Inheritance Tax Spain Overview

8/6/2019 Inheritance Tax Spain Overview

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tax exemptions

tax rates

the wealth of the beneficiary

the proximity of the relation between testator and beneficiary

It should be pointed out that, at a state level, no exemption exists for spouses as is the case in othercountries. A couple would be considered to own half of a property each. Upon the death of one of the

spouses the surviving spouse is considered to have inherited the other half (if this is provided for in the

will).

Each of the relevant factors will now be considered in turn.

Tax Exemptions State Level

Inheritance tax has been effectively delegated by the central government to the autonomous

communities in Spain which has allowed the regional governments to set the exemptions that can be

claimed by beneficiaries. However, it is important to note that many of the Spanish regions haveenacted legislation which requires residency in the area to benefit form the exemptions.

This obviously prejudicially affects those who are ordinarily non-resident such as foreign nationalswith property and their non-resident heirs. The legislation has caused a great deal of confusion and has

in fact been condemned by the European Commission who have informed the Spanish government that

the legislation must be changed. The standard response to this has been that the rules discriminateequally against non-resident Spanish as well as other community nationals and so is not discriminatory

at least as between European community nationals. It remains to be seen how the Spanish

government will respond to the European Commission.

Before looking at the regional exemptions we can look at the exemptions available from the central

government and which apply regardless of whether resident or not. For transfer of assets via

inheritance, the following exemptions apply

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Group Deduction

Group I

Group II 15,956.87

Group III 7,993.46

Group IV No deductions available

15,956.87, plus 3,990.72 for each year under the age of 21 years,up to a max. deduction of 47,858.59.


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Group Definitions

For the purposes of determining the proximity of a relationship to the deceased, the legislation dealing

with Gift and Inheritance Tax in Spain (Ley 29/1987) considers there to be four categories or groups:

Group I Children, including adopted children, under the age of 21

Group II All other children, spouses and parents

Group III close relatives such as brothers and sisters, grandparents, aunts and unclesGroup IV more distant relatives

Example

A 16 year old child who inherits from her parents falls into Group I and so may claim an exemption of

15,956.87 + (3,990.72 * 5) = 19,953.60 to give a total exemption of 35,910.47.

In addition to the above exemptions, should any beneficiary be disabled, further exemptions ranging

between 47,858.59 and 150,253.03

If the deceased took out a life insurance policy in favour of a beneficiary there is an exemption up tothe value of 9,159.49 where the beneficiary is a spouse, child or parent

An exemption also exists for tax payable on the permanent or habitual residence. This exemptionapplies equally to spouses, children and parents of the deceased at a rate of 95% of the value of their

inherited portion of the property up to a maximum value of 122,606.47 each. An important proviso

exists in that the property may not be sold for a period of 10 years after the inheritance.

Other relatives further removed, may also benefit from this exemption but must have been living with

the deceased in the property for a period of at least two years prior to the date of death.

The state laws regarding succession normally apply to those who are non-resident but who inherit

assets in Spain. Whether or not these laws apply depend upon the specific circumstances of each

individual situation which would need to be examined by a lawyer expert in the application of regionaltax laws.

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Tax Exemptions Regional Level

As previously stated, additional deductions are available for those who are resident in the relevant

autonomous community. Normally the requirement is that the testator has been 'habitually resident' inthe region for five years while the requirement regarding the beneficiary vary.

We will look at some of the reductions available in the regions more popular with foreign residents:

Andalucia

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Concept Reductions Permitted

Group III relatives No exemptions specified

Disabled Beneficiaries

No exemptions specified

Group I: descendantsunder age of 21including adoptedchildren

A 100% exemption where the estate is valued at less than175,000 and the pre-existing wealth of the beneficiary isless than 402,678.11

Group II: descendants

over 21 years of agespouse, parents

A 100% exemption where the estate is valued at less than

175,000 and the pre-existing wealth of the beneficiary isless than 402,678.11

Inheritance of theprimary residence

99.99% exemption as long as rules established arefollowed

An exemption of between 120,000 and 240,000depending on extent of disability. If over 75 years of agean exemption of 275,000

Life Insurance Policy infavour of spouse,parents or descendants

Exemption forinheritance of thefamily business

95% exemption where business is inherited by certainrelatives


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Valencia Region (Includes Alicante)

Catalua

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Group III relatives Exemption of 31,250


A 100% exemption up to a value of 25,000


Exemption of 171,875 + 20,265 per year for thoseunder 21 years of age with a maximum exemption of

336,875

Group II: descendantsover 21 years of agespouse, parents

Spouse has an exemption of 312,500; children 171,875;other descendants 93,750; parents 62,500; cohabitants(as legally defined) 93,750

Inheritance of the

primary residence

An exemption of 95% up to 500,000 depending on

proximity of relation with beneficiary

A exemption of between 275,000 and 650,000depending on extent of disability. If over 75 years of agean exemption of 275,000



95% exemption where business is inherited by certainrelatives esp. children of deceased


Group III relatives No exemptions specified





Exemption of 40,000 + 8,000 per year for those under21 years of age with a further exemption of 99% of valueof estate where resident in Valencia Community


Exemption of 40,000 with a further exemption of 99%of value of estate where resident in Valencia Community


An exemption of between 120,000 and 240,000depending on extent of disability. If over 75 years of agean exemption of 275,000



95% exemption where business is inherited by certainrelatives


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Canary Islands

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Group III relatives Exemption of 9,300

Disabled B eneficiaries


Exemption of 18,500 plus 4,600 per year under the ageof 21. 100% exemption for children under the age of 18up to a maximum of 1m. A further reduction of 99.9%for this group if residents for 5 years.


