Spanish inheritance tax, known in Spanish as Impuesto sobre Sucesiones y Donaciones, or commonly as ‘ISD’, is a tax payable by the beneficiary of an inheritance or gift. It is only payable by resident Spanish beneficiaries, or when the inheritance or gift is a Spain-based asset, such as property.
If you own assets in Spain, then you will need to be clear on how ISD works and the rules surrounding it. It is also good practice to make yourself aware of the law on inherited debts, and how the various rules vary from region to region in Spain.
At Giambrone, we are proud to be highly regarded as specialist Spanish inheritance tax law solicitors. Our in-depth, native knowledge of how the ISD system works throughout Spain regularly assists UK-national owners or beneficiaries of Spanish assets in dealing efficiently with paying, minimising and navigating Spanish inheritance tax. Our advice is provided in fluent English, and is presented with an easy to understand approach.
If you are seeking advice on Spanish inheritance tax law, the following information we have compiled should prove a good starting point. Of course, we are available on an individual basis to assist with your particular enquiries, and we look forward to hearing from you should you wish to consult us.
Are there any exceptions to the rules on who is liable to pay Spanish inheritance tax?
There are State Rules that apply generally concerning who pays ISD, however these can be varied by the individual Autonomous Communities where beneficiaries are Spanish residents. We have provided more information on these variations later in this article.
Spanish inheritance tax State Rules are based on the relationship between the deceased or donor of the gift, and the recipient, and are defined by four groups.
Group 1 covers natural and adopted children and other descendants under the age of 21, such as grandchildren. Group 2 covers natural and adopted children and other descendants aged 21 plus, as well as parents, spouses and ascendants such as grandparents. Both these groups have tax-free State allowances on inheritances of €15,956.87, but nothing on lifetime gifts. In group 1 there is an additional allowance for beneficiaries under 21 of €3,990 for each year they are under that age, with a maximum of €47,858.59 each.
Group 3 covers in-laws and their descendants and ascendants, step children, siblings, cousins, nephews, nieces, uncles and aunts. And finally, group 4 takes care of everyone else, including unmarried partners, even if they are a registered ‘pareja de hecho’, which is an option allowing unmarried couples to benefit from the same reliefs as a married couple in certain Autonomous Communities. Beneficiaries falling under group 3 have a tax free allowance of €7,993.46, and those in group 4 have no allowance.
If a beneficiary is mentally or physically disabled then there may be further allowances.
What are the rates of Spanish inheritance tax?
The rates of Spanish inheritance tax vary depending on the value of the inherited or gifted assets, and also depending on the nature of the relationship between the giver and the recipient prior to the transfer. The lowest tax rate is 7.65 per cent for asset values up to €7,993.46, rising to 34 per cent when the value exceeds €797,555.10. In principle, taking into consideration the multipliers that can apply depending on the relationship as mentioned, the highest rate of Spanish inheritance tax would be 82 per cent.
Is there any tax relief in certain circumstances?
There is something called the ‘main home relief’ which provides a 95 per cent allowance on the inheritance of the main residence of the deceased. The maximum allowance is €122,606 per beneficiary, providing they fall into group 1 or group 2 under the State Rules, or are a more distant relative aged 65 years or over who lived with the deceased at the residence for at least two years leading up to their death. To qualify for main home relief, the beneficiary must retain the property for at least ten years, although it does not have to be used as their main residence.
How do Spanish inheritance tax rules vary in different parts of Spain?
As of the Spanish Constitution of 1978, Spain was divided into seventeen autonomous communities, and there are also two autonomous cities. Many of the autonomous communities vary the State Rules on Spanish inheritance tax, with the results in favour of the taxpayer.
There are certain communities that allow children and spouses as much as a 99 per cent reduction in ISD payable on death, although you could find there are restrictions on how much can be inherited, and the existing wealth of the beneficiary may also be taken into consideration. The 99 per cent reduction rate applies in Madrid, Comunidad Valenciana, Murcia and the Canary and Balearic Islands.
In Spain’s most highly populated autonomous community of Andalusia, children and spouses are completely exempt from paying ISD in situations where the inheritance does not exceed €175,000 and the wealth of the beneficiary is not above €402,678.
