he had not made it clear where his Will was. Even if the Will was found, most Wills are written to distribute unspecified assets. An heir needs to know what assets there are before claiming anything. A draw full of files might appear organised but much of the content may be out of date or even completely irrelevant.

Who is the household´s financial controller?
In my experience, when dealing with couples, one party, normally the husband, deals with all things financial. This has resulted in many widows having a hard time with finances on the death of the husband. The thought of picking a phone up to contact their bank is daunting enough. Forgetting one of the six security questions is fatal. Logging into the online banking system is totally out of the question, even if they knew what the user ID and password were.

What can you do?
It is a really good idea to make a list, with company name and reference number, of all the bank accounts, insurance policies, investments (insurance bonds/unit trusts/shares), premium bonds, and anything else which would make life easier for those looking after your affairs on your demise. Here is a link which illustrates just how much information could be required. Are you confident someone will easily be able to put all of this together?

How can we help?
Many years ago, I was a “Man from the major UK insurance company”. I still tend to work on the home service principle. Meeting people in their homes has always been more attractive to me as paperwork will often be to hand. There is also the possibility of a cup of tea and a digestive. There have been times when I have found investments that people were unaware of and also helped to cull the collection of paperwork, creating more storage space, and possibly room for a new sofa (from the proceeds of the policy they didn´t know about). Obviously, I do not wish to major in house clearance but I am happy to help people organise their paperwork, review existing investments and pensions, and make life easier for those with the task of dealing with everything later. Hopefully much later.

Fun financial fact
According to several reports, in 2012, in the USA, a 1 cent coin cost 2.4 cents to make. By 2016, the cost had reduced to 1.5 cents. Making cents still does not seem to be making sense.

Wealth Tax in Catalunya

By Barry Davys - Topics: Barcelona, Catalunya, Estate Planning, Inheritance Tax, Spain, Succession Planning, Wealth Tax
This article is published on: 3rd August 2017

03.08.17

We understand the need to pay tax. It gives us hospitals to treat our family, care in later life and many other services. Yet it is also easy to feel unhappy about some taxes. Some seem just downright unfair.

Wealth tax is the first of these. Having worked hard and paid tax on our earnings, we have then also paid tax on our savings. Despite this we have managed to build our savings, have become less of a burden on the state and yet we are now taxed again with Wealth Tax for having saved. Fortunately, it is possible to pay what is due but also to manage the amount due.

Wealth Tax in Catalunya – How it works
Wealth tax ( Patrimonial ) is applied if your worldwide assets are more than 500,000€ with an additional allowance of up to 300,000€ for your main residence. The tax is based upon your net wealth; assets minus liabilities.

In Catalunya the rates of tax start at 0.21% and rises to 2.75% depending on your wealth. Each year!

Your wealth as at 31st December is declared as part of your Declaración de la Renta, your annual tax return and the payment of the tax made on the 30th June in the following year.

How to manage the amount due
There are some assets that are excluded from Wealth tax. Surprisingly, some of these are mainstream investments. It may be possible to reduce your Wealth Tax by using an exempt investment.

In addition, the amount of tax due is capped at 60% of your income tax base, subject to paying at least 20% of the total tax based on your wealth. It is often possible to adjust your income so that you are limited to the 60% of your income tax base. Typically, this is done by using investments which are not assessed for tax each year. However, there are several methods of planning to achieve a reduction in Wealth Tax.

Who would inherit your Assets if you die without a will?

By Chris Burke - Topics: Barcelona, Estate Planning, Inheritance Tax, Spain, Succession Planning, Wills
This article is published on: 26th May 2017

26.05.17

You might be surprised to know that 59%, that’s over half of UK adults, have not written a Will. And if you are over 55 there is a 36% chance you haven’t either. The main reason for this…….most people believe they are not wealthy enough to need a Will, or they are too young to make one. But what would happen to your assets if the worse did happen?

Is there a living husband, wife or civil partner?

If you are married, or have a civil partnership then it’s actually very straightforward and they would inherit your entire estate. But would you want that? And how about if by some awful miracle both of you departed this happy land, what would happen to your assets then? But let us put those to one side for now; imagine you have children, whom decide where they will be raised and who with? If you are living away from the UK this makes it even more complicated. If you don’t have a Will, you are leaving all of this to the authorities and not planning to protect yourself and your loved ones for the sake of a simple document.

