Spanish Inheritance Tax

Country:  Spain

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One of the features of civil law systems is that they tend to have a structure of "protected heirs". People of these countries do not have the right that we take for granted to leave their property as they please when they die. Certain fixed categories of relatives have certain fixed rights to inherit. So it is in Spain. The main beneficiaries are your children. The rules vary a bit depending on where you are in Spain but, in general, they have the right to inherit one-third of your estate and you have the right to dispose, as you choose, of the rest.

Fortunately, this does not normally trouble an English person who dies leaving properties in Spain because the effects of Spanish law is that, in most cases, the foreigner will be dealt with as directed by the law of his own country. As English law imposes virtually no restrictions on your freedom to leave your property, you can therefore leave your Spanish property as you please. Note that there are some limitations to this principal but they should be dealt with on an individual basis.

Of greater concern, to most is the amount of tax they will have to pay.

This is a little complicated. Once again the figures will vary a little bit depending upon where you are in Spain as Spain is a group of autonomous regions, each of which has the right to deal with things such as inheritance rights and taxes in their own way.

Basically, you have to start by knowing the value of the assets in Spain that will bear inheritance tax. In Spain they have a true inheritance tax. That is to say the tax is paid by the person who inherits. If you are tax resident in Spain you will pay inheritance tax on any assets that you inherit, wherever in the world they may be located. If you are not tax resident in Spain you will only pay tax on the value of any real estate that you inherit that is located in Spain.       

Let's take, for example, two children who inherit their parents' house in Spain. If the house is worth £300,000 they will each inherit £150,000 and pay tax on that inheritance. This figure is known as the base imponible.

From this gross taxable amount they then may be a deduction. There are three basic deductions.

When it comes to relatives, if you leave your property to your children or grandchildren less than 21 years old they will each be entitled to a tax-free deduction of €15,956.87. Yes, I know it's a silly number. This will be increased by about €4,000 for each year that they are under 21.

If you leave your property to your husband or wife or to your children or grandchildren over 21, the amount is the same.

If you leave your property to your nephews and nieces or other relatives of the second or third degree the deduction is €7,993.46.

If you leave your property to more distant relatives or to people who are not related to you there is no tax-free allowance at all.

Disabled people, whether related to you or not, will receive a larger deduction which depends on their degree of disability. It will either be €47,858.59 or €150,253.03 as the case may be.

Certain people - your wife or husband, your children, grandchildren or parents - can also inherit the benefit of a life insurance payment of up to €9,195.49 free of tax.

Once you have made these deductions this will leave the net taxable amount. This is known as the base liquidable. This is the amount that is used to calculate the tax that you have to pay.

The amount of tax will depend upon the amount you inherit. The rate increases in trenches. It starts at 7.65 per cent for the first €7,993.46 and then increases in grades to 34 per cent for any inheritance over about €800,000.

This table of tax rates is called the escala de gravamen.

In the case of our two children inheriting €225,000 each, they would have each had a deduction of about €16,000 because of their relationship to the diseased, so they would have had to pay tax on Û209,000 and this would have produced a tax bill of about €35,000 each.

But it isn't over yet. Then now comes the most interesting part of the Spanish system. The Spanish adjust the amount of tax that you have to pay depending upon your pre-existing wealth. In other words, if you are rich and you inherit property in Spain or elsewhere you will pay more tax than you would if you were poor!

Just how much you would pay depends upon your relationship to the deceased. A child or husband/wife will pay only a little bit more irrespective of how wealthy they may be. 
    
For example, if they have wealth of more than €4,000,000 their tax bill is increased by only 20 per cent of the amount they would otherwise have had to pay.

If, on the other hand, if you'd left your property to a wealthy uncle or niece their tax bill would have increased by over 90 per cent and if you had left your assets to a wealthy person to whom you were not related their tax bill would have been increased by 140 per cent. This increase is called the coeficiente mulplicador.

All in all, for a person who inherits a house in Spain the tax bill is likely to be quite small. They can also, if they are liable to pay UK inheritance tax, set off the amount that they paid in Spain against any liability that arises in relation to those assets in the UK.  

First published in July 2007.
Some information contained within this article may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and financial advise from a qualified professional.

See Also:   Spain, Tax law

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