As a foreign resident living in Spain the subject of inheritance tax (impuesto de sucesiones y donaciones) will probably come up at some point.
Whether you own property and assets here in Spain or in your native country, you will need to know the tax implications when you make a will or decide to leave or gift money to your loved ones.
Inheritance tax is paid when a relative or friend bequeaths you money, property or assets. If you accept assets as a gift or donation you are also liable to pay tax. Beneficiaries have six months from the death of a relative or gift deed, to declare the inheritance. The inheritance won’t be paid to the beneficiary until the tax due has been paid.
What are the inheritance laws in Spain?
Amendments to the succession bill were introduced here in Spain in 2015 to fall in line with European regulation 650/2012 which can have significant implications for some inheritance beneficiaries. It’s important to be aware of your individual situation and update your will, if necessary, so as not to leave your beneficiaries with problems and, potentially, in lengthy litigation cases fighting over an inheritance.
Inheritance tax is determined by the Act on Inheritance and Gifts Tax and regulated by each autonomous region. Depending on where you live will affect the amount you pay in inheritance tax. If you are a resident of Spain for the past five years you will be subject to regional inheritance tax regulations. If you are a non-resident living in Spain, then you will be subject to national inheritance tax regulations.
The general Spanish Succession Law stipulates that your descendants (children) automatically inherit at least two-thirds of your Spanish estate, with priority over a surviving spouse.
Previously foreign nationals were entitled to leave their estate to their chosen beneficiary as long as the law of their native country allowed. But the 650/2012 regulation means that this is no longer the case.
Now you are beholden to the law of the country you reside in, not your native state, unless you explicitly choose this law governing your succession in a will. If you want to avoid forced legal heirs, it is important that you grant a will.
If you own property in Spain, it’s likely that you were recommended to set up a Spanish will during the purchase. If you purchased your property before 2015 then it’s time to review your will with a lawyer, as before this date you had free testamentary disposition in the will, which is now null and void, unless you chose your nationality law to govern your inheritance in a will.
Example: if you are a British national who left the majority of your Spanish estate to your second wife. Choosing to leave your children from your first marriage only a smaller percentage or nothing from your estate, this testament would now be overruled by the Spanish Succession Law. With your children named as inheritors of your estate by law, not your spouse.
The UK did not sign up to Brussels IV or European Regulation 650/2012 (neither did Denmark or Ireland), so your succession is regulated by UK law. Still, if you are a UK national with real estate assets just in Spain, UK Law will forward your succession to Spain.
What happens to an unclaimed inheritance in Spain?
If an inheritance goes unclaimed, there are no heirs or the inheritance is rejected, the estates is transferred to the Spanish state. Inheritances are often rejected in Spain because the tax owed outweighs the benefits.
Do you have to pay inheritance tax in Spain?
“In this world, nothing can be said to be certain, except death and taxes.”Benjamin Franklin.
And that is certainly the case when considering your inheritance tax commitment as a Spanish resident.
In fact, both residents and non-residents may be liable to pay some form of Spanish Inheritance Tax depending on the circumstances, so it’s essential to be aware of what would be due on your assets so your inheritors can be prepared.
In the UK, it is the estate that is taxed, whereas in Spain it is the appointed beneficiary who is liable to pay and settle the IHT (inheritance tax). There is no blanket exemption for spouses or direct descendants and ascendants and to complicate the matter further, depending on the autonomous community where you reside, the tax level differs.
As the inheritor, how much you will pay in inheritance tax depends on a number of factors, including:
- The value of the assets which have been left to you together with any life insurance payment due
- Your relationship to the deceased
- Whether you are, and the deceased was, resident or non-resident
- Your age: beneficiaries under 21 years of age have considerable reductions in tax payments
- Your existing wealth will be taken into consideration
- If you have disabilities: depending on your grade of disability there are reductions applied
- Where you live: inheritance tax is regulated by the Act on Inheritance and Gifts Tax and each autonomous community has powers in the collection and verification of inheritance and can also apply their own rules in relation to aspects such as tax rates or reductions of the tax base. Therefore the region where you reside may have a higher or lower inheritance tax bracket.
The basic elements used to work out inheritance tax payments are the value of the assets together with the life insurance payments. Added together they are known as the ‘base imposible’ to which a rate ‘tipo’ is applied and from there the tax amount payble, ‘cuota’ is decided.
