SPAIN Law and Practice Contributed by: Álvaro Checa, Miguel Checa, José María Vargas-Machuca Reyes and Andrea Fernández Grymierski, KINSHIP
especially where residence is established in regions that do not grant relevant tax relief for next-of-kin transfers (eg, Catalonia). In such cases, the effective tax burden may be significant. One planning mecha- nism consists of structuring inheritances subject to a term so that the taxable event does not occur until a later date, allowing for co-ordinated planning. It is also important to note that where the testator is non-resident the relevant intra-regional connecting factor for determining the applicable regional legisla- tion is the location of the majority of the assets of the estate in Spain (unless there are no Spanish-situs assets in which case the applicable regional tax law will instead be that of the region of residence of the heir). Consequently, advance planning as to the Span- ish region in which wealth and investments are located is essential. Where Spanish-situs assets are located in a region with a potentially high IHT or GT burden (or wealth tax), consideration should be given to financ- ing the acquisition of such assets through debt, as debts used in the purchase may be deductible from the taxable base.
A further recurring issue concerns members of sec- ond, third and subsequent generations of Spanish entrepreneurial families who relocate to common law jurisdictions such as the United Kingdom or the Unit- ed States, where the trust constitutes a core estate planning instrument to mitigate estate tax exposure and protect the continuity of the family business. However, for Spanish tax purposes, trusts are gen- erally disregarded and do not produce the full legal effects attributed to them under common law. This mismatch frequently necessitates changes in owner- ship structures and requires proper planning in order to avoid adverse inheritance, wealth or income tax consequences.
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