Looking for a place in the sun? How to ensure your Spanish property passes to your chosen beneficiary on death
As the winter months draw in on us, a holiday home in Spain seems like a very appealing prospect but have you thought about what will happen to that property on your death? Without specifically addressing this issue you may be left with the unsatisfactory position where UK and Spanish law conflict and where your property passes to an unintended beneficiary.
Until recently the overarching principle was that the physical location of immoveable property dictated the probate laws that would apply. Immoveable property is the term given to any property that cannot be moved without destroying or altering it, property that is somehow fixed to the land such as houses and plots of land. This meant that any houses or land owned in Spain would be subject to Spanish succession law. Spanish succession law operates on a system of forced heirship, meaning that a certain proportion of your estate must pass to any children on your death. This can cause undesirable consequences such as estranged children benefitting from your estate or your surviving partner being unable to benefit from the property during their lifetime. Often it was advisable for UK citizens to have a separate Will for their Spanish assets which would be made in accordance with the local law.
The position has now been altered since the enactment of the EU Succession Regulations, known as Brussels IV, on 17 August 2015. Although the UK has not adopted Brussels IV, British citizens who own property in Brussels IV states or who are habitually residence in that state are affected by it. Brussels IV states include all EU member states with the exception of Ireland, Denmark and the UK.
The underlying principle is that the law of the country in which you are habitually resident will apply to the succession of your property. Habitual residence is not a concept that is easily or definitively defined. The relevant European cases to date have defined it as the place where a person's habitual centre of interests is situated. This can be overridden if a determination is made that you are more closely connected with another country when you die and can also be affected by the existence of a Will made in accordance with the law of your nationality. All of these potential considerations make the position uncertain, with each case turning on its facts.
However Brussels IV also allows for a person to make a Will electing that the law of another territory will apply, provided that they are a citizen of that territory at the time of making the Will or of their death. This allows a UK citizen with property abroad, or who is looking to move to Spain, to make an election in their Will that UK succession law will apply to all of their assets. Under UK law, property can be left to anyone you wish and there is no doctrine of forced heirship.
Although it is not always necessary to make a specific election in your Will, it is certainly worth considering who you would like your international property to pass to, which succession laws are likely to apply to your estate and whether these are in line with the inheritance provisions you would otherwise intend. In the majority of cases we would advise making a foreign Will or making a specific election in your UK Will to ensure certainty and peace of mind that the right people will benefit from these assets on your death.
It should also be noted that Brussels IV does not deal specifically with inheritance tax regulations and as a Spanish property owner you may still have to pay tax in Spain.
If you currently own Spanish property, are thinking of investing in the future or are a UK citizen living in Spain, please contact Laura Harper or another member of our Succession and Tax team for further advice.