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E15. You have a duty to minimise the potential tax liability on your children’s inheritance.

Fiduciary Wealth Team

Of all the financial issues that concern expats, taxes due on death are a major worry, particularly when the objective of accumulating assets over a lifetime to pass on to future generations can be so  dramatically affected  by death duty taxes.  The situation is compounded by the fact that whilst residence is fairly clear cut spend 183 or more days in Spain and you are deemed resident here and HMRC will readily accept that you are no longer liable for income tax unless earnings are generated back in the UK; your liability to death duties is not so transparent.

When it comes to death we have the thorny question of “domicile” to unravel. Domicile can be difficult to shed particularly should you retain assets or interests in the UK or have only recently exited the country. Add to this the fact that as Spanish resident succession tax is payable by your beneficiaries before they can benefit from your assets in Spain and that there is no double taxation treaty between the two countries your assets could end up being subject to tax in both jurisdictions. There are more complications, there are different rules for residents and non residents and different allowances in the various autonomous regions of Spain.

So do you know what taxes your estate might be faced with on death and how these will be paid? If you have assets in the UK over £650,000 (for a married couple) do you really want a tax of 40% to be applied to the excess? Do you realise that in Spain there is no spousal exemption from tax and that on death your partner could be liable for tax on 50% of your jointly owned assets?

The good news is there are plenty of things you can do in conjunction with your adviser to mitigate this liability but you need to take action now rather than leave things to the last minute. The best solution for you will depend on the type of assets you hold, where they are situated and whether you want to retain control. For example, you may be surprised to know that as a Spanish tax resident you can effectively use a recognised retirement planning strategy to generate income at very low rates of tax whilst at the same time remove the assets within the scheme from any liability to UK inheritance tax. For UK assets there is the opportunity to make use of potentially exempt transfers which allow you to give away assets and providing you no longer benefit from them and you live for a further seven years these will be removed from your estate. Worried about your mortality? You can always insure your life with a “gift inter vivos policy” which will cover the outstanding tax liability throughout the seven year period.

There are a plethora of different options that can be considered.  Clearly you need to speak to an adviser who understands these cross border issues and can put together a comprehensive strategy to ensure that your assets are protected as far as possible and that tax due will be minimised.  Isn’t it worth speaking to someone now? For an appointment to discuss your requirements in detail contact Tel: 956 796 911 or email wealth@fiduciarywealth.eu