Managing Spanish inheritance tax is never an easy task, independently of the fact that it denotes the loss of a close family member. For those expats who are resident in Madrid, fortunately the regional government - which is responsible for the regulation of such taxes - has made the decision to remove this tax as much as possible.
Below you will find the details of how inheritance tax in Madrid affects expats and locals alike. This information has been updated and is valid for 2024. However, before relying on this information, it is strongly recommended to contact an expert in probate in Madrid.
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1. Tax Exemptions and Deductions in Madrid
The inheritance and gift tax rules in Madrid are regulated by decree law 1/2010.
2. Personal Deductions - What are Groups?
Spanish Inheritance law first assigns beneficiaries to groups according to the degree of kinship with the deceased:
- Group I: Children, including adopted children, under the age of 21
- Group II: All other descendants, spouses and parents
- Group III: Close relatives such as brothers and sisters, grandparents, aunts and uncles
- Group IV: More distant relatives
3. Personal Deductions by Group
The following are the additional deductions available in Madrid:
- Group I: €16,000, plus €4000 for each year under 21, with a maximum limit of €48,000
- Group II: €16,000
- Group III: €8,000
- Group IV: no reductions
Note, when we speak of deductions, we mean that the amount you would be taxed on is deducted by a set percentage before applying the rate of tax. So, if you have inherited €100,000 and are entitled to a deduction of 95%, this means you will pay tax at whatever rate is appropriate to you - on €5,000 only.
On the other hand, when we speak of rebates, this is applied to the amount of tax you have to pay. So, if after applying any deductions you have to pay €1000 in inheritance tax, and you are entitled to a rebate of 99%, this would mean you would only have to pay €10.
4. Special Deductions
Deductions for the Disabled
- For those with a disability quantified as being of a severity of 33% or more: €55,000
- For those with a disability of severity considered to be 65% or more: €153,000 These amounts are in addition to any other applicable reductions based on kinship.
Life Insurance Policies
100% deduction up to €9,200 for life insurance payouts when the beneficiary is the spouse, ascendant, descendant, adoptive parent, or adopted child of the deceased.
Inheritance of Business Assets
95% reduction for the inheritance of a business, professional practice, or shares in companies, provided:
- The assets qualify for wealth tax exemption
- The inheritance is maintained for 5 years
- When there are no descendants, the reduction applies to parents and relatives up to the third degree
- Surviving spouses always qualify for the 95% reduction
Inheritance of Main Residence
95% reduction for the inheritance of the main residence, with a limit of €123,000, when inherited by:
- Spouse
- Parents or children/grandchildren
- Relatives over 65 who lived with the deceased for the previous 2 years The property must be maintained for 5 years following the inheritance.
Cultural Heritage Assets
95% reduction for assets that form part of Spanish Historical Heritage or the Cultural Heritage of Autonomous Communities, provided they are maintained for at least 5 years.
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5. Special Circumstances
99% reduction for compensation received by heirs of victims of terrorism or toxic syndrome, unless subject to income tax.
6. Inheritance Tax Rates and Multipliers in Madrid
Madrid applies a progressive tax rate scale similar to the state model, ranging from 7.65% for the lowest band up to 34% for the highest band.
| Taxable Base – Up to € | Total Tax – € | Remaining Base – Up to € | Applicable Rate – % |
| 0.00 | 0.00 | 7,993.46 | 7.65 |
| 7,993.46 | 611.50 | 7,987.45 | 8.50 |
| 15,980.91 | 1,290.43 | 7,987.45 | 9.35 |
| 23,968.36 | 2,037.26 | 7,987.45 | 10.20 |
| 31,955.81 | 2,851.98 | 7,987.45 | 11.05 |
| 39,943.26 | 3,734.59 | 7,987.45 | 11.90 |
| 47,930.72 | 4,685.10 | 7,987.45 | 12.75 |
| 55,918.17 | 5,703.50 | 7,987.45 | 13.60 |
| 63,905.62 | 6,789.79 | 7,987.45 | 14.45 |
| 71,893.07 | 7,943.98 | 7,987.45 | 15.30 |
| 79,880.52 | 9,166.06 | 39,877.15 | 16.15 |
| 119,757.67 | 15,606.22 | 39,877.16 | 18.70 |
| 159,634.83 | 23,063.25 | 79,754.30 | 21.25 |
| 239,389.13 | 40,011.04 | 159,388.41 | 25.50 |
| 398,777.54 | 80,655.08 | 398,777.54 | 29.75 |
| 797,555.08 | 199,291.40 | and above | 34.00 |
As an example, an inheritance of €10,000 (after all other deductions applied) would attract inheritance tax of €611.50 (tax applicable up to €7,993.46) + €2,006.54 (balance up to €10,000) @ 8.5% = €782.06 total tax due.
