1. What is the inheritance and gift tax?
The Spanish law jointly regulates inheritance and gift tax.
Inheritance tax is the tax payable on any increase of wealth, obtained by reason of death of a third person.
Gift tax is levied on the increase of wealth, caused by reason of gift while the transferor is still alive.
2. What is this tax levied on?
The inheritance and gift tax is levied on the following:
- The acquisition of assets and rights by way of succession. Foreign individuals must pay inheritance tax in Spain if they are Spanish residents. If you are neither Spanish national, nor Spanish resident, you will only pay inheritance tax in Spain for the estate the deceased left in Spain.
- Obtaining assets and rights in Spain by way of gift or any other gratuitous transfer inter vivos (during transferor lifetime).
- Acquisition of revenue from a life insurance policy, where the contractor party is a different person from the beneficiary.
3. About the taxpayer
Who must pay this tax? Bear in mind that payment of this tax is not made by the estate; each beneficiary must pay for it individually:
- The inheritors, who acquire the assets by reason of the decedent’s death. The tax is payable by the beneficiaries and not by the estate. This tax must be paid in order that the beneficiary is entitled to use the deceased’s assets. When it is the inheritors’ decision to sell the assets that the decedent left in Spain, they first must pay the inheritance tax. It is advisable to seek the assistance of a Spanish Lawyer in order to speed up the inheritance proceedings and get advice on potential tax saving schemes.
- The grantees, who acquire the assets by reason of a donation or gratuitous transfer inter vivos (among people still alive).
- The beneficiaries of the insurance policy, where the contractor party is a different person from the beneficiary.
4. What is tax base
- To calculate the tax base of a transfer upon death, it is necessary to value the assets and liabilities at the time of death. The total sum, deducted the charges, will be then liable to tax. Expenses as the funeral and the costs of any litigation connected with the estate can also be deducted.
- The assets and rights acquired by gifts and other gratuitous transfers inter vivos (while the transferor is still alive) are assessed at their real value, deducted charges and liabilities.
- Regarding life insurances, the basis of assessment are the proceeds that the beneficiary obtains. These proceeds shall be liable to tax together with the assets and rights acquired from the will.
5. Calculation of the tax
5.1 General Information
It is complicated to calculate your tax as different percentages shall be charged according to a sliding scale, where different circumstances shall be considered.
Be aware that the tax rates differ from one Spanish region to another.
Inheritance and gift tax is progressive, the tax rates applicable depend on the following circumstances:
- The amount transferred to the beneficiary.
- Whether the taxpayer is a Spanish resident or not.
- If the taxpayer is a non-Spanish resident, whether the taxpayer is an EU citizen or not.
- The beneficiary’s relationship to the deceased.
5.1 Steps to follow
The taxable estate is determined by deducting certain allowable amounts from the value of the gross estate.
The Basis of assessment is legally reduced depending on the degree of consanguinity between the testator and transferee to arrive at the net taxable amount (which is called base liquidable).
The applicable reductions differ from one Spanish region to another. In Spain, inheritance and gift tax is governed by both the State and the 17 Autonomous Communities.
Be aware that you may enjoy of the Spanish regional reductions as far as you are Spanish resident or a non resident from the EU. Since the European Court of Justice ruled in 2014 that the Spanish authorities cannot charge different rates of inheritance tax for residents and non-residents, non residents who are EU nationals and inherit in Spain may benefit from reductions and exemptions provided by the Spanish Autonomous Community where the holiday home to inherit is located.
Different conditions are applicable to non Spanish residents who are non EU nationals, as they cannot benefit from the reductions set out by the Spanish Autonomous Communities but only the national reductions are applicable, which are as follows:
- Class I: For descendants and adopted individuals under the age of 21, the reduction applicable is € 13,651.99, plus € 3,413.75 multiplied per the number of years to reach 21 years of age.
- Class II: For descendants, adopted individuals over 21 years of age, spouses and parents, the reduction applicable will be € 13.651,99.
- Class III: For siblings, parent’s sibling, grandparents, grandchildren, brother or sister in law, niece or nephew , the reduction applicable will be € 6,827.50.
- Class IV: For cousins and other transferees, no reductions can be applicable.
A progressive rate is applicable to the net taxable amount to arrive to the gross tax payable (which is called cuota íntegra).
When the amount (which is called cuota íntegra) is calculated, a multiplicand is applied to the figure, taking into account pre-existing wealth as well as relationship with the deceased.
The value of the existing wealth is calculated according to the wealth tax rules. The value of the assets that the transferee acquires by donation from the deceased during his lifetime may be left out of account, other taxes shall have been paid on them.
The applicable type will be the following:
|*Pre-existing wealth in €
|Degree of consanguinity
|I & II
From 0 to € 402,678.11
From € 402,678.11 to € 2.007,380.4
From € 2,007,380.4 to € 4.020.771
€ 4.020.771 and above
The resulting amount is the final tax payable (which is called cuota tributaria or deuda tributaria).
It is suggested that all technical and legal matters pertaining to inheritance and gift tax be referred to professionals for advice, guidance and execution. [We provide an Inheritance/Gift Tax processing service for a flat-fee price].
6. Payment schedule
The inheritance tax must be paid within 6 months from the transferor death. this term may be extended for another 6 months previous application duly submitted by the inheritors.
The gift tax must be paid within 30 days since the date of the transfer.
If you are a Spanish resident, the tax must be paid at the Regional Tax Office (Delegación Provincial of the Consejería de Economía y Hacienda) from the corresponding Spanish Autonomous region. You must file the tax form along with other documentation that your Spanish Lawyer may inform you about.
If you are a non-resident, the tax shall be paid either before the national tax office for non-residents located in Madrid, or before the regional tax office, when applicable.
7. How to reduce inheritance tax bill
There are a few ways to reduce inheritance and gift tax, the legitimate ways to get round the bite:
- For Spanish residents, be aware that some Spanish regions provide quite high reductions when the property is transferred from parents to children. Sometimes up to a 95 % deduction may be applied.
- Forming a family corporation: The owner of real estate may form a family corporation in which the real estate’s ownership passes into the hands of the company, each member of the family shall become a director of the company. In this way if a family member dies, the company shall be reorganized, it would be necessary to transfer some company shares, which involves other little tax which falls outside Spanish inheritance tax.
- Forming an usufruct or right of use in favour of another person is another possibility. This means that upon purchasing the Spanish property, its ownership is split between the bare legal title and the usufruct. When parents only own the usufruct of a property and their children the ownership of it, the Spanish inheritance tax will be minimal upon death of the usufruct holders. It is highly recommended to seek the assistance of a lawyer for these purposes.
- Purchasing a property financed by a sizeable mortgage reduce the inheritance tax, as the value of assets is their market value, deducted any charges levied on them.
8. Getting legal help
Let us take care of all your tax paperwork in Spain. Purchase a pre-packaged legal service delivered by our team of Spanish lawyers for a fixed one-off price: