Inheritance Tax in Spain: Pay Less!

Inheritance tax in Spain can swallow-up a huge percentage of any inheritance, so how can liability for probate tax in Spain be reduced?

Inheritance tax in Spain

Reducing Spanish Inheritance Tax

Inheritance tax in Spain can swallow-up a huge percentage of any inheritance and so it is worth planning ahead as carefully as possible to avoid the lion’s share of any legacy winding up in the Spanish government’s coffers.

Of course it may be that investments and purchases have already been made and therefore there remains little to be planned for.

In any case we will look at all of the options open to an individual who wishes to minimise the inheritance tax they must pay in Spain.

Ever since the Spanish government devolved responsibility for inheritance taxes to the regional governments, huge steps have been taken to reducing and in many cases eradicating the payment of inheritance taxes.

However, the exemptions granted apply only to those who are resident in the region – often requiring residency for a majority of a period of five years. If residency in any specific region is not established then the ‘State’ approved tax exemptions will apply.

Deductions At State Level

Even if unable to take advantage of the more generous deductions available at a regional level there do exist certain exemptions based on the governing legislation at state level.

In addition to the personal exemptions up to a maximum of €47,858.59 for close family members there are also exemptions for inheritance of the habitual family residence.

Inheriting The Family Home

This will specifically benefit those who have moved to Spain to live permanently and can therefore call their Spanish property their permanent residence or vivienda habitual – as per Article 20(c) Law 29/1987.

The concept vivienda habitual is as defined by the Law relating to income tax in Spain (Ley de Impuesto sobre la Renta de las Personas Físicas). Following this, anyone who spends more than 183 days a year in Spain is technically resident for tax purposes.

It is also very important to obtain a certificate of Empadronamiento which means to register as being a local resident with the town hall.
It is a simple process and may be used as evidence of being a resident and using the home as your vivienda habitual.

The amount of time that needs to have been spent by the deceased living in the property before it may be called a vivienda habitual is described in the income tax laws as three years though it also states that death of the individual during that period is an exception so it can only be said for sure that the longer the period of time the better.

The exemption amounts to €122,606.47 per beneficiary and is restricted to spouses, children, and parents of the deceased and only to extended family members who have lived with the deceased for a minimum of two years prior to the date of death.

This exemption has a ceiling of 95% of the value of the property. One proviso is that the beneficiaries may not immediately sell the property and must maintain ownership for several years.

Tax Residency in Spain

Inheritance tax in Spain states that if you are resident in Spain for tax purposes (more than 183 days a year) then you are legally obliged to make tax return once a year (even if it be a zero return).

Known as the ‘Declaración de la renta’, this also helps to prove residence and if the address used on the tax return is that of the property in question it goes towards evidence that it is your vivienda habitual.

Care should be taken here as if you are determined to be resident in Spain for tax purposes then in theory your worldwide wealth is taxable in Spain.

Debts, Loans & Charges

In order to reach the ‘net’ estate that is to be divided among beneficiaries, it is necessary to first deduct from the estate any existing debts or loans belonging to the deceased. There are limits however and typically a ‘loan’ or debt to any beneficiary is not deductible.

The only exception to this is where the deceased owed monies to the Spanish Social Security system and in this case any person, including a beneficiary, who pays off such debts, may be able to deduct them from the estate before it is distributed to other beneficiaries.

In order for a debt to be deducted from the estate of the deceased it should be ratified by a public document i.e. an informal debt will not constitute a deductible debt for the purposes of Article 13.

As a result it is possible to reduce the value of a property by any mortgage that exists. This can radically reduce the value of any inheritance tax payable.

Article 12 ‘charges’ on properties may also be deducted but these are unlikely to be present in most typical scenarios.

Other Expenses

Medical expenses incurred as a result of the final illness and those expenses relating to the funeral of the deceased may be deducted from the estate before considering inheritance taxes.

