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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 A draw full of files might appear organised but much of the content may be out of date or even completely irrelevant.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.

Documents and information needed when someone dies

By John Hayward - Topics: Wills
This article is published on: 20th August 2017

20.08.17

Here you can check the lists of all the documents and information needed after someone dies. They will help you notify the required people and organisations immediately after the death and assist you in the longer term probate process.

Documents and information to get as soon as possible

You will need to gather together the certain documents and information as quickly as possible after a death, so you can start funeral arrangements and register the death. You’ll need to know:

  • full name and surname of the deceased
  • date and place of death and usual address
  • marital status (single, married, widowed or divorced)
  • date and place of birth
  • occupation of the deceased (if the deceased was a wife or widow, the full names and occupation of her husband or deceased husband will be required)
  • if the deceased was a child, the full names and occupation of the father will be required, or where the parents are not married the full names and occupation of the mother will be required
  • maiden surname if the deceased was a woman who was married
  • the name and address of the deceased’s GP

You’ll also need to gather together the following documents:

  • medical certificate of the cause of death (signed by a doctor) for registering the death
  • birth certificate
  • marriage/civil partnership certificates
  • NHS number/NHS medical card
  • organ donor card

Documents needed to notify benefits/tax credits offices

  • correspondence confirming payment to the deceased of benefits , tax credits (HM Revenue & Customs) and/or State Pension (Department for Work and Pensions)
  • Child Benefit number (if relevant)

Documents relating to a partner or relative

  • proof of your relationship to the deceased (for example, marriage/civil partnership or birth certificate, child’s birth certificate naming both parents)
  • your social security card/National Insurance number if you will be claiming/changing benefits

Documents/information needed by the person sorting out the deceased’s affairs

The personal representative is the person formally responsible for sorting out the deceased person’s estate, paying any taxes and debts and distributing the estate. They will need the following documents (where relevant):

  • sealed copies of the grant of representation (probate/letters of administration)

Documents relating to the death

  • the will, if there is one
  • death certificate (often needed when requesting access to funds; it’s best to order at least two extra certified copies when registering the death)

Savings/investments related

  • bank and building society account statements
  • investment statements/share certificates
  • personal or company pension account statements

Insurance

  • life insurance documents (including mortgage cover)
  • general insurance policies (for example, home, car, travel, medical)

State pension/benefits

  • relevant correspondence or statements from Jobs & Benefits Offices (for benefits) and/or the Pension Service

Amounts owing by the deceased

  • mortgage statement
  • credit card statements
  • utility/ rates bills in the deceased’s name
  • rental agreements/statements (private or local authority)
  • other outstanding bills
  • leases, hire purchase agreements or similar (for example for equipment, car or furniture)
  • educational loan statements
  • any other loan statements

Amounts owed to the deceased

  • outstanding invoices if the deceased ran a business
  • written/verbal evidence of other money owed to the deceased

Property

  • property deeds or leases (main home and any other at home or abroad)
  • property keys

Other possessions

  • existing valuations of property such as jewellery, paintings and similar (though an up-to-date market valuation will be required)
  • any existing inventories of proper

Employment or self-employment

  • PAYE form P60 and latest payslips if the deceased was employed
  • recent tax returns and tax calculation statements (if relevant)

Business related

  • company registration documents, accounts, tax and VAT returns if they had a business

Other documents and information

The following documents and information will be required by the personal representative or close relative in order to contact relatives and friends or to return documents to relevant organisations:

  • address book/information listing close friends and relatives who will need to be informed
  • passport
  • vehicle registration documents if the deceased owned a car
  • driving licence/parking permits/travel cards/disabled parking badge
  • membership cards or documents/correspondence showing membership of clubs, associations, Trade Unions and similar

Contains public sector information licensed under the Open Government Licence v3.0

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+

French Tax Changes 2017

By Spectrum IFA - Topics: Estate Planning, Exchange of Information, France, Income Tax, Inheritance Tax, Offshore Disclosures Facility, Tax, Uncategorised, wealth management, Wills
This article is published on: 3rd January 2017

03.01.17

During December, the following legislation has entered into force:

  • the Loi de Finances 2017
  • the Loi de Finances Rectificative 2016(I); and
  • the Loi de Financement de la Sécurité Sociale 2017

Shown below is a summary of our understanding of the principle changes.

