Inheritance Tax Spain: General Principles

 

An Overview Of Inheritance Tax in Spain

In Spain it is a standard practice to apply the law of a person’s nationality to any wills made with regard to their Spanish assets.

However, this does not mean that inheritance tax is also determined in this way. Spanish inheritance tax must be paid in Spain where Spanish assets are involved.

It is therefore important to understand how these laws operate as they can have a serious economic impact on a family’s wealth.

This can be important where for example a beneficiary wishes to sell an asset. In order to do so, the beneficiary will need to demonstrate proof of payment of due taxes before being able to pass good title.

 

How Is Spanish Inheritance Tax Applied?

Inheritance tax is payable on all bequests of assets including :

  • Property,
  • Vehicles,
  • Cash,
  • shares,
  • bonds, and
  • any cash paid out by the maturity of a life insurance policy

 

The amount payable is the net amount after deductible costs and charges.  Admissible costs and charges would include:

  • Social Security Debts,
  • Tax Debts,
  • Outstanding Mortgage Debt,
  • Health Care Expenses,
  • Funeral Costs

 

Not included would be debts owed to any of the beneficiaries even though they chose to turn down the bequest.

 

Factors That Determine Spanish Inheritance Tax

The first major difference between Spanish inheritance tax and elsewhere is that in Spain the tax payable is determined with reference to the heir or beneficiary rather than merely considering the size of the estate itself.

Whereas in the UK inheritance tax is only payable where the threshold (currently £325,000) is exceeded and there is no need to consider any other factor if the estate is valued below this, in Spain the following factors are important:

Tax Exemptions

  • Tax Rates,
  • The Wealth of the Beneficiary
  • The proximity of the relation of the beneficiary to the deceased,
  • Funeral Costs

 

It should be pointed out that, at a state level, no exemption exists for spouses as is the case in other countries. A couple would often be considered to own half of a property each. Upon the death of one of the spouses the surviving spouse is considered to have inherited the other half (if this is provided for in the will).

 

Tax Exemptions At State Level

Inheritance tax has been effectively delegated by the central government to the autonomous communities in Spain which has allowed the regional governments to set the exemptions that can be claimed by beneficiaries.

Previously, many of the Spanish regions enacted legislation which required residency in the region before beneficiaries might benefit from the exemptions.  This situation has now changed, finally allowing foreign EU citizens to benefit from the same generous deductions previously only available to local residents. For an overview of the regional tax exemptions available view the relevant section under Spanish Inheritance Law by Region.

However, non-EU citizens must continue to avail of the less generous ‘state level’ tax deductions. Below is an overview:

 

 

 

State Exemptions

Before looking at the regional exemptions we can look at the exemptions available from the central government and which apply regardless of whether resident or not. For transfer of assets via inheritance, the following exemptions apply:

 

deductions
 

Group Definitions

For the purposes of determining the proximity of a relationship to the deceased, the legislation dealing with Gift and Inheritance Tax in Spain (Ley 29/1987) considers there to be four categories or groups:

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 and uncles

Group IV – more distant relatives

 

Example

A 16 year old child who inherits from her parents falls into Group I and so may claim an exemption of

€15,956.87 + (€3,990.72 * 5) = €19,953.60 to give a total exemption of €35,910.47.

 

Other Deductions

A number of other exemptions exist at the state level. These include:

Disabilities

In addition to the above exemptions, should any beneficiary be disabled, further exemptions ranging between €47,858.59 and €150,253.03 are available.

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.

The Family Home

An exemption also exists for tax payable on the permanent or habitual residence. This exemption applies equally to spouses, 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.

 

Regional Deductions

The Spanish regional governments’ inheritance tax deductions tend to me more generous than the state level deductions. For example there are often almost 100% deductions available to spouses and children ,relating to the the primary family home and businesses. For an overview of the regional tax exemptions available view the relevant section under Spanish Inheritance Law by Region.

 

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