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Spanish Inheritance Tax (ISD)

By David Goodall - Tue 15th Mar 2011

This complex issue is often ‘swept under the carpet’ but eventually everyone is affected. In particular, the prospect of a widow(er) paying inheritance tax on the death of their spouse can come as an enormous shock.

- There are State rules and variations by the Autonomous Communities (AC)

- State rules always apply to non-residents

Christmas Gift Lists

- Autonomous Region rules will apply ONLY to Spanish residents

- There is no Double Taxation Agreement on inheritance Tax between Spain and the UK

sobre Sucesiones y Donaciones (ISD)

is also called Succession Tax or Inheritance Tax and is a tax on inheritance and gifts, paid by the recipient of the inheritance or gift. It is due only if the recipient is resident in Spain or the asset being inherited or gifted is an asset located in Spain such as real estate or moveable property situated in Spain. If the property is owned by a UK company ISD is not payable on the death of a shareholder of the company.

Allowances are available depending on the relationship with the deceased or donor. In the first instance the Spanish State rules apply but these can be varied by the different Autonomous Communities (ACs) providing conditions set by the relevant AC are met. The State rules always apply to non-residents owning assets in Spain.

There is currently no blanket exemption between a husband and wife under the State rules. Where a married couple are both residents in Spain and one spouse dies, the surviving spouse can be fully liable on the worldwide assets inherited from the deceased spouse, subject to the allowances and reliefs available

The worldwide estate of British expatriates who are UK domiciles on death will also be liable to UK inheritance tax, as well as to Spanish succession tax on chargeable Spanish assets. Any succession tax paid in Spain can be deducted from any UK inheritance tax liability on the same asset. There is such a fundamental difference between the inheritance tax in the two countries that no double taxation agreement exists on this issue. Please contact me (Clicking my link, above left) if you need referral to a professional advisor.

State Rules

Beneficiaries are divided into the following four groups depending on the closeness of relationship to the donor or the deceased:

Group 1: Natural and adopted children and other descendants (such as grandchildren, great-grandchildren) under 21

Group 2: Natural and adopted children and other descendants aged 21 and over; parents and other ascendants (such as grandparents, great-grandparents), and

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 friends or unmarried partners

State Allowances

There are tax-free State allowances on inheritances (not life-time gifts) for members of the different groups as follows:

Groups 1 and 2: €15,957

Group 3: €7, 993

Group 4: nil

Group 1 inheritors under the age of 21 can have an additional deduction of €3,990 for each year they are under 21, restricted in total to €47,858 per recipient. There are further reductions where the recipient is physically or mentally disabled depending on the recognised degree of disability.

Relief for main home

There is a 95% allowance against the inherited value of the main home of the deceased up to €122,606 per inheritor, provided that the beneficiary belongs to Group 1 or 2 or is a remoter relative over the age of 65 who lived with the deceased during the two years prior to their death. The property must be retained by the beneficiary for 10 years following the death, but it does not need to be the beneficiary's main home.

Succession tax rates vary from 7.65% to 34%. The tax liability is subject to multipliers based on the pre-existing wealth of the recipient, which can take the highest effective rate of tax to just below 82%.

Autonomous Communities (AC)

The Autonomous Communities (ACs) can vary the State rules in the taxpayer's favour. The State allowances and reductions apply in the first instance provided that the relevant conditions have been fulfilled. Any enhancement to the State allowances and reductions granted by the AC will then replace the State deductions, again providing any additional conditions imposed by the AC are fulfilled.

Please note, however, In the case of real estate in Spain owned by a non-Spanish resident, the State rules will always apply on the death of the non-resident owner.

In some ACs, spouses and children can receive a 99% reduction in the inheritance tax payable on death. This reduction currently applies in the Canary Islands, Balearics, Murcia Region, Madrid, and Valencia Community.

In Andalucía, spouses and children are exempt from inheritance tax where the taxable value of the inheritance received is no more than €175,000, and the wealth of the recipient does not exceed €402,678.