INCOME TAX (Impôt sur le Revenu)

The barème scale, which is applicable to the taxation of income and gains from financial assets, has been revised as follows:

Income Tax Rate
Up to €9,710 0%
€9,711 to €26,818 14%
€26,819 to €71,898 30%
€71,899 to €152,260 41%
€152,261 and over 45%

The above will apply in 2017 in respect of the taxation of 2016 income and gains from financial assets.

Tax Reduction

A tax reduction of 20% will be granted when the income being accessed for taxation is less than €18,500 for single taxpayers, or €37,000 for a couple subject to joint taxation. These thresholds are increased by €3,700 for each additional dependant half-part in the household.

For single taxpayers with income between €18,500 and €20,500, and couples with income between €37,000 and €41,000 (plus in both cases any threshold increase for dependants), a tax reduction will still be granted, although this will be scaled down.

Prélèvement à la source de l’impôt sur le revenu

Currently, taxpayers complete an income tax declaration in May each year, in respect of income received in the previous year. From the beginning of the year, on-account payments of income tax are made, but pending the assessment of the declaration, these are based on the level of income received two years previously. In August, notifications of the actual income tax liability for the previous year are sent out and taxpayers are sent a bill for any underpayment or income tax for the previous year, or in rare situations, there may be a rebate due, typically in the situation where income has reduced, perhaps due to retirement or long-term disability.
Hence, at any time, there is a lag between the tax payments being made in respect of the income being assessed. Therefore, with the aim of closing this gap, France will move to a more modern system of collection of income tax, by taxing income as it arises. This reform will apply to the majority of regular income (including salaries, pensions, self-employed income and unfurnished property rental income), which will become subject to ‘on account’ withholding rates of tax from 1st January 2018.

Where the income is received from a third-party located in France, the organisation paying the income will deduct the tax at source, using the tax rate notified by the French tax authority. The advantage for the taxpayer is that the income tax deduction should more closely reflect the current income tax liability, based on the actual income being paid at the time of the tax deduction.

For income received from a source outside of France, the taxpayer will be required to make on-account monthly tax payments. The on-account amount payable will be set according to the taxpayer’s income in the previous year. However, if there is a strong variation in the current year’s income (compared to the previous year), it will be possible to request an interim adjustment to more accurately reflect the income actually being received, at the time of the payment of the tax.

Transitional payment arrangements will be put in place, as follows:

    • in 2017, taxpayers will pay tax on their 2016 income
    • in 2018, they will pay tax on their 2018 income, in 2019, they will pay tax on their 2019 income, and so on
    • in the second half of 2017, any third party in France making payments will be notified of the levy rate to be applied, which will be determined from 2016 revenues reported by the taxpayer in May 2017
    • from 1st January 2018, the levy rate will be applied to the income payments being made – and
    • the levy rate will then be amended in September each year to take into account any changes, following the income tax declaration made in the previous May

Taxpayers will still be required to make annual income tax declarations. However, what is clear from the transitional arrangements is that the income of 2017 that falls within the review will not actually be taxed; this is to avoid double taxation in 2018 (i.e. of the combination of 2017 and 2018 income). Therefore, to avoid any abuse of the reform, special provisions have been introduced so that taxpayers – who are able to do so – cannot artificially increase their income for the 2017 year.

Furthermore, exceptional non-recurring income received is excluded from the scope of the reform in 2017; this includes capital gains on financial assets and real estate, interest, dividends, stock options, bonus shares and pension taken in the form of cash (prestations de retraite servies sous forme de capital). Therefore, taxpayers will not be able to take advantage of the 2017 year to avoid paying tax on these types of income.

