Inheritance Tax in Spain is always in the minds of those who own property and at first glance the law seems very complicated and it's often the case that most people simply stick their heads in the sand, ignore it altogether and hope that it won’t apply to them. But it will!
Although foreign wills are valid in Spanish inheritance cases, it is advisable to have a Spanish Will as well to avoid complications during the inheritance process and to make your intentions as clear as possible.
Spanish law requires that two-thirds of an estate must go to the children as compulsory heirs. However, all British property owners can choose their heirs and this will not be challenged by forcible heirs under Spanish laws.
The most commonly used form of will is the "open will" (as described in our Making a will in Spain guide). This is usually presented in double column format, in both Spanish and English. This is signed before a Notary Public and is directly enforced without the need for grant of probate. The Notary Public will keep the original and a copy is sent to a central registry of wills in Madrid.
Who pays Inheritance Tax in Spain?
Expats resident in Spain and paying tax are liable to pay Spanish Inheritance tax regardless of the country in which the inheritance is situated. Non-residents are liable to pay Inheritance Tax in Spain only on assets which are physically located in Spain. There is no exemption on inheritance tax in Spain.
Categories of Inheritors
Inheritors fall into four categories with the allowances conceded shown in brackets:
- Group 1: Descendants and adopted children under 21. The older the child, the more tax to pay (15,956.87€).
- Group 2: Descendants and adopted children over 21, spouses, parents and adoptive parents (15,956.87€).
- Group 3: Brothers/sisters, nephews/nieces, aunts/uncles (7,993.46€).
- Group 4: Relatives in forth degree or friends (No allowances).
Calculating Inheritance tax due
Once the above allowance has been deducted from inherited sum, the Tax authorities apply the following tax rates on the remainder of the inheritance.
How can I avoid, or Minimise the amount of Inheritance Tax my Estate must pay?
- Buy property jointly with future intended inheritors
- Sell the property to future inheritors either fully or partly.
- Take out a mortgage loan on the property.
- Organising life insurance ensuring adequate funds to cover the Inheritance Tax bill.
- Buying or owning through a Spanish limited Company
- Buying or owning through an EU company
Sound planning makes sense now before it's too late
If you own a property in Spain, Inheritance tax in Spain WILL apply at some point. It's just a matter of when.
There are to ways to avoid, or at the very least minimise, the inheritance tax liabilities for your heirs. Either live for ever, which lets face it is highly unlikely, or get sound and solid advice from Wincham International who are experts in Spanish inheritance tax.
Don't delay dealing with the inevitable Spanish inheritance tax law, else your children and/or heirs who will have to pay the price of your legacy!
Update 04.09.2014 : The ECJ has formally instructed Spain to cease the 'Discriminatory' practice of charging a higher rate of inheritance tax for non-residents - Further news >> >HERE<