National vs Regional Tax Rules
Formerly, only those who have been ordinarily resident in a particular region of Spain over the balance of a period of five years prior to their death will have the more generous regional inheritance tax exemptions applied to their estate.
In addition it will require the beneficiary to be resident in some part of Spain.
If not, the national rules applied. What this meant of course was that, more often than not, the rules for most non-Spanish beneficiaries were calculated using the less generous ‘national level’ deductions.
However, following a judgment by the European Court, the Spanish government has passed into law Ley 26/2014 about inheritance tax rates in Spain, which came into force on January 1st, 2015.
The new legislation provides that European Union citizens, ordinarily resident in another European country, may apply any deductions available to residents of the region in Spain in which their assets are located. Please view the regional tax deductions.
For non-EU citizens, the less generous ‘national level’ tax exemptions below apply.
The exemptions available at a national level may be summarised as follows:
Guide to Groups
In Spain a beneficiary is assigned a category or Group depending on their relationship with the deceased, as per the following table:
Group I Children, including adopted children, under the age of 21
Group II All other children, spouses and parents
Group III Close relatives such as brothers and sisters, grandparents, aunts/uncles
Group IV More distant relatives
In addition to the above exemptions, should any beneficiary be disabled, further exemptions ranging between €47,858.59 and €150,253.03 depending on the level of disability.
Life Insurance Policies
If the deceased took out a life insurance policy in favour of a beneficiary there is an exemption up to the value of €9,159.49 where the beneficiary is a spouse, child or parent.
Inheritance of the Family Home
An exemption also exists for tax payable on the permanent or habitual residence. The definition of habitual residence is the same as that used in Spanish Income Tax legislation and presupposes time having been spent living in the property.
The classification of a property as the family home will be assisted through the presentation of supporting evidence such as tax returns with the property listed as the habitual address of the taxpayer.
This exemption applies equally to a spouse, children and parents of the deceased at a rate of 95% of the value of their inherited portion of the property up to a maximum value of €122,606.47 each. An important proviso exists in that the property may not be sold for a period of 10 years after the inheritance.
Other relatives further removed, may also benefit from this exemption but must have been living with the deceased in the property for a period of at least two years prior to the date of death.
To demonstrate how the tax rates are applied, consider the following example:As stated earlier, the relevant factors when calculating the tax liability that a beneficiary of an estate in Spain will face include tax exemptions, the tax rate and their personal wealth.
Where three children each inherit, after exemptions and charges, an inheritance valued at €45,000 from a parent, to determine the amount of tax payable by each we would calculate as follows:
Up to €39,943.26 the tax payable is €3,734.59
The portion above €39,943.26 (€45,000 – €39,943.26 = €5,056.74) is taxable at 11.9% = €601.75
So, total tax payable by each child is € 3734.59 + € 601.75 = €4,336.34
A brother of the deceased inherits an estate comprised of cash of approximately €68,000 generating a net tax liability of €6,000 (after exemptions, deductible charges gave been deducted and tax rate applied). The beneficiary has a pre-existing wealth of €450,000.
Then the total tax payable increases to 6,000 x 1.6676 = €10,002 (As a brother of the deceased the correct category is Group III).