However, there are so many factors to apply that it’s essential to seek professional legal counsel for all inheritance issues.
Would I pay inheritance tax on a property or assets abroad?
If you are the beneficiary of an estate made up of foreign assets and inheritance tax has already been paid in the deceased native country, so it figures that you won’t have to pay inheritance or gift tax here in Spain right? Wrong.
Your tax commitment may be reduced but you do have to declare the inheritance and, in some cases, you will have to pay tax in both countries; resulting in a double taxation problem. If you have been named as heir to a foreign inheritance it is essential to consult a professional on the tax implications.
In these circumstances, before applying a tax rate, the amount due after standard inheritance tax is applied in Spain and the capital gains generated from the foreign assets are both taken into consideration.
Do I need a Spanish will if I own a property in Spain?
When buying a property in Spain, many of our clients ask if they should make a will at the same time. It is not obligatory by law to make a will when you buy a property or have Spanish assets, but it is recommendable.
You may already have a will in your native country and this can be updated to include your Spanish assets. However, it is important to ensure that you are aware of Spanish inheritance tax law, as you may have to update your will accordingly to ensure that your chosen beneficiaries receive your inheritance.
In Spain, there is a forced heirship law (Law of Obligatory Heirs), which states that two-thirds of your assets are automatically passed to your children (in preference to your spouse). If you are resident in Spain this regulation will apply. If you wish another beneficiary to receive the inheritance i.e. your spouse or another relative, then you must make a Spanish will which clearly states that you wish to overrule this regulation and apply your UK rights and name other beneficiaries.
If you die without leaving a will the law where you have resided for the past five years will be applied. And if you are a Spanish resident but have only made a will in your native country, it must be legalised in Spain before the contents can be executed. This can be an expensive process, and therefore makes more sense to set up a Spanish will.
If you keep your original will then your beneficiaries must go through the following steps to be able to execute the will and release the assets here in Spain:
- Applied for a certified copy of the Grant of Probate which must include La Hague Apostille stamp, which can be obtained from the Foreign Office.
- You must have a sworn translation of the Grant of Probate.
- You must give a Spanish lawyer power of attorney to prepare a list of your assets in Spain, execute the will and pay the inheritance taxes.
- The execution of the will then takes place at a Spanish notary
Does a spouse pay inheritance tax in Spain?
Unlike in the UK where your spouse or civil partner were exempt from paying inheritance tax, here in Spain, the system does not recognise this privilege. Regardless of your relationship to the deceased, you will have to pay inheritance tax in some form. What’s more, tax may be applicable even if you lived in Spain with your spouse, but your assets remain outside of Spain.
How much inheritance tax will I pay in Spain?
As the beneficiary of inheritance here in Spain, you will be liable to pay inheritance tax. As we have discussed, how much you will pay depends on various factors. But the two main factors are where you live and your relationship with the donor.
Each beneficiary group has a different tax level and allowances are given based on your group. With Group One paying less tax and Group Four paying a higher tax rate:
Group One: Natural and adopted children under 21
Group Two: Children over the age of 21, parents, grandparents, grandchildren, spouses and civil partners registered as a Pareja de Hecho
Group Three: Sisters and brothers, in-laws, aunts and uncles, stepchildren, nieces and nephews
Group Four: other beneficiaries including partners who are not registered as a Pareja de Hecho
The standard inheritance tax rates are set by the Spanish state but depending on where you live are modified.
Standard Inheritance Tax Rates in Spain
Inheritance up to €7,993: 7.65%
€7,993–€31,956: 7.65 to 10.2%
€31,956–€79,881: 10.2 to 15.3%
€79,881–€239,389: 15.3 to 21.25%
€797,555 and over: 34%
Can I reduce my inheritance tax in Spain?
Depending on your relationship with the donor your tax payments can double.
For example: if you are married to the deceased, you have tax allowances higher than if you are just living with a partner. Several regions have already given unmarried partners equal status to married couples in order that they may enjoy the same reductions in the Inheritance and Gift Tax.
As a spouse, your inheritance tax commitment can be reduced if your claim is a life interest over direct asset payments. For example: if the deceased leaves you usufruct rights to your home and other assets.
If you have assets outside of Spain, setting up a will in your native country can sometimes help to reduce your tax liability here in Spain.
However, we strongly recommend that you set up a Spanish will and seek professional advice for all issues regarding inheritance tax in Spain.