Inheritance in Spain

In Spain, mortis causa successions (to the estate of a deceased person) and inter vivos transactions (gifts between living persons) are taxable.

The Spanish Inheritance and Gift Tax is a tax that the Spanish central government has transferred to the autonomous communities (regional governments) as part of the regional financing system. Each autonomous community has the capacity to enact regulations to modify the tax rate, exemptions, reductions and any other aspects in connection with the tax. This means that the actual amount of tax will depend on the physical location of the taxable assets. It may even be the case that there is no tax to be paid.

Until 1st January 2015, the regional regulations on Inheritance and Gift Tax were only applied if both the deceased and the taxable subject (i.e. the beneficiary) were residents in Spain. If the deceased and/or the beneficiaries did not reside in Spain, the amount of tax was assessed as per the national (non-regional) law. In these cases, the taxable subjects were liable to a higher tax rate as those regional tax advantages were not applicable. As a result of this, the European Court of Justice ruled against Spain on the lawsuit filed by the European Commission for considering discriminatory the different treatment of residents and non-residents and the Spanish Government had to match both allowing non-residents in Spain but residents within the EU and EEA (European Economic Area) to settle the tax according to autonomic legislation applicable in each case.

The Supreme Court, through several sentences issued during year 2018, took another step further as it has recognized the application of these regional regulations on the Inheritance and Donation Tax to any citizen regardless of whether they reside within or outside the EU or the EEA.

As for the Inheritance Tax, the main difference with other neighbouring countries is that in Spain there is no automatic exemption between spouses or civil (unmarried) partners, and that in Spain it is the heirs, each according to their circumstances and kinship, who are subject to inheritance tax, unlike in other legal systems where it is the estate (the set of assets and rights that form part of the inheritance) that is taxed.

If the taxable subjects (i.e., the beneficiaries of the assets and rights) are not residents in Spain for tax purposes, the tax rate starts at 7.65 % for the first 7,993.46 Euros and goes up to 34 % for amounts over 797,555.08 Euros. These figures correspond to the amount that each of the beneficiaries would receive, not to the total value of the estate. However, depending on the location of the assets of the inheritance, they could be subject to different regional tax laws and legislations on the matter, which are usually much more favourable than the general taxation rule, as is the case of Andalusia, among others.

The taxable subjects can benefit from a series of reductions depending on the degree of relationship with the deceased. The groups determining the reductions are as follows:

Group I: Natural and adopted children under 21 years of age.

Group II: Natural and adopted children of 21 years of age and older, spouses (including civil partnerships entered into the corresponding registry), parents, grandparents and grandchildren.

Reductions for groups I and II are 15,956.87 Euros per beneficiary, plus 3,990.72 Euros per year under the 21-year limit for each successor. The total reduction may not exceed 47,858.59 Euros.

Group III: Second degree collaterals (siblings) and third degree collaterals (nieces, nephews unties and uncles).The reduction is 7,993.46 Euros per beneficiary.

Group IV: Collateral relatives in the fourth degree (cousins), more distant and rare degrees. Non-registered civil partnerships are included in this group.

This group does not have any right to reductions.

Taxable subjects with officially recognised disabilities will be entitled to an additional reduction.

Lastly, a multiplying factor is applied which will be different depending on the properties that the successor owns in Spain and the degree of relationship to the deceased. This factor basically increases the tax when the pre-existing wealth located in Spain of the heir is higher than €402,678.11 and/or his/her degree of kinship is in third or fourth group.

The process of calculating the amount of inheritance tax is, without a doubt, one of the most complex in the Spanish tax system. This is due to the variety of different regulations, to the obligatory self-assessment procedure and to the fact that each case has unique circumstances.

The acceptance and vesting of the assets and rights making up your estate will be officially registered before a notary and executed as a deed or document of public record. If real estate property is involved, the deed must be entered into the corresponding Land or Property Register and the tax on the increase in the value of land (also known as plusvalía) must be paid. This process obviously entails additional expenses (lawyer’s fees, notary and registrar’s fees, cost of processing the deed, etc.).

Currently, heirs who are included in groups I and II of kinship (spouses, children, parents, grandchildren and grandparents) in inheritances of assets that are mostly located in Andalusia are practically exempt from Inheritance Tax thanks to the legislative change incorporated by Royal Decree 1/2019 by which there is a reduction of 1,000,000 Euros per heir on the taxable amount (that is left out of taxation) and also 99% of the tax rate for acquisitions by spouses and direct relatives on any excess over that first million is subsidised and therefore exempt from taxation.

At Vicente & Otaolaurruchi Abogados we specialise in inheritance law. We can perform an in-depth analysis of your estate and your personal situation that will help you anticipate what will happen when you pass away and avoid or limit any possible issues. And if you are a beneficiary to hereditary assets and rights, we will gladly help you throughout the whole process of settling the estate and paying the appropriate taxes.

Do you still have queries on this subject? Have a look in the FAQs about inheritance in Spain and at the various entries about inheritance in our legal BLOG