As in most countries, dying does not free your beneficiaries from the clutches of the tax man, nor does giving your money away before you die. Spain imposes a tax on assets or money received as an inheritance or gift (impuesto sobre sucesiones y donaciones). The estates of residents and non-residents are subject to Spanish inheritance and gift tax if they own property or have other assets in Spain. Inheritance and gift tax is paid by the beneficiaries, e.g. a surviving spouse, not the deceased’s estate.
The country in which beneficiaries must pay inheritance tax is usually decided by their domicile. If they are domiciled in Spain, Spanish inheritance tax is payable on an inheritance, whether the inheritance is located (or received) in Spain or abroad. There are currently numerous proposals for inheritance and gift tax reform, including the abolition of all inheritance tax or a substantial reduction on lower amounts. Several regions have already introduced substantial inheritance tax reductions.
Inheritance tax is currently in a state of change in Spain and you should take expert legal advice on the latest regulations before making any decisions regarding the disposal of assets in Spain.
Tax is payable by beneficiaries within six months of a death if this occurred in Spain, although it is possible to obtain a six-month extension (to one year), and within 30 days of the transfer of a lifetime gift. If a death occurs abroad, the inheritance tax declaration and the payment of Inheritance Tax duties must be made within 16 months.
Tax is assessed on the net amount received and accrues from the date of death or the date of a gift. Some people have managed to avoid inheritance tax by failing to inform the Spanish authorities of a death (after five years and six months the tax can no longer be collected), although it is illegal.
Those who have been Spanish residents for at least 3 years receive an exemption of 95% of inheritance tax when their principal residence or family business (in Spain) is bequeathed to a spouse, parent or child who has been living with them for at least two years before their death. The principal residence must be valued at less than 122.606€ (there is no limit for a business) or the inheritance mustn’t exceed 122.606€ per heir, above which normal inheritance tax rates apply.
For example, if the residence is worth 150.000€, you pay tax at only 5% on the first 122.606€ and tax at the full rate on the balance of 27.394€. The inheritor must retain ownership of the property for a minimum of 10 years, although if he dies within the ten-year period no further tax is payable. If the property or business is sold during this period, tax may be levied at the discretion of the relevant authorities, e.g. the regional government.
Inheritance tax and gift tax liability depends on your relationship to the donor, the amount inherited and your wealth before receipt of the gift or inheritance.
Descendant under 21 have an allowance of 15.956,80€ plus 3.990,72€ for each year under 21 up to a maximum of 48.000€.
Direct descendants over 21 direct ascendants (parents and up) have an allowance of 15.956,87€.
Relatives to third degree (and ascendants by affinity) including brother, sister, uncle, aunt, niece or nephew have an allowance of 7.993,46€.
There is no allowance to unrelated people and more remote relatives (including common-law partners).
Contact Perez Legal Group, the experts in Spanish inheritance tax.