At the same time, the benefits of tax reductions and credits for 2017 will be maintained and allocated in full at the time of tax balancing in the summer of 2018, although for home care and child care, an advance partial tax credit is expected from February 2018. Charitable donations made in 2017, which are eligible for an income tax reduction, will also be taken into account in the balancing of August 2018.

WEALTH TAX (Impôt de Solidarité sur la Fortune)

There are no changes to wealth tax. Therefore, taxpayers with net assets of at least €1.3 million will continue to be subject to wealth tax on assets exceeding €800,000, as follows:

Fraction of Taxable Assets Tax Rate
Up to €800,000 0%
€800,001 to €1,300,000 0.50%
€1,300,001 to €2,570,000 0.70%
€2,570,001 to € 5,000,000 1%
€5,000,001 to €10,000,000 1.25%
Greater than €10,000,000 1.5%

 

CAPITAL GAINS TAX – Financial Assets (Plus Value Mobilières)

Gains arising from the disposal of financial assets continue to be added to other taxable income and then taxed in accordance with the progressive rates of tax outlined in the barème scale above.

However, the system of ‘taper relief’ still applies for the capital gains tax (but not for social contributions), in recognition of the period of ownership of any company shares, as follows:

  • 50% for a holding period from two years to less than eight years; and
  • 65% for a holding period of at least eight years

This relief also applies to gains arising from the sale of shares in ‘collective investments’, for example, investment funds and unit trusts, providing that at least 75% of the fund is invested in shares of companies.

In order to encourage investment in new small and medium enterprises, the higher allowances against capital gains for investments in such companies are also still provided, as follows:

  • 50% for a holding period from one year to less than four years;
  • 65% for a holding period from four years to less than eight years; and
  • 85% for a holding period of at least eight years

The above provisions apply in 2017 in respect of the taxation of gains made in 2016.

CAPITAL GAINS TAX – Property (Plus Value Immobilières)

Capital gains arising on the sale of a maison secondaire and on building land continue to be taxed at a fixed rate of 19%. However, a system of taper relief applies, as follows:

  • 6% for each year of ownership from the sixth year to the twenty-first year, inclusive; and;
  • 4% for the twenty-second year.

Thus, the gain will become free of capital gains tax after twenty-two years of ownership.

However, for social contributions (which remain at 15.5%), a different scale of taper relief applies, as follows:

  • 1.65% for each year of ownership from the sixth year to the twenty-first year, inclusive;
  • 1.6% for the twenty-second year; and
  • 9% for each year of ownership beyond the twenty-second year.

Thus, the gain will become free of social contributions after thirty years of ownership.

An additional tax continues to apply for a maison secondaire (but not on building land), when the gain exceeds €50,000, as follows:

Amount of Gain Tax Rate
€50,001 – €100,000 2%
€100,001 – €150,000 3%
€150,001 to €200,000 4%
€200,001 to €250,000 5%
€250,001 and over 6%

Where the gain is within the first €10,000 of the lower level of the band, a smoothing mechanism applies to reduce the amount of the tax liability.

The above taxes are also payable by non-residents selling a property or building land in France.

SOCIAL CHARGES (Prélèvements Sociaux)

As has been widely publicised, on 26th February 2015, the European Court of Justice (ECJ) ruled that France could not apply social charges to ‘income from capital’, if the taxpayer is insured by another Member State of the EU/EEA or Switzerland. Income from capital includes investment income on financial assets and property rental income, as well as capital gains on financial assets and real estate.

Fundamental to this decision was the fact that the ECJ determined that France’s social charges had sufficient links with the financing of the country’s social security system and benefits. EU Regulations generally provide that people can only be insured by one Member State. Therefore, if the person is insured by another Member State, they cannot also be insured by France and thus, should not have to pay French social charges on income from capital.

On 27th July 2015, the Conseil d’Etat, which is France’s highest court, accepted the ECJ ruling, which paved the way for those people affected to reclaim social charges that had been paid in 2013, 2014 and 2015. This applied to all residents of any EU/EEA State and Switzerland, who had paid social charges on French property rental income and capital gains, but excluded residents outside of these territories.

However, to circumvent the ECJ ruling, France amended its Social Security Code. In doing so, it removed the direct link of social charges to specific social security benefits that fall under EU Regulations. The changes took effect from 1st January 2016.

Hence, if you are resident in France, social charges are applied to your worldwide investment income and gains. The current rate is 15.5% and the charges are also payable by non-residents on French property rental income and capital gains.

Whilst the French Constitutional Council validated the changes in the French Social Security law, it remains highly questionable under EU law. One hopes, therefore, that this may be censored again by the ECJ, at some point.

EXCHANGE OF INFORMATION UNDER COMMON REPORTING STANDARD:

As of December 2016, there are now already over 1,300 bilateral exchange relationships activated, with respect to more than 50 jurisdictions. Many jurisdictions have already been collecting information throughout 2016, which will be shared with other jurisdictions by September 2017.

However, there are many more jurisdictions that are committed to the OECD’s Common Reporting Standard (CRS) and so it is anticipated that more information exchange agreements will be activated during 2017.

In the EU, the CRS has been brought into effect through the EU Directive on Administrative Cooperation in the Field of Taxation, which was adopted in December 2014. The scope of information exchange is very broad, including investment income (e.g. bank interest and dividends), pensions, property rental income, capital gains from financial assets and real estate, life assurance products, employment income, directors’ fees, as well as account balances of financial assets.

No-one is exempt and therefore, it is essential that when French income tax returns are completed, taxpayers declare all income and gains – even if this is taxable in another country by virtue of a Double Taxation Treaty with France.

It is also obligatory to declare the existence of bank accounts and life assurance policies held outside of France. The penalties for not doing so are €1,500 per account or contract, which increases to €10,000 if this is held in an ‘uncooperative State’ that has not concluded an agreement with France to provide administrative assistance to exchange tax information. Furthermore, if the total value of the accounts and contracts not declared is at least €50,000, then the fine is increased to 5% of the value of the account/contract as at 31st December, if this is greater than €1,500 (€10,000 if in an uncooperative State).

2nd January 2017

This outline is provided for information purposes only. It does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action to mitigate the effects of any potential changes in French tax legislation.

French Inheritance Planning

By Spectrum IFA - Topics: Inheritance Tax, Le Tour de Finance, Succession Planning, Uncategorised, Wills
This article is published on: 9th September 2016

09.09.16

In May, I wrote about tax-efficient savings & investments in France, including Assurance Vie (AV), which is the most popular type of investment in France for medium to long-term savings. If you did not see the article, you can find it at www.spectrum-ifa.com/tax-efficient-savings-investments-france/

I had intended to return to discuss the benefits of AV for French inheritance planning, in the following month. But then we had the result of the Brexit vote and that caught my attention just a little more!

So now I am getting back to basics of what works for successful French inheritance planning for financial assets – regardless of whether the UK is in or out of the EU – and regardless of nationality. Without a doubt, this is the AV, as this is an excellent planning tool for protecting the survivor, providing you with freedom of choice about who you can leave your financial assets to, as well as mitigating the potential inheritance taxes for your beneficiaries.

In France, there are strict rules on succession and children are ‘protected heirs’, each being entitled to inherit a proportion of their parents’ estates. For example, if you have one child, the proportion is half; two children, one-third each; and if you have three or more children, three-quarters of your estate must be divided equally between them.

However, for a quirk of historical reasoning, the death benefits paid from an AV fall outside of your standard estate. Therefore, you can leave the proceeds of your AV to whoever you wish and so get around the French ‘forced’ succession rules. I know that there will be many out there who are saying that you can do this anyway now, as a result of the EU Succession Regulations. Well that’s true, but maybe it’s not quite as straightforward as one might think – or at least hoped!

