Spanish civil partnerships and inheritance tax

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Spanish civil partnerships: how entering into one could drastically reduce your inheritance tax bill in Spain

I) WHAT’S THE STORY?

The case described in this post is based on real events. All the names of the persons involved and exact amounts of monies paid have been changed so as to protect their privacy and maintain the client confidentiality agreement between a party and their lawyer.

A few weeks ago, we had a visit from a gentleman who for the purposes of this post we will call John, a British national who had lived in Spain with his partner for many years. John’s partner, who we will call Mary, was also a British national but she sadly passed away in 2021. John and Mary had previously been married but later divorced. They reconciled many years later and lived together until her dying day in a home they both jointly owned.

Before her death, Mary had drawn-up a Spanish will bound by the law of her nationality (England). By virtue of Mary’s will, John inherited Mary’s car and her half of their shared home. In other words, John inherited 100% of the car and the other 50% of their house. The inheritance itself, while due to very unfortunate circumstances, was fairly straightforward. The problems arose when it came to declaring and paying the inheritance tax (esp: impuesto de sucesiones).

At first everything seemed fine. John’s initial inheritance tax declaration came back as nil (0 €) and he was understandably pleased that he did not have to pay any tax. However, the previous advisor who had handled the taxes and paperwork had misunderstood that John and Mary were no longer married, even though the will clearly stated that John was Mary’s ex-husband. In other words, John’s initial tax declaration came back as nil because the previous advisor had declared that the inherited goods had been passed from a wife to a husband who were still married at the time of her death. Consequently, John was granted considerable tax allowances to the point that he was told he had no tax to pay.

Unfortunately, under Spanish law John should have never been granted those allowances in the first instance, as he was the ex-husband whose later union with the deceased was not formalised in law by marriage or a civil partnership. He was not aware of this fact or the error until his previous advisor realised their mistake and sent him a rectified inheritance tax declaration and bill for over SIX THOUSAND EUROS. Had they not realised this, apart from having to pay the six thousand, John could have been investigated for under-declaring his tax and would have likely been given rather hefty penalties by the Spanish Tax Office.

Unhappy with his previous advisor, John decided to take his business elsewhere and brought his case to us. We managed to rectify a few more mistakes we found, which included an incorrect valuation of the property and the car being declared at more than twelve times its actual market value (i.e 15,000 € instead of 1,200 €). Unfortunately, even with these corrections, John was still not granted any tax breaks and his final bill came to around FIVE THOUSAND EUROS, on to which we had to add an extra amount in late fees.

This is a very real scenario that many couples could face in Spain. If you and your partner live together and are unmarried, the surviving partner will have little to no rights to the other’s estate after their death. There are, however, a few things you can do to protect your estate under Spanish law and make sure your surviving partner gets the inheritance you leave them with very little to no tax to pay. Best of all, you can do all of this without having to hire a wedding planner, by registering as a pareja o unión de hecho, a Spanish civil partnership.

II) SPANISH CIVIL PARTNERSHIPS

It may surprise some from England to know that the term «common-law partners» actually has no legal meaning whatsoever. As a matter of fact, both in England and in Spain, the only unions of two people that are recognised by the law are marriage (esp: matrimonio) and civil partnerships (esp: pareja o unión de hecho).

Civil partnerships in Spain are defined as the legally recognised union of two people, irrespective of their sexual orientation, who maintain and wish to maintain a stable relationship in a manner analogous to that of a marriage. While the name is confusing (as it literally translates as «de facto couple or union»), for two people to enter into a Spanish civil partnership they must meet a certain set of requirements. This list of requirements varies depending on which region of Spain (esp: comunidad autónoma) you live in. This is because there is no national law that regulates Spanish civil partnerships and they are regulated by most of the the different regions of Spain by means of devolved legislation. That being said, the general requirements that both people need to meet are the following:

  • They must be of legal age (18 or over) or be legally emancipated.
  • They cannot be married or be in another civil partnership. In other words, they must be single, legally separated or divorced
  • They cannot be directly related by blood or adoption (sons, daughters, fathers, mothers, brothers, sisters, etc) nor can they be related directly by blood or adoption in the second degree (uncle, aunties, first cousins, nieces, nephews, etc).

