Succession and Gift Tax in Spain
Information on succession and gift tax in Spain: what it is, when it's payable, which heirs must pay, whether nationality is taken into account, how to calculate what's due and how to defer payment...
Spanish succession and gift tax or Impuesto sobre Sucesiones y Donaciones (ISD) is a tax on inheritances and gifts. Unlike the UK, it is paid by the recipient of the inheritance or gift, not by the estate. This tax is payable only if one of the following applies:
- the recipient is resident in Spain (regardless of where the assets are inherited/gifted from)
- the asset being inherited or gifted is a Spanish asset such as real estate or moveable property situated in Spain (regardless of where the beneficiary is resident).
There are different allowances available depending on the recipient’s relationship with the deceased or donor.
There is currently no blanket exemption between a husband and wife. Where a married couple are both resident in Spain and one dies, the surviving spouse can be fully liable on the worldwide assets inherited from the deceased spouse, subject to the allowances and reliefs available. Unmarried couples can benefit from the same reliefs given to a married couple providing they register as a ‘pareja de hecho’ and live in one of the regions that grant such concessions. Currently this is the case in Cataluña, Andalucía, Islas Baleares and Islas Canarias.
The worldwide estate of those who are UK domiciles on death will be liable to UK inheritance tax in addition to Spanish succession tax on chargeable Spanish assets. However, any succession tax paid in Spain can be deducted from the UK inheritance tax liability on the same asset to avoid double taxation.
Groups of Beneficiaries
Beneficiaries are divided into the following four groups depending on the closeness of relationship to the donor or the deceased:
- Group I: Natural and adopted children and other descendants (e.g. grandchildren, great-grandchildren) under 21
- Group 2: Natural and adopted children and other descendants aged 21 and over; Parents and other ascendants (e.g. grandparents, great-grandparents), and spouses
- Group 3: In-laws* and their ascendants/descendants, step-children*, brothers and sisters, cousins, nieces and nephews, aunts and uncles
- Group 4: All others including unmarried partners even if they have registered as a pareja de hecho
*Depending on the circumstances, step-children and in-laws may be categorised as group IV beneficiaries for the purpose of succession tax. Each situation is assessed on a case-by-case basis.
State Rules and Allowances
The state (national) rules are set out below. However, they can be varied regionally by the different Spanish autonomous communities.
There are tax-free state allowances on inheritances (not lifetime gifts) for members of the different groups as follows:
- Groups 1 and 2: €15,956.87
- Group 3: €7, 993.46
- Group 4: nil
Group I beneficiaries (descendants under the age of 21) can have an additional deduction of €3,990.72 for each year they are under 21, restricted in total to €47,858.59 per recipient.
There are further reductions where the recipient is physically or mentally disabled, depending on the recognised degree of disability. This is in addition to other allowances and is not dependent on the relationship with the donor.
State Tax Rates and Multipliers
The state succession tax rates are:
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The tax liability is subject to multipliers depending on the relationship of the recipient to the donor or deceased and the wealth of the recipient prior to the transfer (‘pre-existent net worth’). The highest effective rate of tax is just under 82 percent on this basis, although before any multipliers the maximum rate stands at 34 percent.
Main home relief
There is a 95 percent allowance against the inherited value of the main home of the deceased up to €122,606.47 per inheritor. This only applies if the beneficiary belongs to group I or II or is a relative over the age of 65 who lived with the deceased during the two years prior to their death. Although the property must be retained by the beneficiary for 10 years following the death, it does not need to be their main home.
As previously indicated, the different autonomous communities in Spain can vary the state rules – and actually many of them do.
For example, in some regions, spouses and children can receive a 99 percent reduction in the inheritance tax payable on death, although there may be restrictions on the amount inherited, or the pre-existing wealth of the recipient. This reduction currently applies in Murcia and Madrid, while the Canary Islands allows a possible 99.9 percent reduction. In the Balearics Islands, the 99 percent allowance applies for children under the age of 21 only.
In Andalucía, spouses and children are entirely exempt from inheritance tax where the taxable value of the inheritance received is no more than €175,000, and the pre-existing wealth of the recipient (that has to be a group I or II beneficiary) does not exceed €402,678.
In Cataluña there is a possible 99 percent tax relief on inheritances for spouses and pareja de hecho only. Each child can have an allowance of up to €100,000 (plus extra €12,000 for each year under 21 up to max of €196,000).
Other reliefs, such as the main home relief and relief for businesses, and child and spousal exemptions, may be higher in certain regions.
You would need to look closely at the rules relating to a specific region for full details of the range of allowances and exemptions available to you.
However, determining which rules (state rules or autonomous community rules) will apply when calculating succession and gift tax is not straightforward and can depend on various factors. These include where the deceased/donor was resident, where the property and/or the other assets are located, and where the recipient/beneficiary is resident.
The region of Spain in which an individual is resident will be where that person has spent more days during the last five years prior to the accrual of the tax (i.e. the five years previous to the death or the gift).
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.