The problem is that even though the EU Regulations have been in place for more than a year now, these have not been widely tested. Notaires and cross-border legal specialists are still trying to get to grips with how these Regulations actually work in practice. So I, like many other professionals, still hold the view that if there is a tried and tested ‘French way’ to achieve your objectives, then this should be used. Early articles that I wrote on this subject can be found at www.spectrum-ifa.com/the-eu-succession-regulations/

The EU Succession Regulations do not change the potential French inheritances taxes that are payable, but an AV does. Whilst there are no French inheritance taxes between spouses and partners who have entered into a legal civil partnership (known as a PACS, in France), for other beneficiaries, the tax rate varies according to their relationship to you. For example, step-children (and other non-blood beneficiaries) are taxed at a punitive 60%!

For amounts invested in an AV before age 70, each beneficiary (whatever their relationship to you) is entitled to a tax-free allowance of €152,500. Taxation is limited to 20% on amounts paid above the allowance up to €700,000, and at 31.25% for amounts exceeding €700,000 per beneficiary). There is still no tax between spouses and PACSd partners, whatever amount is transmitted.

There is no limit to the number of beneficiaries that you can name. Hence, whatever your family situation, it is possible to pass on your capital to whoever you like, without them suffering excessive rates of French inheritance tax. Thus, the survivor can be fully protected and then the capital can subsequently pass to your other beneficiaries, following the death of the survivor.

For amounts invested after age 70, the inheritance allowance for all your beneficiaries combined is reduced to €30,500 (plus the investment return on the total amount invested). In effect, therefore, it is only the amount invested that exceeds €30,500 that would be taxed at standard French inheritance tax rates.

Sadly, social contributions are now charged on any gain in the policy paid out as a death benefit. Even so, when the above inheritance planning advantages are taken into account together with the personal tax savings, this makes the AV a very attractive proposition.

Inheritance planning is a highly specialised and complicated subject. Everyone’s family situation and level of wealth is different and it is very important to seek professional advice, so that the best course of action for you can be established.

The benefits of AV and tax-efficiency is a subject that we cover in our popular financial seminars across France – “Le Tour de Finance – Bringing Experts to Expats”. Overall, our industry experts will be presenting updates and outlooks on a broad range of subjects, including:

  • Financial Markets
  • Assurance Vie
  • Pensions/QROPS
  • French Tax Issues
  • Currency Exchange

The date for the local seminar is Friday, 7th October 2016 at the Domaine Gayda, 11300 Brugairolles. Places are limited and must be reserved, in advance. This venue is always very popular and with less than a month to go, the event is likely to soon be fully booked. Therefore, you should contact us as soon as possible if you would like to come to the seminar. I will be at the event with our other advisers in this area, Rob, Derek and Sue.

In practice, financial advice is needed more than ever in uncertain times. Doing nothing can often be an expensive mistake. Hence, if you are not able to attend the seminar and would anyway like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10 to make an appointment. Alternatively, if you are in Limoux, call by our office at 2 Place du Général Leclerc, 11300 Limoux, to see if an advisor is available immediately for an initial discussion.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of the investment of financial assets or on the mitigation of taxes.

The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter.

Making a Will and EU Succession Planning in Spain/Europe

By Chris Burke - Topics: Barcelona, Inheritance Tax, Spain, Succession Planning, Uncategorised, Wills
This article is published on: 15th June 2016

15.06.16

The Laws on making a Will in Spain/Europe changed on the 17th August 2015. These changes could greatly affect what would happen to someone’s estate/inheritance when they die and it’s therefore important you understand what these are and how they could affect you.

The reason for these changes in that is essence European states have differing laws on who inherits an estate. Many of these are complicated and unclear, making it uncertain who will inherit exactly what.

For this purpose, EU Succession Regulation introduces common rules on which State’s laws apply if there is a conflict between countries’ succession laws.

The following countries are bound by the new regulation:
Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
Notable Absentee’s are the UK, Ireland and Denmark.

Where you are ‘habitually resident’ that country’s laws will apply

To give you an example, a person dies leaving assets in France, Spain, and Germany and resides here in Spain. Due to the fact they are resident in Spain, the assets will be governed by Spanish law.

So what are the rules of Habitual Residence?

How long you are in and how often you visit a state/country as well as the conditions and reasons for you being there. Simply put, for most people, more than 183 days in one country, living or retired there makes it your main residence.

