Are you a resident or homeowner in Spain? Have you ever wondered about the Spanish Inheritance Tax?
In this week’s blog post, our guest writer Gustavo Calero Monereo, lawyer at C&D Solicitors, Torrox (Málaga), explains 10 important things that you need to know when it comes to inheritance tax in Spain.
Whether you own a house, other assets, or are thinking about buying property in Spain as an investment, this information could be useful to you.
As a law firm specialising in providing legal and fiscal advice to foreigners in Andalusia, we’ve encountered certain unpleasant situations in inheritance processes with clients. These cases had a large financial impact from inheritance tax (succession rights) and some of them could have been avoided.
1. Every Region has a Different Inheritance Tax
The big difference in terms of paying more or less inheritance tax in Spain depends on the autonomous community where you reside. They each have different regulations with very different tax rates.
If you’re worried about how much inheritance tax an heir will pay, you need to know the benefits that are available in the autonomous community where you have your assets or where you’re thinking of buying a home.
2. Non-residents in Spain Pay the Same Inheritance Tax as Residents
There is an obligation to pay Inheritance Tax in Spain when a person inherits any asset located within Spanish territory, irrespective of whether they are a resident in Spain or not. Since the judgments rendered in Spain in 2018, residents and non-residents, whether they are EU citizens or not, are subject to the same regulations in terms of Inheritance Tax in Spain.
In other words, if you’re an expat or reside in your country of origin, this will make no difference in terms of the tax to be paid compared to what someone resident in Spain would pay.
Be careful! You should not confuse Inheritance Tax payable in Spain with the law governing the Spanish inheritance process and the law of obligatory heirs in the Spanish Succession Law. If you want to know what this means, please watch C&D Solicitors’ video:
3. Who Collects the Spanish Inheritance Tax for Non-residents?
The only difference between residents and non-residents is the administrative body in charge of collecting the tax. If you’re resident in Spain, the administrative authority of the autonomous community of where you reside will collect this tax. Although, if you’re a non-resident, this will be the non-resident department of the central administrative Tax Office in Madrid.
However, even if you’re a non-resident and inherit a property in Malaga, for instance, and you declare this tax to the Treasury in Madrid, you can still benefit from Andalusian tax regulations – which is why non-resident heirs in Spain pay the same as residents.
4. Which is the Most Expensive Inheritance Tax Region in Spain?
Andalusia is currently one of the regions in Spain where the lowest inheritance and gift tax rates for direct relatives of the deceased are applied. This is thanks to the tax bonuses and exemptions introduced in the last few years. Cantabria and Galicia are two other communities with low Inheritance Tax rates, along with Madrid, Extremadura, and Murcia. However, communities such as Asturias, Castilla y Leon, and Valencia have very high rates of Succession Tax.
Nevertheless, these changes haven’t affected all groups of heirs and it continues to be a very expensive tax for some distant relatives. This also goes for heirs with no official family relationship to the deceased.
So, if you for example are thinking of investing your money in buying a house for tourist rental in Spain, in terms of a succession tax, Costa del Sol (Andalusia) is much more attractive than for example Costa Blanca (Alicante).
5. How is the Succession Tax Calculated for a Spanish Estate?
The rate of this tax is progressive, according to the value of the estate, i.e. the higher the value of the assets, the higher Inheritance Tax becomes.
Likewise, to the result obtained when applying the scale for this tax, multiplication coefficients are applied. This may increase the amount due under this tax. According to the degree of relationship and the pre-existing assets of the heirs, this coefficient may be higher or lower.
The lower the degree of relationship to the deceased and the greater the assets of the heir, the higher Inheritance Tax becomes.
6. Which Heirs Pay the Least Tax?
Children (including adopted), husbands/wives, grandchildren, and parents pay the least inheritance tax in Spain. These are relatives classified into groups I and II under the tax.
