01 July 08

Property

Property

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Tips & Debate:

I nheritance usually becomes an issue after a family funeral, and in some cases it can prove to be quite a thorny one, especially when siblings squabble over the family silver. With more people buying overseas or simply deciding to retire abroad, the issue of inheritance taxes and succession laws in the country where you are buying are increasingly important.

The majority of buyers own property in Spain and, while the system of inheritance tax can be complicated, there are a few things that can be done to make it easier on your heirs. David O’Donnell from Tom McGrath & Associates, who specialise in this area, says the rules in Spain range a lot depending on the recipient’s relationship with the deceased and the amount of wealth left behind. In Spain heirs can avail of a tax free allowance of just under €16,000 and rates on the remainder vary from 7.65% to 34%.

To avoid complications it is vital you make a will in the country you are buying in, and which is separate from your will at home. This removes any ambiguity regarding who inherits the property. But there are regulations on who you can give it to – in Spain and France you cannot disinherit your children and if you have one child they are entitled to at least 1/3 of the estate in Spain and at least ½ in France.

When calculating the tax due there are a number of provisions to bear in mind. 3% must be added to the property value to cover furniture and fittings. If the property is jointly owned by a couple the remaining spouse only pays 50% of the value of the property, but if the property was in the name of the deceased the remaining spouse is liable to 100% tax. Therefore joint ownership from the start is often a good option. In Spain if the heirs are under 21 years of age they are eligible to a deduction in their tax liability of €3,990.72 for every year they are younger than 21, to a maximum of 12 years. One option is to put the property in the name of your children from the start, thereby making them not liable to inheritance tax – but it is advised to have it written in the deeds that you can avail of life residency in the property.

Therefore on a €1million Spanish villa, that is jointly owned by you and your spouse, upon your death you may have decided to leave the property to your spouse and three kids. €30,000 is added on in furnishings and 50% goes direct to the remaining spouse. After deductions the spouse has to pay 29.75% tax on €499,043.13, which is €148,465.33. The three kids, after their deductions, have to pay 18.7% tax on €155,709.80, which is €29,117.73 each.

Alternatively you could just buy in a country that has no inheritance taxes for spouses or children, such as Switzerland, Monaco, St. Lucia or in Bulgaria where it is very low. It is best to always get a will and sort these issues out when you buy, therefore saving your loved ones a big financial headache later!
Global property guide: www.globalpropertyguide.com