In Catalonia, the second most highly populated region of Spain, spouses and registered parejas de hecho are entitled to allowances up to half a million Euros, and children up to €275,000 each, plus an extra €33,000 for each year they are under 21, up to a maximum of €539,000.
Main home relief and other exemptions for children and spouses will also vary in favour of the taxpayer in certain communities, and in some places, registered parejas de hecho are recognised as married couples.
With rules varying so much from one autonomous community to another, it is essential to consult with a Spanish inheritance tax solicitor who is experienced with the law in the particular region that applies.
Do Spanish inheritance tax laws vary for non-residents?
Up until fairly recently, if you were not a resident in Spain, the State Rules would apply concerning the inheritance tax payable by your beneficiaries, regardless of the region the assets were based in.
However, a law was passed in November 2014 which became applicable to all deaths and lifetime gift donations after 1 January 2015.
The new law allows beneficiaries of all EU citizens with assets in Spain the right to choose the application of the ISD law of the autonomous community in which the assets are based. Beneficiaries of assets left by non-Spanish EU citizens residing in Spain have the same right.
This basically means that whereas previously only Spanish nationals were allowed to benefit from the special tax allowances of their region, now non-nationals and non-residents can take advantage.
Additionally, in August 2015, new rules introduced by the European Commission allowed non-residents of EU member states to choose whether their foreign assets would be dealt with by the local law of succession, or that of their country of nationality.
Many EU member states, including Spain, operate a forced heirship policy, where certain percentages of an estate must be left to certain members of the immediate family. The new European Succession Regulation was brought in with the aim of making cross-border succession much more straightforward. However, whilst it allows you to stipulate in your will which law you would like to apply when distributing your estate, it does not affect inheritance tax.
If a debt is left on my Spanish estate, will my beneficiaries have to settle it?
A Spanish inheritance is not an obligation: it is a right. When an estate is left to a beneficiary, they have a choice as to whether to accept it. So it follows that if you die leaving a debt, such as a loan or a mortgage, then your heir will be able to choose whether or not to accept it, as it forms part of the inheritance. Of course if they wish to accept the estate, then they will have to accept the debt.
A Spanish inheritance tax lawyer will be able to work out for you whether, all debts considered, it would be worth accepting the inheritance. Whilst it can be a lengthy process, it is often a popular choice amongst beneficiaries, so that they can be clear on whether accepting the inheritance will be profitable.
An inheritance cannot be received until such times as the Spanish inheritance tax due is paid. The situation can become difficult where there is a significant sum to pay, together with any debts. If for example a beneficiary were to accept an inheritance of a property and a debt, they would first have to pay the inheritance tax, which is due within six months of the death. They would then receive both the property and the debt. The debt would become their personal responsibility. If they planned to sell the property to settle the debt, obviously this would be unlikely to happen overnight, and so they may find themselves in a tricky situation with a debt to settle out of their own assets.
If your beneficiaries decide to reject the inheritance, then the assets will be offered to the next in line of inheritance.
Are there ways to minimise the Spanish inheritance tax due on my estate?
By creating a Spanish will, you have the potential to reduce the tax liabilities of your beneficiaries. There are various ways of doing this, and a Spanish inheritance tax specialist will work with you to create tailored solutions that consider your position and wishes now, and for the future.
It is very important to exercise due diligence when engaging a tax adviser in Spain, or in any country for that matter. Whilst there are various schemes that can be used to mitigate tax liabilities, some of them are not necessarily beneficial to all the parties involved, and others may not even be legal.
Giambrone Spanish Inheritance Tax Solicitors: Trusted Advice from Native, English Speaking Experts
If you are seeking assistance with Spanish inheritance tax, the advice offered by Giambrone’s dedicated English speaking experts based both in the UK and in Spain comes highly recommended, and implicitly trusted. Our specialists will guide you according to the regional, national and EU laws that apply, whether you are a beneficiary or the owner of assets in Spain. To discuss your enquiry, please get in touch. We look forward to assisting you.
Note: The tax rates and reliefs quoted in this article were correct at the time of publishing, but these and applicable laws may change. It is essential therefore to seek tailored advice, and not to be reliant on or base any action on any of the information contained in this article.