E27. Whose responsibility is it to limit your beneficiaries’ tax liability on inherited wealth?

Fiduciary Wealth Team

One of the biggest causes of concern for expatriates is their assets and wealth being subject to a massive tax liability on death.

When you take up residency in Spain you might think that you have seen the end of the British tax system. Certainly you will fall into the Spanish system as far as income tax and savings tax is concerned but UK Inheritance Tax is not so easy to shake off and can follow you wherever you live as it is based on the principle of domicile rather than residency. Domicile is a legal term which means you belong to a certain country and is normally acquired at birth. If you want to become domiciled in the country in which you are living you would have to prove to the UK authorities that you have no material connections with the UK and that you are permanently resident elsewhere.

For IHT purposes you are deemed to be UK domiciled if you have been resident in the UK for 17 of the past 20 tax years. Even if you have been outside of the UK for the requisite number of years ownership of property or business interests in the UK might well lead to a judgement concluding that you retained your UK domicile. UK domicile means that you are liable to IHT on your worldwide assets.

Well that’s ok you might think, the UK has a reasonable allowance against inheritance tax and there is no tax between spouses  so effectively no tax to pay on first death so we will stick with the UK system and find a way to shelter assets against the 40% tax liability.

Enter Spanish Succession Tax which is completely different. It is payable if the beneficiary lives in Spain or if the asset being passed on is situated in Spain. Now the most significant difference between UK IHT and Spanish Succession Tax is that there is no exemption between husband and wife. What’s more the top rate of tax can be as much as 82%.

In some autonomous regions of Spain the main home can pass between spouses with little or no tax provided certain conditions are met but where the beneficiary is not resident in Spain only the less generous state rules will apply.

Anyone living in Spain but UK domiciled can end up with an inheritance tax liability in both countries albeit with the ability to offset some tax against the other.

Inheritance tax can have a devastating effect on inheritors and quite frankly some of the potential solutions put forward by some advisers are unlikely to hold water if challenged by the authorities after you die.

Why should your beneficiaries suffer the consequences of bad planning or worse still no planning at all? You should speak to Fiduciary Wealth, cross border specialists with offices in Spain and London who will tailor a solution to suit your specific requirements. Don’t let the taxman British or Spanish, deprive your beneficiaries of the inheritance you intended for them. Call us on Tel: 956 796 911 or email