Where the body of the deceased is returned to another country for burial these can be substantial. In any case, all funeral and health care receipts must be retained.

The expenses relating to the management of the inheritance such as legal and notary fees are not generally deductible unless they relate to litigation on behalf of the beneficiaries as a group.

Regional Deductions

As previously stated, regional governments have greatly reduced or eradicated inheritance taxes for close family members up to varying maximum amounts. The scope of the exemptions is determined by the region in which you are resident.

This can be a disputed matter and legislation exists to determine which region’s laws are to be applied where there is a conflict. In many cases, the location of a property determines the regional law to be applied where it is the subject of an inheritance.

A through examination of the deductions and exemptions available at the regional level is available in: Spanish Inheritance Law By Region

Other Considerations

Care should be taken by any couple that are unmarried. This could mean that the surviving partner may fail to benefit from tax advantages ordinarily available only to spouses.

This can be rectified in a number of regions by registering as a ‘pareja de hecho’ in the relevant local registry and which henceforth permits the partner to benefit from typical spousal tax advantages.

They will of course be subject to all of the standard legal exclusions that a spouse would typically face such as residency etc.

Estate Planning

The term relates to organising an individual’s assets in such a way that their distribution can be carried out in the most financially advantageous manner possible. Of course it depends upon a number of factors:

  • The make-up of the estate – is it made up of property, businesses, chattels or most likely a mixture of all three
  • The way the estate is to be distributed
  • To whom the owner wishes to distribute the assets.

It is impossible of course to cover the whole array of possibilities that exist and so this can only be managed on an individual basis with an expert in the field.

It is however worthwhile making general suggestions regarding methods that can be used to minimise taxation liability.

The most important considerations to make and the greatest financial benefits that may be obtained when carrying out Estate Planning relate to the most important asset held by most people – property.

Life Interest or ‘Usufruct’

Rather than leaving their half of a property to the surviving spouse or registered civil partner, an individual may bequest a life interest only. It is taxed at 70% of the value less 1% per year that the beneficiary is over the age of 20 –

e.g. if the surviving spouse or civil partner is 60 years old – the life interest is valued at 70% – 40% (60 – 20 = 40) = 30% of the half of the property owned by the deceased which is a 70% reduction in the taxable base.

In fact, where there are children, then it may be interesting to convert from outright ownership to life interest only. In this way ownership would be in the names of the children from the outset and any inheritance tax would be negligible as upon death the life interest would be extinguished.

The owners (in this case the children) would be prohibited from dealing with the property without the express consent of the life interest holders.

Buying Property with a mortgage

By purchasing with a mortgage (the maximum is normally 70% in Spain) then a deduction may be made of any outstanding mortgage before inheritance tax is considered.

While more difficult to obtain later in life this is something that may be done at any time to reduce the inheritance tax as it reduces the absolute value of the assets being inherited.

Setting-Up A Company

A possible solution to avoid a hefty inheritance tax bill would be to place the property in the ownership of a UK limited company which would see the shares in the company pass as per inheritance rules or any valid will without being affected by Spanish inheritance tax.

Negative aspects to this option would include the hefty set-up costs as well as annual costs involved in carrying-out the mandatory statutory annual reporting related to running a company.

Also, there might be issues if trying to sell the property in the future while still under company ownership.

On the positive side, if you are facing a situation where you are unable to take advantage of any of the other tax reducing methods already mentioned, this option can be carried-out almost at any time up until the inheritance becomes operative and avoid paying up to 40% of the value of your assets in Spain.

Also, it is possible to mitigate the problem regarding future resale of the property by returning the property to private ownership and then selling-on.

23 Lawyers Offering Inheritance Services in Spain

Testimonials for our Inheritance service
  • Peter Morgan
    Peter Morgan, Mallorca

    Following our father's death, my brother and I asked Rosa to act for us and guide us through the Spanish probate legal process. There were several obstacles and Rosa was always there for us, explaining what was required and liaising with professional bodies e.g. the notary, to ensure that everything was done in a timely manner.