Making a Choice of Law

This default position can be overridden if you choose to apply the law of your nationality via a Will. For example – a German national dies leaving assets in France, Spain, and Germany. They are habitually resident in Spain but have stated in their Will that German law will apply to their estate. All of their assets will be governed by German law.

What about the UK?

As the UK is not bound by the Regulation, UK assets can never be governed by the law of another EU state. However, those states bound by the Regulation have to allow the application of UK laws to assets in their state if someone so chooses.

How might this affect me?

Many EU states have laws of ‘forced heirship’ under which certain assets (such as holiday property) can only be inherited by certain people. The inheritance laws in England and Wales allow you greater freedom to leave your estate to whomever you wish when you die. If you have assets in any of the states bound by the Regulation it may affect which laws will apply to them.

Who does it affect?

All foreigners who have their habitual residency in Spain and die on or after the 17th of August 2015. Spanish nationals may disregard these changes as they are unaffected by the changes.

Examples of which Will you may need

• I am a British/Irish national and NOT resident in Spain. I Don’t Plan to become Resident in Spain.

In such a case this Regulation does not affect you. It only affects existing residents in Spain or else those who at some point in the future plan to take up residency in Spain. There is no need for you to make a new Spanish Will.

A WORD OF WARNING HERE! If you are not truly a resident in Spain i.e. spend less than 183 days a year here, then that’s perfectly ok and you have nothing to worry about. However, if you are PRETENDING you are not resident in Spain, be very careful. More and more people are getting caught out by various means, and fines can be punitive. The reasons for wanting to be UK resident are currently negligible compared to being a Spanish Resident. Inheritance tax is almost nothing if anything in many cases here in Catalonia at present, and the other taxes you pay here are again currently very similar to that of the UK. Why run the risk of getting caught?

Examples of who this may affect?

• A non-resident Scottish man who inherits Spanish assets will also pay Spanish inheritance tax.

You cannot opt out or choose your own national Inheritance tax laws on inheriting assets located in Spain. You have to pay Spain’s IHT.

Other potential questions might be:

• Can I choose my own national tax law besides opting for my national succession law? The short answer is no

The regulation entitles you is to choose freely the Succession Law of your own nationality (i.e. England and Wales or Scotland’s) in lieu of Spain’s compulsory heir rules which, following this new Regulation, applies by default if your habitual residency is in Spain at the time of your death on or after the 17th of August 2015.

VERY IMPORTANT – PLEASE NOTE!!!

You CANNOT choose which Inheritance Tax Laws apply to your Spanish estate. It is mandatory to pay Spanish inheritance tax on Spanish Assets, still.

For example, an Englishman resident in Spain and inherits Spanish assets will pay Spanish inheritance tax.

To clarify on Wills……
You are simply choosing the rules of which country you wish the Will to follow. Either way, Spanish assets will STILL be liable to Spanish Taxes.

For example, in Spain assets left automatically go to certain relatives, whether you want them to or not e.g. the husband dies, 25% of any Property goes to any children, whether you want it to or not. This could then cause problems with selling properties, realising assets etc.

What do I need to do?

It is essential to co-ordinate Wills and Tax Planning (look no further) in each country concerned to ensure that your estate will pass to your chosen beneficiaries in the way that is best for you and your estate.

Chris, a partner of the Spectrum IFA Group, makes sure that not only are his clients assets managed correctly, but they are kept up to date and given the best advice for most eventualities that affect many people almost daily, that they do not think about or aren’t aware of.

Where there’s a Will

By Pauline Bowden - Topics: Costa del Sol, Inheritance Tax, Residency, Spain, Succession Planning, Tax, Uncategorised, Wills
This article is published on: 7th June 2016

07.06.16

Many people avoid drawing up wills because it requires them to contemplate their own mortality. If you are a foreigner with property and/or other assets in Spain, you should make a Spanish will.

You should also have a will for each jurisdiction within which you hold assets. For example, if you have a bank account in Gibraltar, Isle of Man, Jersey etc, you also need a will in that country.