Imagine you have a partner, but are not married and not in a civil partnership, would you be surprised to know they have no right to your assets? How would that affect them?
Let’s imagine, as more people these days are for various reasons not having children, that down the family line to Great Aunts/Uncles there is no one related to you. You might not be very happy to know that ‘The Crown? Inherits your assets, that is the Royal Family. In fact fewer people in the UK have Wills than a year ago.

Back in August 2015 the Wills laws changed in Europe, with the main different being you can CHOOSE which laws you wish your Will to follow. The choice is either your country of domicility (usually where you were born/hold a passport for) or the country you reside in now. If you are British most people choose the UK as the laws are easier, you have more control and less complex than those in Spain.

Find out here who would inherit your assets by clicking on this link:
www.gov.uk/inherits-someone-dies-without-will

To enquire about making a Will, don’t hesitate to get in touch and we can arrange for you to talk this through with a Will writer so you know:

  • The process involved
  • The costs
  • How it works
  • There is no charge for this peace of mind

Sources:
HMRC website
*unbiased.co.uk research conducted by Opinium Research between 19 to 23 August 2016, among 2,000 nationally representative UK adults aged 18+

Inheritance Tax Planning

By Derek Winsland - Topics: Estate Planning, France, Inheritance Tax, Succession Planning, Tax
This article is published on: 18th April 2017

18.04.17

In my everyday dealings with prospective clients and ex-pats looking for advice generally, I’m finding myself dealing with increasingly more complex personal and family situations. From re-structuring of UK investments such as general investment accounts and Individual Savings Accounts (ISA) to make them French tax-friendly, analyzing occupational pensions to assess the suitability of transferring way from the UK and into QROPS, through to financial planning for the future, every case is varied and different, requiring bespoke advice.

One area I find particularly common is how best to address the impact French succession laws have on those of us used to the fairly flexible UK Inheritance Tax laws. In the UK, its fairly simple: you can leave everything you own to your spouse free from inheritance tax. On the surviving spouse’s subsequent demise, the first £325,000 of that person’s estate can be passed on without tax liability. Since 2007, the deceased partner’s allowance can also now be used by the surviving spouse, thereby ensuring that £650,000 of the combined estate is free from taxation. In addition, there is an additional property nil rate band that can boost the tax exemption even further. Furthermore, with the exception of the spouse, there is no discrimination in who benefits in terms of tax treatment. The tax rate in UK is 40% on the excess over the £325,000 threshold.

In France, assets passing to the spouse have also been tax free since 2007, but this is where the similarity ends in terms of potential taxation. Taking its lead from Code Napoleon, French succession laws put the children of the deceased at the forefront when determining who inherits, giving them Protected Heirs status. Who inherits, and that person’s relationship to the deceased, also determines what tax free allowance is available and following on from that what tax is payable.

Sons and daughters, both natural and adopted, can receive €100,000 each from the deceased’s estate free from tax, thereafter there is a sliding scale based on the amount inherited. But here’s the rub: step-children are not blood related, so the children’s allowance doesn’t apply to them and they fall into the category of ‘unrelated person’. As such they can only inherit €1,594 free from inheritance tax. The balance is taxed at the eye-watering rate of 60%.

Protected Heirs are entitled to receive the major share of the deceased’s estate, at the expense of the spouse, so structures need to be put in place to protect the spouse, such as wills, marriage regimes, family pacts etc. Generally, these relate to the property, but can also include more liquid assets such as bank deposits and investments.

When addressing the issue of shielding step-children from the severest level of taxation, at the same time ensuring the surviving spouse is properly looked after, one weapon in our armoury is the assurance vie, or life assurance investment bond. On the death of the bond holder, any beneficiary can inherit without discrimination. In the holder of the assurance vie was below age 70 when the policy was taken out, each beneficiary can inherit €152,500 without a tax liability. For amounts above €152,500 the tax rate is 20% or 31.25% if the amount inherited is above €700,000. This is per beneficiary and not per assurance vie. But what if I don’t want my money to pass to my children or step-children on my death, but rather to go to my spouse?

This is where it gets clever! By inserting a Demembrement Clause within the assurance vie policy, your spouse can be granted usufruit or life interest in the assets held in the policy, thereby ensuring protection to him or her.

And there’s more. By drawing capital out of the deceased’s policy, the spouse is creating a debt that will be repaid on the spouse’s subsequent death, paid for out of his or her estate, thereby further reducing the amount of any inheritance tax liability. This is what we call true financial planning, and this forms the bed-rock of what we do here in Spectrum.

If you have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.