In Cataluña, personal allowances increase significantly from 1 July 2011

In many ACs, unmarried couples registered as a pareja de hecho are recognised as spouses. It is important to look closely at the rules relating to a specific AC’s to obtain full details of the range of allowances and exemptions available. Once again, I can put you in contact with professional advisors in most regions, if you contact me by clicking on the link (above, left)

Succession tax is paid under the AC's rules if the deceased was habitually resident there, in the case of an inheritance; or, in the case of a gift of real estate, if the real estate is located in that AC; or, in the case of a gift of any other assets, in the AC where the recipient is habitually resident.

To be habitually resident in a particular AC, you must have been resident there for five continuous tax years. So, the deceased or donee (as the case may be) must have been continuously resident in an AC for the past five years for that particular AC's rules to apply, otherwise the State rules will apply.

Please feel free to comment (below) or contact me directly via my own website if you should have any further questions (the link is shown by clicking my name - above, left)

Seeking the information does not constitute any commitmenti or obligaton your part.

This complex issue has been researched using information available on web pages, consulting contacts and the writers own knowledge. It cannot constitute advice and professional guidance maybe required.

Comment on this Blog

 
Norman There is no Double Taxation Treaty between the UK & Spain on Inheritance Tax davidgoodall.spain@gmail.com
David Goodall - Thu, 3rd Apr 2014
David, I've been "researching" this subject for a while now;this lawyer who practices in Spain/England states this is a "grey" area and that a lot of Spanish legal staff will vary greatly in opinion, the vast difference in Spanish system to the British one means a dual tax agreement is worth nowt. I'd like to send you an email (PM) if you send your email address to my email address, the contents of this lawyer's letter for your opinion, regards Norman
Norman Abbott - Thu, 3rd Apr 2014
Norman The true answer to your question is that I'm based on the internet! I don't have offices anymore except at my homes in Solihull, UK and near you in Pilar de la Horadada davidgoodall
David Goodall - Sat, 29th Mar 2014
Thanks for your reply,David, that's put me a little less concerned. One hears so many different things,l ike they say don't listen to bar room lawyers! Where are you based? Your blog is very interesting.
Norman Abbott - Sat, 29th Mar 2014

Norman,

If you inherit your mother's UK estate, there is no UK tax to pay as her exemption is £325,000 at present.

There is no Spanish ISD issue until you die; Write to me if you want more help

David Goodall

David Goodall - Fri, 28th Mar 2014
Hi,I can't get anywhere with this ... my question is when my elderley mother dies I am the sole inheritor of her flat in England of about £130,000. I am spanish tax paying resident in Torrevieja Alicante - am I liable for spanish IHT? I have lived here 14 years. Can you please advise? Thank you
Norman Abbott - Fri, 28th Mar 2014
So in the event of my death, my partner will be entitled to a 95% reduction in Inheritance tax. The same as a married couple.?
Keith Lynwood (sitges) - Thu, 29th Nov 2012
Keith : A Pareja de Hecho agreement between 2 partners is legally binding regardless of whether a same-sex couple or not.
Tumbit - Admin - Thu, 29th Nov 2012
I have been attempting to research whether a "Pareja de hecho" between a gay couple is treated in the same way as a married couple when it comes to inheritance tax. We are both resident in Catalunya. Struggling to find out. Would appreciate your thoughts.
Keith Lynwood (sitges) - Thu, 29th Nov 2012
I am happy to provide generic information about this and other subjects. When it comes to an individual rights and actions you need LOCAL professional advice. I can give you a connection to such advice
David Goodall - Thu, 29th Nov 2012
Hello, My mother passed away 4 weeks ago. My sister and I have inherited her share of an apartment jointly owned by her partner. They lived in Barcelona and were not married. He now is refusing to provide infomation regarding the mortgage and other documents that the Notary has asked for. We are concerned he is trying to lock us out of the apartment, he has taken serval keys from my sister and we do not know why. Can anyone help with regards to our rights?
Michelle Harris - Wed, 28th Nov 2012
The section to which Tom refers says 'In some ACs, spouses and children CAN receive a 99% reduction.....' Individual cases really need to be dealt with on the basis of professional advice.
David Goodall - Tue, 27th Mar 2012
David Am I correct to assume that to get 99% relief from inheritance tax in Valencia region CHILDREN must be resident? Your article has the potential to be misunderstood sorry ! Thanks Tom
Tom Hay - Tue, 27th Mar 2012

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