If you’re living in Spain or planning to move there permanently, understanding the country’s inheritance tax system is essential.
Spain’s tax landscape, particularly inheritance tax, can be daunting, especially for those unfamiliar with its complexities. With its mix of national rules and regional variations, careful planning is vital to avoid unexpected tax burdens.
This guide will break down the essentials of Spanish inheritance tax, provide insights into the unique rules across its autonomous regions, and include a UK-centric section to clarify differences, common misconceptions, and the potential pitfalls for British expats.
In Spain, inheritance tax is known as “Impuesto de Sucesiones y Donaciones“. Unlike the UK’s inheritance tax, which is levied on the estate as a whole, the Spanish system taxes the beneficiary receiving the inheritance. This difference creates a fundamentally different approach to inheritance planning.
Spanish inheritance tax applies to assets worldwide if the beneficiary is a Spanish resident. For non-residents, it applies to assets located within Spain. This scope often surprises expats who assume that only assets in Spain are taxable.
Inheritance Tax in Spain is frighteningly complex. This is so because of Spain’s historical evolution as a modern Kingdom of kingdoms. These historical kingdoms lost their autonomous powers to a large degree in the 1700’s when King Felipe V unified them all into the kingdom of Spain. Fast forward to 1978, on the death of General Franco and Spain decided to reintroduce multiculturalism and established the Autonomous Communities.
The central government kept control of national issues but devolved power in various matters to the communities. One of these was the issue of inheritance tax.
Spain has 17 different autonomous regions plus two autonomous cities, each with their own rules. In addition to this there is the central government stance (or template) for Spanish Inheritance Tax which actually means that there are 20 entirely different sets of legislation to consider when writing an article about Spanish Inheritance Tax.
Let’s start with the national law (the template) and then highlight a few examples of how autonomous communities have altered exemptions and tax rates.
It is worth highlighting that Spanish inheritance tax is based on civil law and UK IHT is based on common law, meaning that it can be like mixing water and electricity together where people can get a nasty shock if they don’t plan. We will provide a clear comparison further in the article.
Spanish inheritance tax applies to anyone receiving an inheritance, regardless of nationality, as long as they reside in Spain or inherit assets located in the country.
Even if the deceased was not a Spanish resident, their property in Spain is still subject to the country’s inheritance tax laws.
Spanish inheritance tax law includes strict forced heirship rules, also known as the Law of Obligatory Heirs or legítima.
These rules dictate how a portion of your estate must be distributed among close family members, limiting your ability to freely allocate assets. The specifics vary significantly across Spain’s autonomous regions, but the national framework provides a baseline.
If your estate is governed by Spanish inheritance law, the division of assets typically follows these principles:
If married at the time of death, the surviving spouse automatically retains 50% of all jointly-owned property. The remaining 50% forms part of the deceased’s estate.
The remaining estate is then divided into three portions:
If the deceased leaves no children:
Foreigners residing in Spain can bypass forced heirship rules for both Spanish and worldwide assets if they explicitly state in their will that their home country’s inheritance laws apply.
This provision ensures that the laws of the individual’s nationality take precedence over Spanish inheritance law.
Without such a declaration, the estate is automatically subject to Spanish rules, restricting the freely disposable portion to just one-third. [EU LAW 2015]
Spanish tax authorities have categorised the relationship between the taxpayer and the person making the gift/leaving the inheritance into 4 groups.
Spanish inheritance tax law considers all property and assets as taxable, creating a detailed and comprehensive valuation process for estates.
The total value is calculated by summing up real estate, valuables (including furniture, jewellery, and artwork), and financial assets, while also accounting for any outstanding debts.
Debts are subtracted from the total assets to determine the estate’s taxable value.
This is where understanding the Kinship Groups is vital as each group has their own specific rules:
This is the part you really should plan around as Spain provides certain reliefs and exemptions aimed at easing the tax burden for close relatives of the deceased. These include:
The tax rates are banded and Range from 7.65% on the first €7,993 up to 34% on amounts over €797,555
Inheritance Range | Tax Rate |
---|---|
Up to €7,993 | 7.65% |
€7,993 to €31,956 | 7.65% to 10.2% |
€31,956 to €79,881 | 10.2% to 15.3% |
€79,881 to €239,389 | 15.3% to 21.25% |
€239,389 to €398,778 | 25.5% |
€398,778 to €797,555 | 29.75% |
Above €797,555 | 34% |
The final national element to apply when considering inheritance tax in Spain is the ISD Multiplicator.
Pre-existing net wealth (Euro) | Group I and II | Group III | Group IV |
---|---|---|---|
0 - 402,700 | 1.00 | 1.5882 | 2.0 |
402,700 - 2,007,400 | 1.05 | 1.6676 | 2.1 |
2,007,400 - 4,020,800 | 1.1 | 1.7471 | 2.2 |
4,020,800 + | 1.2 | 1.9059 | 2.4 |
The raw tax is multiplied by a factor according to the family relationship and the pre-existing wealth of the beneficiary.
For those mathematicians you will have already calculated that a person who is unrelated to the donor, who is resident in Spain, and has existing assets in excess of €4,020,800 and receives an inheritance above €797,555 could pay an eye-watering rate of 81.6% on the amount above €797,555.
Its not all bad news though, since as I mentioned earlier the autonomous regions may raise the allowances and exemptions at will.
By way of example:
There are certain conditions to be met to qualify for these allowances and increased exemptions such as the deceased must have been resident for a period of 5 years for the exemption to apply, amongst other variations of different circumstances.
It is worth noting also that Autonomous Communities can vastly improve allowances and exemptions but by the same token can vastly reduce them at will.
Andalucía by way of example adopted the state laws for nigh on 25 years with a socialist regional government in power and then with a right of centre party elected the exemptions have continued to improve. This could easily be reversed as several regions did after the financial crisis in 2008.
We often receive a lot of questions from UK expats who struggle to navigate the rules of Spanish inheritance tax due to the stark differences between the two systems. Let’s address some key distinctions, common misconceptions, and pitfalls:
Inheritance tax must be paid within six months of the date of death, though extensions may be granted in very specific and justified circumstances.
The assets will not be released to beneficiaries until the tax has been paid.
Navigating Spanish inheritance tax is no small task, especially with its complex interplay of national and regional laws. Whether you’re an expat already living in Spain or planning to move, understanding these rules is crucial to protecting your wealth and ensuring your loved ones are not left with an unexpected tax burden.
Clearly – the best course of action is to plan ahead and remove risk and uncertainty.
Private Client Consultancy specialises in helping expats optimise their inheritance planning and minimise tax liabilities. With our expertise, you can gain peace of mind knowing that your estate will be managed in line with both Spanish laws and your personal wishes.
Contact us today to schedule a consultation and take the first step towards securing your financial legacy in Spain.
Disclaimer: Tax laws, rates, and reliefs are subject to change and may vary depending on individual circumstances and residency status. Any information provided on this website is based on our understanding of current regulations (or the date of when the content was published) and should not be considered personalised financial or tax advice. As tax obligations can differ across regions, countries and evolve over time, we strongly recommend seeking professional advice tailored to your specific situation before making any financial decisions.
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