Exemption of 18,500 and reduction of tax payable up to99.9% of the estate where resident.


99% exemption without limit where beneficiary isdescendant under the age of 18 and property not sold forat least 5 years.

An exemption of between 72,000 and 400,000depending on extent of disability.


100% exemption up to 9,195.49 for Group I & IIrelatives. 99% reduction of any tax payable on quantitiesabove this where beneficiary is descendant under 21years of age


99% exemption where business is inherited by certainrelatives and according to various rules on value of

business and time period during which business must bemaintained.


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Tax Rates

The tax rate to apply increases as the amount inherited increases according to the scale published by

each autonomous community in Spain or, if such a scale is not published, then according to the scale

published by the central government. Obviously regard must be had to where the assets are located todetermine which scale is applicable but the following table of the scale published by the central

government serves as an example as to how the tax rates function.

Example

Where three children each inherit, after deductions and charges, an inheritance valued at 45,000 from

a parent, to determine the amount of tax payable by each we would calculate as follows:

Up to 39,943.26 the tax payable is 3734.59

The portion above 39,943.26 (45,000 39,943.26 = 5,056.74) is taxable at 11.9% =601.75

So, total tax payable by each child is 3734.59 + 601.75 = 4,336.34

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0 7993.46 7.65

7,993.46 611.5 7987.45 8.515,980.91 1290.43 7987.45 9.35

23,96.36 2,037.26 7,987.45 10.2

31.955,81 2,851.98 7,987.45 11.05

39,943.26 3734.59 7,987.45 11.9

47,930.72 4,685.10 7,987.45 12.75

55,918.17 5,703.50 7,987.45 13.6

63,905.62 6,789.79 7,987.45 14.45

71,893.07 7,943.98 7,987.45 15.3

79,880.52 9,166.06 39,877.15 16.15

119,757.67 15,606.22 39,877.15 18.7

159,634.83 23,063.25 79,754.30 21.25

239,389.13 40,011.04 159,388.41 25.5398,777.54 80,655.08 398,777.54 29.75

797,555.08 199,291.40 maximum 34.00

TaxableAmount Euros

Tax PayableEuros

Deductibleeuros

ApplicablePercentage


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The wealth of the beneficiary

Once the net amount of tax to be paid has been calculated it is multiplied by a coefficient which isdetermined by a combination of the pre-existing wealth of the inheritor and the proximity of their

relation with the deceased as can be seen in the following table:

Pre-existing wealth in euros Groups as defined in Article 20

I y II III IV

From 0 to 402,678.11 1,0000 1.5882 2.000

Between 402,678.11 and 2,007,380.43 1.0500 1.6676 2.100

Between 2,007,380.43 and 4,020,770.98 1.1000 1.7471 2.200

Above 4,020,770.98 1.2000 1.9059 2.400

Group Definitions

For the purposes of determining the proximity of a relationship to the deceased, the legislation dealingwith Gift and Inheritance Tax in Spain (Ley 29/1987) considers there to be four categories or groups:

Group I Children, including adopted children, under the age of 21Group II All other children, spouses and parents

Group III close relatives such as brothers and sisters, grandparents, aunts and uncles

Group IV more distant relatives

Example

A brother of the deceased inherits a net estate generating a tax liability of 6,000 (after tax exemptions

and all other charges), and he has a pre-existing wealth of 450,000 then the total tax payable increasesto 6,000 x 1.6676 = 10,002

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Process for payment of inheritance tax in Spain

A time-limit is established for the payment of inheritance taxes in Spain, being six-months from the

date of death. An application may be made during the first five months to have the deadline extendedby a further 6 months. Once granted the extended period of six months begins when the first six months

has ended.

** Interest will be charged at an annual rate of 5% until the date the tax is paid.

The process for applying for the extension may vary slightly in each region, however typically you will

need to present original and copy of the following documents:

Death Certificate

Identification (Passports/NIE)

Brief inventory of assets and values

Reason for requesting the extension

Should the application be denied for any reason, the original deadline will be extended by the period of

time between application for the extension and notification of the refusal.

Documentation

It is necessary to complete official form 650 or 652 (simple version) when paying inheritance taxes.

These can normally be found in any office of Hacienda (Consejera de Economia, Hacienda y Empleo).

Along with the official form it is necessary to include all relevant information regarding the deceased,the beneficiaries and the assets that are the subject of the inheritance. So some or all of the following

documents will be necessary:

Form 650/652

Original and copy Passport Deceased

Original and copy passport Beneficiaries

List of assets with valuations Original and copy of death certificate

Original and copy of RGAUV certificate

Original and copy of will

If no will, original and copy of 'Decalaracin de Herederos'

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A further tax that may need to be paid at this time is what used to be known as the plusvala tax whichis similar to what is known elsewhere as a Capital Gains tax payable on the increase in value of an

asset. In this case the asset referred to is the property or land that is the subject of the inheritance. When

property owner dies and the property passes to their heirs then those heirs may be liable to pay the localtown hall for any increase in the value of the property since the time it was purchased by the deceased.

A maximum of twenty years applies. An exemption is normally available for this tax, almost to 100% is

available where the beneficiaries are the spouse or descendants of the deceased.

In any case your lawyer will assist you with determining the exact documents you will need for your

particular circumstances and where they need to be presented locally so as to ensure compliance with

the law.

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Inheritance Tax Spain Overview

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