Spanish law jointly regulates inheritance tax and gift tax.
Inheritance tax is the tax payable on any increase of wealth, obtained by reason of death.
Gift tax is levied on the increase of wealth, caused by reason of gift while the transferor is still living.
The inheritance and gift tax is levied on the following:
- The acquisition of assets and rights by way of succession. Foreign individuals must pay inheritance tax in Spain only for those assets the deceased left in Spain.
- Obtaining assets and rights by way of gift or any other gratuitous transfer inter vivos (during transferor’s lifetime).
- Acquisition of revenue from a life insurance policy, where the contractor party is a different person from the beneficiary.
Who must pay this tax? Bear in mind that payment of this tax is not made by the estate; each beneficiary must pay for it individually:
- The inheritors, who acquire the assets by reason of the decedent’s death. The tax is payable by the beneficiaries and not by the estate. This tax shall be paid before the beneficiary can deal with the deceased’s assets. When it is the inheritors’ decision to sell the assets that the decedent left in Spain, they first shall pay the inheritance tax. It is advisable to seek the assistance of a Spanish Lawyer in order to speed up the procedure and get advice on potential tax saving schemes.
- The grantees, who acquire the assets by reason of a gift or gratuitous transfer inter vivos (among people still alive).
- The beneficiaries of the insurance policy, where the contractor party is a different person from the beneficiary.
- To asses the basis of a transfer on death, it is necessary to value the assets and liabilities at the time of death. The total sum, deducted the charges, will be then liable to tax. Expenses as the funeral and the costs of any litigation connected with the estate can also be deducted.
- The assets and rights acquired by gifts and other gratuitous transfers inter vivos (while the transferor is still living) are assessed at their real value, deducted charges and liabilities.
- In life insurances, the basis of assessment are the proceeds that the beneficiary obtains. These proceeds shall be liable to tax together with the assets and rights acquired from the will.
It is complicated to calculate your tax, different percentages shall be charged according to a sliding scale, where different circumstances shall be considered.
The tax rates may differ from one Spanish region to another, some Spanish communities such as Catalonia, Balearic islands, Aragón, Vasque country and Navarra provide different regimes.
Inheritance and gift tax is progressive, the rates applicable are determined depending on the following circumstances:
- The amount transferred to the beneficiary.
- His existing wealth.
- The beneficiary’s relationship to the deceased.
In the case of non-resident transferees, only assets situated in Spain are taken into account.
The taxable estate is determined by deducting certain allowable amounts from the value of the gross estate.
The Basis of assessment is legally reduced depending on the degree of consanguinity between the testator and transferee to arrive at the net taxable amount (which is called base liquidable).
The applicable reductions are as follows:
- Class I: For descendants and adopted individuals under age 21, the reduction applicable is € 13,651.99, plus € 3,413.75 multiplied per the number of years to arrive at age 21.
- Class II: For descendants, adopted individuals over 21 years of age, spouses and ascendants, the reduction applicable will be € 13.651,99.
- Class III: For second or third degree collateral family, descendants by affinity or ascendants, the reduction applicable will be € 6,827.50.
- Class IV: For collateral family of fourth degree and other transferees, no reductions shall be applied.
A progressive rate is applied to the net taxable amount to arrive to the gross tax payable (which is called cuota íntegra).
When the amount (which is called cuota íntegra) is calculated, a multiplicand is applied to the figure, taking into account pre-existing wealth as well as relationship with the deceased.
The value of the existing wealth is calculated according to the wealth tax rules. The value of the assets that the transferee acquires by donation from the deceased during his lifetime may be left out of account, other taxes shall have been paid on them.
The applicable type will be the following:
|*Pre-existing wealth in €||Degree of consanguinity
|I & II||III||IV|
From 0 to € 402,678.11
From € 402,678.11 to € 2.007,380.4
From € 2,007,380.4 to € 4.020.771
€ 4.020.771 and above
The resulting amount is the final tax payable (which is called cuota tributaria or deuda tributaria).
It is suggested that all technical and legal matters pertaining to inheritance and gift tax be referred to professionals for advice, guidance and execution. [We provide an Inheritance/Gift Tax processing service for a flat-fee price].
The inheritance tax shall be paid within 6 months from the transferor death or. You may file for another 6 months extension although in this case you shall pay the belated interest.
The gift tax shall be paid within 30 days after the date of the transfer.
The tax is to be paid at the Provincial Tax Office (Delegación Provincial of the Consejería de Economía y Hacienda) from the corresponding Autonomous region. You must file the tax form along with other documentation that your Spanish Lawyer may inform you about.
How can you reduce the effect of this tax? There are some legitimate ways to get round the bite:
- When the property is transferred from the estate of a decedent to a beneficiary, a 95 % deduction may be applied with the condition that the transferred had lived with the deceased for a period of, at least, 2 years prior to his/her death. This is available to official residents only. The inheritor shall keep the property for 10 years, in case he sells it, he will have to pay the tax due on the original heritance.
- Forming a family corporation: The owner of real estate may form a family corporation in which the real estate’s ownership passes into the hands of the company, each member of the family shall become a director of the company. In this way if a family member dies, the company shall be reorganized, it would be necessary to transfer some company shares, which involves other little tax which falls outside Spanish inheritance tax.
- Another possibility is that upon the purchase of the Spanish property, its ownership be split between the bare legal title and the usufruct If a couple only have the usufruct of a property and their children have the ownership of it, the Spanish inheritance tax will be minimal on the death of the usufruct holders. Proprietors cannot sell the property without full consent of the usufruct holders while they are still alive.
- Purchasing a property financed by a sizeable mortgage reduce the inheritance tax, as the value of assets is their market value, less any charges levied on them.