If both people meet these general requirements, along with the extra ones set out by the different regions (i.e. a period of prior cohabitation or insisting that both people be on the local census in that region instead of just one), then they can start the procedure and get their union registered and recognised as a legal Spanish civil partnership in that region and possibly be granted certain rights and tax benefits. The procedure is not complicated and is well worth doing for the reasons we explain in the following paragraphs.

III) CIVIL PARTNERS AND THEIR RIGHTS TO INHERITANCE IN SPAIN

Under English law a person can leave their entire estate to a sole individual or they can share it out among various individuals with very few limitations. This is not the case in Spain.

Spanish inheritance law is incredibly complicated in comparison, too complicated to explain in just a few paragraphs. However, suffice it to say that under Spanish law civil partners are far down at the bottom of the list of the possible inheritors. Aside from a few rights granted by very few regional lawmakers, civil partners can be left with close to nothing depending on if there are any living relatives and their relation to the deceased.

That being said, and this is very important, just because the law does not generally grant civil partners any rights in these matters, that does not mean that you cannot safeguard both them and your estate by drawing up a will. What’s even more important is that, if your a foreign national, you can apply the law of your nationality to your will, not the law of Spain, and freely designate your estate to whomever you choose.

This very small change to your Spanish will can have drastic effects, and together with registering correctly as civil partners, it can safeguard your surviving partners rights and save them a lot of money. How much money? Well, let us show you.

IV) REGIONAL INHERITANCE TAX BENEFITS FOR CIVIL PARTNERS

Taking the example of Andalucía, which is where we practice, the benefits of entering into a Spanish civil partnership are quite considerable. In John’s case from the introduction, if he and his partner Mary had registered as a pareja de hecho, he would have benefited from all the inheritance tax breaks and allowances established for married spouses. This is because, as of 2022, and in accordance with section 26 of the current and recently-approved reform of the Andalusian legislation on the matter (Ley 5/2021, de 20 de octubre, de Tributos Cedidos de la Comunidad Autónoma de Andalucía), a civil partner is considered equal to a spouse and is therefore included in GROUP II of inheritors. This means that they can benefit from the tax breaks and allowances set forth in sections 27 and 28 of the aforementioned law, allowances of no less than ONE MILLON EUROS.

Yes, that’s right, as the spouse or registered civil partner of the deceased in Andalucía, you can inherit an estate worth a total of one million euros and pay no inheritance tax, along with many other benefits which may be the subject of another post at a later date. If you are not registered as a civil partner it is a very different story, as John sadly found out.

This equivalency between spouse and civil partner for inheritance tax purposes can be found in most of the regions of Spain where civil partnership legislation has been passed. In the Region of Murcia, for example, you have a similar scenario. In accordance with section 3 of their legislation (Decreto Legislativo 1/2010, de 5 de noviembre, por el que se aprueba el Texto Refundido de las disposiciones legales vigentes en la Región de Murcia en materia de tributos cedidos), civil partners have been declared equal to spouses and have a right to the same 99% reduction of the taxable base for inheritance tax, which will reduce the amount you will be taxed on to just 1% of what it would have been.

V) FINAL THOUGHTS

In conclusion, the law doesn’t protect unmarried partners in Spain, but it does offer them the choice of entering into a legally recognised civil partnership and drawing-up wills that protect themselves and their respective estates, while simultaneously reducing the inheritance tax bill.

John, unfortunately, was very unlucky. He was given, with all due respect, incorrect advice and assistance with his inheritance tax declaration but we managed to save him a little bit of money once we corrected it.

If you would like to enquire about registering as a pareja de hecho in Spain and drawing-up your wills, please contact us at Lex-Fix Abogados y Traductores. Our team of lawyers and translators/interpreters can assist you in your own language and help you get all of the paperwork together. Once filed correctly, you and your partner can rest soundly knowing that there won’t be any nasty surprises waiting around the corner.

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