Each of these wills needs to clearly state that they are for the disposal of assets in that country only and that you want your will to be governed by UK/ other EU country law. Only if you state this, will that disposal of assets be governed by your own national law and not that of Spain.

It is now possible to have your Spanish will made out in two columns. One side in Spanish and the other in English. This is checked by a Notary Public and signed by you, the Notary and your interpreter, if your Spanish is insufficient for you to read the Spanish side of the document yourself. The Testamento Abierto (Open Will) is kept by the Notary, an authorized copy will be given to you and the Notary will send a notification to the Registro Central de Ultima Voluntad in Madrid.

It is important to discuss with your legal or financial adviser in Spain, details of the heirs named on your Spanish will. The more direct descendants that are named in your Spanish will as heirs, the less the Inheritance Tax you should have to pay.

Unlike the UK and many other countries, in Spain it is the person receiving the inheritance that is taxable, NOT the deceased person’s estate.
There are many differences between the UK law and Spanish law on Inheritance and Gift tax and although the UK and Spain have many reciprocal arrangements for double taxation, there is no such arrangement for Inheritance Tax.

To die intestate (without a will) in Spain, makes the process of sorting out the deceased’s estate much more time consuming and costly. For the sake of a small amount of money and an hour of your time, you can leave your affairs in order, to help those left behind.

Overseas rental property – have you thought about this………?

By Gareth Horsfall - Topics: Inheritance Tax, Investments, Italy, Succession Planning, Uncategorised, wealth management, Wills
This article is published on: 13th May 2016

13.05.16

Financial markets are very quiet at the moment. From my view point the financial world appears to be almost at stand still.

The world appears to be awaiting the UK vote on whether to leave Europe or not!

In the meantime, life goes on and whilst the UK celebrates the Leicester City win of the Premier League with a Roman manager, I continue to get contacted by various people asking my opinion on how they should manage their finances as residents and non residents in Italy. The majority of those people also have rental property in their home country as part of their overall financial arrangements.

A review of taxation on overseas rental property for Italian residents

The most common question I am asked is how income from property held overseas is taxed in Italy. Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian domestic rental income?

I would like to dispel any myths and confirm that, as a resident in Italy, you do have to pay Italian tax on the profit from any rental income on properties held overseas.

The law for Italian tax residents clearly states that the net profit (after allowable expenses in the country in which the property is located) must be declared in the Italian end of year tax return. The net profit is then assessed as income by adding it to the rest of your income for the year and then tax paid at your highest rate of income tax in Italy (that could be as high as 43% depending on your cumulative income for the year).

Let’s not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable value (or whatever you choose to call it) of the property.

If tax has been applied in the country of origin, this can be reclaimed through your tax return. You are protected through a double taxation treaty as long as your country of origin has signed one with Italy.

To clarify, any rental income from properties held overseas must be declared in Italy. This is the NET income (after allowable expenses) and this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.

But wait a minute. Have you thought about this?

Now, this is all well and good but as most landlords of properties overseas discover, if they are relying on the income from the property to live on then any income benefit can quickly be diminished by additional tax to be paid in Italy.

Do you have useful relatives?

Do you have trustworthy relatives/family members in the country where the property is located? If so, then you might think about gifting the property to them (effectively signing it over to them) and getting them to send the rental income to you as a gift.

The recipient of a gift is not taxable in Italy and therefore you could have a non taxable income stream

However, before you start looking to sign your properties over to family members you need to think of a number of tax consequences of doing this. Mainly the inheritance tax obligations that it imposes on your estate, any tax considerations and administrative burdens it now places on the holder of the property (they would have to be the sole recipient of the money and the sole named owner of the property). That person would have to receive the money in their accounts and submit their tax returns accordingly. They would have to send the money to you under a word of mouth agreement and you would have to trust the other party implicitly, not to mention a number of other tax questions it may pose.

However, assuming those problems could be overcome you might find that you could have the rental income from your overseas property paid to you in Italy, without detraction of Italian tax but through a gift arrangement.