    Rosa also helped us immeasurably when my father’s estate was sold. The pandemic meant that it was difficult for us to travel to complete the sale paperwork but to overcome this Rosa became our Power of Attorney and again liaised with professional bodies e.g. buyer’s solicitors, the notary. Her English is excellent and her patience is inexhaustible. Thank you Rosa.

    Dec 02, 2020
  • Gail Maher
    Gail Maher, Fuengirola

    Hi, I would like to thank Alvaro very much for all his expertise. We had a very long journey from dealing with the inheritance will for my mother's apartment in Torrenueva to dealing with sale of the apartment.

    He was brilliant in every aspect. Nothing too much trouble. Very professional and would definitely recommend him to anyone in the future.

    So a big thank you and wishing you to continue delivering an excellent service. Regards Gail Maher

    Oct 21, 2020
  • Johanna Count
    Johanna Count, Benidorm

    Consuelo explained and took care of everything. She is easy to get in touch with and a pleasure to deal with.

    Having to deal with Spanish probate laws and procedures was overwhelming but Consuelo made it so straight forward.

    Oct 07, 2020
  • Stephen McCool
    Stephen McCool, UK

    José was attentive and sympathetic throughout in his dealings with my brother (in Australia) and me (in the UK).

    Ours was a problematical case which involved José making contact with a Spanish notary and subsequently applying for NIEs for us and acting Power of Attorney. After this he was involved in protracted negotiations on our behalf with a particularly unhelpful Spanish bank in the matter of inheritance.

    He was a calming influence when needed and never less than professional. He kept us fully informed at all times.

    Jul 29, 2020
  • Michael Armstrong
    Michael Armstrong, La Manga del Mar Menor

    Consuelo has the highest praise and gratitude from this family by somehow reclaiming inheritance tax from Madrid. Previous solicitors left a mess,partial/incorrect and missing documents were received very late.

    Despite obstacles such as denial from tax office and virus Consuelo promptly, courteously and professionally simply got on with the job and succeeded against all odds. We cannot thank her enough!

    Jul 27, 2020
  • Yolande Van-de-l'Isle
    Yolande Van-de-l'Isle, London

    Jose understood my needs and was able to do all the things that I needed. He was extremely approachable and did everything necessary.

    I understood what he was doing and what was required of me to do. I was also very happy with the price paid.

    Jun 29, 2020
  • Abbie Orsini
    Abbie Orsini, England

    Rosa responded efficiently I was extremely happy and satisfied with this !

    She explained everything I needed to know and more to help me understand. At the beginning I found the process daunting Rosa took this feeling way and helped me feel at ease.

    Paying was straight forward and I was well informed with fees etc. Rosa took a very professional approach and I felt comfortable approaching her about any issues I had.

    She is a credit to advocate abroad !!!!! Thank you for your help !!!!!!!!!❤️

    Jun 18, 2020
  • Jonathan Mackay
    Jonathan Mackay, Jaca

    Francisco was extremely professional and answered our many questions promptly and clearly, both by phone and email. We feel very lucky to have had Francisco handle our Spanish Fiscal declaration.

    The service was perfect, and we are very happy with the whole process.

    Mar 12, 2020
  • Gail Maher
    Gail Maher, Torrenueva

    Alvaro is brilliant.

    He comes across very professional and friendly,nothing too much trouble.

    As I was unable to go to Spain initially all communication was via phone and was put at ease straight away as he understood exactly what was required to deal with my case, and all went exceptionally well. I was able to meet Alvaro in August to pass over documents required and made me very welcome.

    I have been so pleased with everything I have now engaged him on a further instruction on our property in Torrenueva..

    Dec 11, 2019
  • Andrew Hales
    Andrew Hales, Fuengirola

    We dealt with Angela, and had a superb service - she was efficient, clear, timely and exceptionally helpful. We would recommend this respectable Solicitor who has excellent English.