The final tax is then adjusted by a multiplier based on:
- The pre-existing wealth of the heir
- The family relationship to the deceased
| Pre-existing Wealth (euros) | Relationship Groups | ||
| Groups I & II | Group III | Group IV | |
| From 0 to 403,000 | 1 | 1.5882 | 2 |
| From 403,000 to 2,008,000 | 1.05 | 1.6676 | 2.1 |
| From 2,008,000 to 4,021,000 | 1.10 | 1.7471 | 2.2 |
| More than 4,021,000 | 1.20 | 1.9059 | 2.4 |
To take the earlier example, but assume that the beneficiary who inherits the €10,000 is a sibling of the deceased - with pre-existing wealth of €1,000,000, the initial inheritance tax is calculated in the same way: €782.06, but then must be multiplied by the appropriate coefficient for siblings with this pre-existing wealth of more than 402,678.11 and less than 2,007,380.43 = 1.6676 which would result in an inheritance tax total of: €1304.16.
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7. Rebates
Madrid offers significant tax relief through a 99% tax rebate for Groups I and II (close family members) and a 25% rebate for siblings, aunts, uncles, and nieces and nephews (Group III).
8. Gift Tax & Estate Planning in Madrid
General Provisions
A 99% tax reduction applies to gifts between immediate family members (Groups I and II), subject to:
- The gift must be formalized in a public document
- For cash gifts or bank transfers, the origin of the funds must be documented
Special Reductions
- 100% reduction up to €250,000 for cash gifts to Groups I and II or second-degree relatives when the funds are used within one year for:
- Purchase of main residence, or
- Acquisition of company shares, or
- Starting or expanding a business
- 25% reduction for gifts to siblings, aunts, uncles, and nieces and nephews
These generous rebates make Madrid one of the most favourable regions in Spain for both inheritance and gift tax, particularly for close family members. However, proper documentation and compliance with formal requirements are essential to benefit from these advantages.
9. Inheritance of Foreign Assets by Tax Residents of Madrid
Tax residents in Madrid, including the substantial international community in Spain's capital, must comply with Spanish inheritance tax obligations when inheriting assets located abroad. This consideration is especially relevant given Madrid's position as a major international business hub with a diverse expatriate population.
A key factor in optimizing inheritance tax outcomes is ensuring the application of Madrid's regional tax benefits rather than the state-level regulations.
This distinction is particularly significant given Madrid's generous 99% tax rebate for close family members, which can result in substantial tax savings when inheriting foreign assets. For instance, foreign property inherited by children or spouses could potentially benefit from this near-total tax reduction, making Madrid one of Spain's most advantageous regions for handling international inheritances.
When inheriting assets from countries that maintain Double Taxation Treaties with Spain (such as France, Sweden, and Greece), specific protocols must be followed. These international agreements establish clear guidelines for determining tax jurisdiction and preventing double taxation, with each treaty containing unique provisions that must be carefully considered.
Beyond inheritance tax considerations, Madrid residents who inherit foreign assets must fulfil Spain's foreign asset reporting requirements by submitting Form 720 (Modelo 720). This mandatory declaration is separate from and additional to any inheritance tax obligations, with strict compliance requirements and substantial penalties for non-compliance.
The intersection of Madrid's favourable regional tax framework with international inheritance regulations creates unique opportunities but also requires careful handling. Professional guidance is essential to optimise tax outcomes, especially when applying Madrid's significant tax benefits to foreign inheritances, while ensuring compliance with both regional and international requirements.