Cross border financial planning at work!

Why it Pays to Make a Spanish Will as an expat

By Jonathan Goodman - Topics: Barcelona, Residency, Spain, Uncategorised, Wills
This article is published on: 15th June 2015

15.06.15

While you are enjoying your new life and possibly a new home in Spain, it is understandable that you might not want to think too long or too hard about the future, particularly about matters pertaining to your Will and inheritance issues for your children and heirs. But this subject needs to be covered and fully understood sooner rather than later.

There are three central reasons for making a Spanish Will:

One – It avoids time-consuming and expensive legal issues that your family and heirs will have to resolve. You can – and should – make a separate Will to dispose of any assets located outside of Spain. A British Will, for example, has no bearing on your Spanish estate.

Two – Spaniards have to divide their assets equally among their family and heirs, and leave two-thirds of it all to their children. As an expat, you are exempt from this ruling and you can bequeath your assets to whomever you wish. Your estate will, however, be subject to Spanish inheritance tax, which is high when left by non-residents to non-relatives. In addition, expats resident in Spain are subject to the same taxes on any of their worldwide estate, too. Therefore, making a Will allows you to navigate these various taxes at your discretion.

Three – Your estate can become eligible to a 95 per cent reduction in inheritance tax. This reduction only applies to the first €120,000, but is not available to non-residents, so bear this in mind when drawing up a Will.

The Spectrum IFA Group in Spain are delighted to be able offer their clients a 15% discount when using the services of ‘AvaLaw‘, who over the last years have assisted clients from almost 50 different countries.

The story you are about to read is true; only the names have been changed to protect the innocent…

Mr. Rainyday and Mr. Blueskies were catching up over a beer in Barcelona on a sunny Friday morning. Mr. Rainyday had barely taken a sip of his beer before he was on his pet topic — complaining about Spain, his and Mr. Blueskies’ adopted home as of a few years ago.

‘This time its dad’s flat in Andalucía. It’s over a year and a half since his funeral, and I’ve only just got it transferred to my name. Plus, it’s cost me a fortune. There’s no way it’d be such a hassle back home. It’s a total scam!’

‘That’s funny,’ said Mr. Blueskies, ‘My dad died around the same time, had an identical apartment in the same building as your dad, and it only took us four months to get the apartment registered in my and my mother’s name. And, if I remember correctly, it didn’t cost that much, either.’

‘Really?’ asked Mr. Rainyday, ‘How’d you manage that?’

‘I don’t know. It all seemed pretty straightforward. Our advisor took care of everything for my dad. Was there a problem with your father’s Spanish will or something?’

‘Will? What will? Dad didn’t have one, but I thought you didn’t even need one in Spain?’

‘You don’t need one, but having one makes things a lot easier and cheaper for your heirs,’ said Mr. Blueskies. ‘Since my father had a Spanish will, I did not have to sworn-translate and legalize tons of documents, there were no surprises regarding the applicable law, no need to get certificates regarding which testament is valid according to the foreign law applicable to the inheritance, no need to pay lawyers to deal with all the unnecessary bureaucracy in all the countries, and no need to wait for a year or two to get the title of the apartment…’

‘I see…’ said Mr. Rainyday. ‘Anyway, what outraged me even worse than the bureaucracy, was paying the 60.000 euros of inheritance tax for the property worth 300.000 euros.’ 

‘Wow’, exclaimed Mr. Blueskies, ‘You paid that much, did you! We did not pay any taxes for inheriting my dad’s flat, since Roser advised my father to leave in his will 50% of the flat to my mother and 50% to me, so that we both could take advantage of the personal tax exemption of 175.000 euros that Andalucía had for all of us who were residing over there at that moment. What a difference, eeh, with some simple inheritance planning?’ Since Mr. Rainyday looked really sour, Mr. Blueskies changed the topic and started to speculate whether Barça is going to bring home all the 3 titles this season…

Clients of The Spectrum IFA Group are eligible for up to a 15% discount
on making a Will with AvaLaw. Contact us now for further information