It should be noted that the tax benefits existing for direct relatives are very different depending on the autonomous community where the assets are located or where they live and reside, as each autonomous community has its own regulations. Differences in Inheritance Tax rates in Spain are enormous!
7. How Much Spanish Inheritance Tax is Paid by Close Relatives in Andalucia?
This group of heirs is included in groups I and II and can apply a reduction due to kinship of up to 1,000,000 Euros per heir in Inheritance Tax. If each of them inherits less than that amount, no Inheritance Tax will be due.
For heirs to apply this reduction in Andalusia, their own assets prior to inheriting cannot exceed 1,000,000 Euros either. Without a doubt, in Andalusia, widowed spouses and children pay much less Inheritance Tax than in other autonomous communities in Spain, which has resulted in an appreciable drop in tax collection from this tax in Andalusia.
8. Which Heirs Pay the Most Succession Tax in Spain?
Persons related collaterally in the 2nd and 3rd degree families, such as siblings, nephews, nieces and brothers- and sisters-in-law, as well as other more distant relatives such as cousins, great-uncles, great-aunts, and strangers.
Without a doubt, these are the heirs that pay the highest Inheritance Tax rates in Spain and they’re classified under groups III and IV of the Tax. In Andalusia and other Autonomous Communities, this group of heirs aren’t the exception and pay a very high rate of inheritance tax.
9. How Much Tax is Due for Inheriting the Usual Property in Andalucia?
If you’re in groups I and II, unless the home is worth over 1,000,000 Euros, you wouldn’t pay anything. But if the heir is in group III, such as a sibling, uncle, aunt, nephew, niece, or in-law, living with the deceased for at least the two years prior to the death occurring, a bonus worth 95% to 100% of the value of the home is applied. In the latter case, the home must be kept for 3 years following the death.
There are other discounts in Andalusia, such as heirs with disabilities, the acquisition of a sole proprietorship and farms.
10. What is the Deadline for Paying Inheritance Tax?
The deadline for paying inheritance tax is six months after the date of death. If it remains unpaid, the tax administration may initiate proceedings to claim payment of the tax, with the ability to impose penalties. However, if there are justifiable reasons, it is possible to request an extension of six additional months and this application must be filed within five months of the death.
After four and a half years from the date of death, the government cannot require payment of this tax. In this case, the tax would be zero due to it being time-barred.
Examples of the Spanish Inheritance Tax Calculator in Andalusia:
- Dutch siblings Frank and Mark inherit their father’s property in Almuñécar, appraised at 300,000 Euros. In this case, the answer is clear, each of them would pay zero in Inheritance Tax.
- Siblings Frank and Mark inherit their older brother Jan’s property in Fuengirola, appraised at 300,000 Euros. In this case, each would inherit 50% of the property, appraised at 150,000 Euros. The only bonus that they may apply is for the first 7,993.46 Euros, for which reason each of them would pay the Treasury – an amount of €31,393.56
- Lastly, siblings, Frank and Mark inherit their friend Martin’s property in Marbella, appraised at 300,000 Euros. In this case, each would inherit 50% of the property, appraised at 150,000 euros. No reduction can be applied in this case, for which reason they would pay taxes on the entire amount received, resulting in a payment of €42,523 from each.
Final Note: How Does the Spanish Inheritance and Gift Tax Affect the Property Market?
If you’re thinking about buying a home in Spain and you’ve read everything we’ve explained above, you’ve probably realised that Inheritance and Gift Tax have a significant influence on the property market in Spain and the choice of the autonomous community to settle in.
Excessively high rates in some regions and extremely low rates in others condition the investment decisions of potential home buyers to these trends. Inheritance Tax (succession rights) in Spain has a direct impact on the financial behaviour of buyers and the decision regarding where in Spain they wish to live or buy a property.
You can find more information about this subject on CDC Solicitors’ webpage here: Inheritance Tax Andalusia.
If you need a lawyer specialising in Inheritance and Gift Tax, you may contact CDC Solicitors here.