Posted in: Case studies
Many parents (and sometimes aunts or uncles) think it is easier to leave everything in their Will to just one person — often the eldest child. This is with the idea that he or she will later “sort things out” and share with the rest of the family. On the surface this may look simple and practical, but in the Valencian Community this approach can create very expensive inheritance tax problems.
We have seen families paying tens of thousands of euros more in inheritance tax simply because of how the Will was written.
The Valencian inheritance tax rules are very favourable when assets pass directly to children:
€100,000 tax-free allowance per child and 99% reduction in the tax due.
In practice, this means most children inherit with little or no tax to pay.
But the rules are far less generous for other heirs…
They have only about €8,000 tax free allowance each… No 99% reduction.
They can face very high tax bills if they inherit significant assets.
If you leave everything to just one child, only that child benefits from the allowances and tax reductions. The other children (or nephews/nieces) are left out at that stage.
So, when the inheritance tax on the assets is calculated it is possible (and this often happens) that it will be far higher than it should have been if all the tax allowances per person could have been used.
People think it will save money but in fact it does the opposite if the intention is an immediate sale and to distribute the sale proceeds overseas.
A man owned a property worth €300,000. Instead of dividing it between three children, the Will left everything to one nephew with the “understanding” they would share it later. The heir suffered a huge inheritance bill (which although their siblings agreed to jointly pay) could have been avoided.
As a result, they paid almost €40,000 in inheritance tax, even though the same inheritance could have been received tax-free had it been divided equally in the man’s Will.
The best solution is to make a Spanish Will that leaves each heir their rightful share directly:
Children inherit directly from their parents, maximising their €100,000 allowance and 99% reduction.
Nephews and nieces inherit directly from their uncle or aunt, so at least each one uses their personal allowance (instead of the assets being concentrated in one heir’s name and then taxed heavily later).
The parents’ or testator’s wishes are clearly respected, without relying on verbal promises or informal agreements.
In the Valencian Community, writing your Will in the wrong way can turn a simple inheritance into an expensive tax trap. Leaving everything to one child or one nephew may feel easier, but in reality it can cost your family tens of thousands of euros.
At Molina Solicitors, we help families structure their Spanish Wills to make sure that each heir benefits from the maximum allowances available under Valencian inheritance tax law. If you have written your Will to one heir only for the above reasons you may wish to contact us for professional advice on reviewing or drafting your Will.