As the world gears up for an unprecedented intergenerational wealth transfer, UK nationals living in Spain or Portugal face distinct challenges. From understanding domicile status to mitigating the risks of double taxation, having a robust estate plan is essential. Estate planning ensures your assets are protected and efficiently passed on to future generations while complying with both UK and local laws.
The Great Wealth Transfer
The "Great Wealth Transfer" will see trillions of assets passed between generations over the next few decades. For UK nationals residing in Spain or Portugal, this shift presents both opportunities and challenges. Transferring significant wealth across borders necessitates careful planning, especially in light of the different tax regimes in the UK, Spain, and Portugal.
Inheritance Tax: Key Considerations
Inheritance Tax (IHT) in the UK is charged at 40% on estates valued above the tax-free threshold of £325,000. While you may live abroad, UK IHT can still apply to your worldwide assets due to your domicile status, which is determined by factors beyond your current residency. This means that, even as a resident of Spain or Portugal, you could be liable for UK IHT unless your domicile status is reassessed.
Domicile and Double Taxation Risks
Domicile Considerations:
Domicile is a critical factor in determining your IHT liability. Many UK nationals living in Spain or Portugal may still be considered UK-domiciled, exposing their entire estate to UK IHT.
Transitioning to a non-UK domicile is possible but complex and requires thorough planning and legal advice.
Double Taxation:
Spain and Portugal have their own inheritance taxes, which can be compounded by the UK IHT. Spain’s inheritance tax rates vary by region, while Portugal imposes stamp duty on inherited Portuguese assets for non-direct descendants.
Double Taxation Treaties between the UK and these countries may offer some relief but don’t eliminate all tax risks. Strategic estate planning can help mitigate these risks.
Specific Considerations for Spain and Portugal
Spain:
Spain's inheritance tax system is regionally administered, with significant differences in rates and exemptions. Additionally, Spain’s forced heirship laws can dictate how your estate is divided, potentially conflicting with your wishes and UK inheritance law.
Understanding these regional differences is key to effective estate planning.
Portugal:
Portugal’s inheritance tax system is less aggressive than Spain's, with no traditional inheritance tax, but a stamp duty of 10% applies to non-direct heirs. The Non-Habitual Resident (NHR) regime in Portugal can offer favorable tax conditions for foreign residents, which may impact your inheritance planning.
For those taking advantage of the NHR regime, carefully structuring assets and income is vital to maximize benefits.
Proactive Estate Planning Strategies
Review and Update Your Will:
Your will should reflect the legal requirements and tax implications of both the UK and your country of residence. You might also consider having separate wills for each jurisdiction to avoid legal conflicts.
Gifting and Trusts:
Gifting assets during your lifetime is a common strategy to reduce the value of your estate. However, you must navigate both UK and local laws, such as the seven-year rule in the UK and regional rules in Spain or Portugal.
Establishing trusts can also help protect your assets and provide more control over their distribution, but they need to be carefully structured to avoid unintended tax consequences.
Seek Professional Advice:
The intersection of UK and local inheritance laws is complex, and professional advice is essential. A wealth adviser with experience in both jurisdictions can guide you through the nuances and help create a tailored estate plan that minimizes your tax liabilities.
Talk to us!
Your family’s future shouldn’t be left to chance. With the intricacies of cross-border estate planning and the looming Great Wealth Transfer, now is the time to take action. Connect with one of our expert, cross-border wealth advisers today to ensure your estate is preserved and passed on efficiently. Protect your legacy—start planning now.
This post is prepared for information purposes only and should not be interpreted as investment advice nor is it an invitation by MWC Group to any person to buy or sell any investment. MWC Group has based this post on information obtained from sources it believes to be reliable.
MWC Group UK is authorised by the FCA FRN 973440 to provide Investment advice and portfolio management in relation to a number of financial instrument. MWC Group UK is a Branch of Manentia Wealth Consulting Group AG which is registered with FINMA as Insurance Broker under number 29575 and member of PolyReg/PolyAsset as Portfolio Manager.
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