    Trustworthiness is so important, and step by step help was very much appreciated. Thank you Angela of myAdvocate Fuengirola.

    Oct 23, 2019
  • Mr Swildens
    Mr Swildens, Alicante and Belgium

    I'm very happy with the services received: I started with José in Alicante on various subjects whom than handed me over to Miguel for another case because he said Miguel was much more experienced in the field I needed assistance, I can appreciate professionals knowing their business.

    In the beginning when I started emailing with your good selves I experienced difficulties receiving mails from advocate abroad, it was a server issue from advocate abroad, I repeatedly asked Miguel and José about it but they could not find anything wrong. At this moment I no longer experience these problems.

    Sep 20, 2019
  • Irene Hyde Christie
    Irene Hyde Christie, Coin

    I am very pleased with the service provided by Francisco. He has been most helpful and responded very quickly to all my emails.

    Jul 26, 2019
  • Franco Trio
    Franco Trio, United Kingdom

    Rosa always responded promptly to any email I sent.

    She kept me informed and provided alternatives and 3rd party services (translation).

    Thank you Rosa for your assistance, perseverance and honesty in helping my mum and I. We will definitely recommend you.

    Apr 10, 2019
  • Marcus Bond
    Marcus Bond, Fuengirola

    Proactive, great communication, thoroughly recommend.

    Feb 14, 2019
  • Michael Bates
    Michael Bates, UK

    Francisco was very easy to deal with. Very professional. Would not hesitate to recommend him to friends.

    Jul 27, 2018
  • Sarah Finnagan
    Sarah Finnagan, England

    Francisco was fantastic and helped me through every single step and helping understanding everything.

    Price was very reasonable i have no complaints at all.

    Very easy to get hold of and very quick at responding would definitely go back to him - thankyou so much Francisco for everything.

    Sep 21, 2017
  • Michael Tenerife
    Michael Tenerife, UK

    Rosa excelled in all of the criteria listed for evaluation.

    Extremely responsive, understanding, professional, and offered great value for money. Rosa explained the situation clearly and provided the clearest solution every time.

    I just can't imagine how Rosa could have done more. Truly excellent service.

    Aug 07, 2017
  • Richard Anthony Poole
    Richard Anthony Poole, Johannesburg, South Africa

    Very responsive, very understanding, value for money, has a great ability to explain and provide the appropriate legal solutions, very approachable and very professional in dealing me.

    May 03, 2017
  • LM
    LM, Ibiza

    Cristina was amazing and very helpful and i would highly recommend her services again.

    I am very satisfied and I definitely would use the same lawyer again in the future.

    Mar 10, 2017
  • AS
    AS, Denmark

    Jose was very helpful, always happy to assist.

    I am very satisfied the service provided by my lawyer.

    Dec 08, 2016
  • Diana Rawstron
    Diana Rawstron, London

    Domingo provided an excellent service on this matter and I was very pleased that I had found him through your website.

    I definitely use the same lawyer again in the future.

    Nov 03, 2016
  • Mrs. Irene C Price
    Mrs. Irene C Price, Acton Trussell

    It was a pleasure to deal with Francisco. He spoke excellent English. He was professional and courteous at all times, and responded to any queries I had by return, taking time to explain complicated legal procedure in a manner I could understand.

    For the work Francisco did, his charges were good value for money. I would recommend his services without hesitation.

    Oct 12, 2016
  • John Fitzpatrick
    John Fitzpatrick, UK

    Outstanding advice and service Jose was polite courteous and responsive and very sensitive in dealing with my fathers complex bereavement case.

    Jun 29, 2015
  • AS
    AS, Brussels

    My lawyer spoke English more or less fluently and was very helpful.

    He responded quickly to my request, understood the issues concerned and provided understandable and useful advice. A clearer pricing structure would have been helpful.

    However, I was satisfied with the service and would definitely use this lawyer again.

    Oct 23, 2014