A Deed of Variation in the UK may generate extra tax obligations in Spain. A Deed of Variation in the UK modifies the terms of an inheritance. The UK treat such Deeds for tax purposes as if they were made by the person who has died. As a result, they can mitigate tax in that jurisdiction. The Spanish tax authorities, however, can regard the Deed of Variation as a donation from the initial beneficiary to the substitute beneficiary. In this way Spain can tax the Deed of Variation instrument as a second transfer of the property.

An example

In practice the issue can arise when the beneficiaries administer an English will in Spain. Here is an example. A testator makes an English will leaving all his assets to a named beneficiary. The assets include property in the UK and a villa in Spain. The testator does not make a Spanish will so upon his death the English will governs the worldwide estate. When the testator dies the beneficiary arranges a Deed of Variation in the UK by which the benefit of the inheritance passes to the beneficiary´s children.

The English will is then administered in Spain. The Spanish notary and tax office receive the probate documents and Deed of Variation. The beneficiary is liable for Spanish inheritance tax for the villa under the terms of the will. The beneficiary´s children are liable for Spanish donation tax on the villa which they receive unde the Deed of Variation.

Conclusion: Spanish will

A Deed of Variation of a UK will can have unexpected consequences in Spain. The lesson is that UK residents who own a property in Spain should make a separate Spanish will. Whilst it is usually possible to administer an English will in Spain, the process can be slow and expensive. When there is a valid Spanish will then a Deed of Variation to an English will would not apply in Spain.