Spanish Inheritance Tax

The article provides a short intodruction to the Spanish Inheritance Tax


Unlike UK inheritance taxes or US federal estate taxes, Spanish inheritance taxes ("Impuesto sobre successiones") are levied on the beneficiary´s acquisition and not the undivided estate.

Tax Liability in Spain

Unlimited Spanish inheritance tax liability stems from the existence of a beneficiary who is a resident taxpayer as of the date of death of the decedent. A resident taxpayer is any individual living more than 183 days a year in Spain. Taxes can also be levied on nonresidents based on the situs of the inherited assets. Spain’s situs requirements are satisfied if the asset is situated in Spain and is classified a property subject to taxation based on situs such as bank accounts, real estate, business assets, and shares in a corpo­ration having its seat or place of principal management in Spain.  Nationality is not relevant for the purposes of situs taxation.

Tax Rules of the Autonomous Communities

The Autonomous Communities (AC) can vary the State rules in the taxpayer’s favor. For example, in the Balearics (Majorca, Ibiza, Menorca, Formentera), Cataluña, Madrid, and the Comunidad Valenciana, spouses and children can receive a 99% reduction. Spanish Inheritance Tax is paid under the AC’s rules if the deceased was habitually resident in the AC and the beneficiary was habitually resident in Spain. As these rules give a clear advantage to residents in Spain, the European Commission formally requested Spain to change inheritance tax rules and in October 2011, the European Commission referred Spain’s Inheritance and Gift Tax to the European Court of Justice. However, the current expectation is that Spain will alter its laws in the next several years in order to avoid an unfavorable ruling. Some AC (e.g. Canaries) have already abolished the 99 % reduction.

Evaluation of the taxable estate

For Spanish tax purposes, tangible and intangible property is generally assessed at market value. Real property is also subject to a market valuation. However, since market values can be uncertain, tax authorities often accept the (typically lower) value stated in the applicable tax declaration.

General Tax Free Allowance under the Spanish Inheritance Tax Act

The general tax free allowance of the Spanish inheritance tax depends on the degree of relationship of the beneficiary and the deceased.

Tax class IIssue of the deceased (child or child of the child) under 21, adopted children under 21€ 15,956.87
Tax Class II Issue over 21, The spouse, Parents, Adopted parents, Grand parents€ 15,956.87 
Tax Class IIIbroth­ers and sisters, First degree descendants of brothers and sisters = nieces and nephews, sons-in-law and daughters-in-law, parents-in-law7,993.43
Tax Class IV All othersnone

Special Tax Free Allowance For Disabled Persons

A special tax free allowance is granted to disabled persons. In order to qualify for this reduction the disabled person must suffer from at least a 33% disability. The reduction in this case is provided in addition to any reduction associated with the relationship to the deceased. In the case of a disability of up to 65 %, the reduction is €47,858.59 and thereafter €150,253.03.

Special Tax Free Allowance for the Family Home

A special tax free allowance is provided for the family home. The family home is 95% tax exempt, with a limit of €122,606.47 per taxpayer. However, the taxpayer has to be a surviving spouse, an ascendant or descendant relative of the deceased, or a collateral relative over the age of 65 who must have lived with the deceased for two years prior to his death. The acquisition of the interest in the family home must be held for a period of ten years following the death of the deceased, unless the beneficiary dies within that period. The exemption is only provided if the deceased was a resident taxpayer of Spain in the year of his death.

Special Tax Free Allowance for the Family Business

A family business is 95 % tax exempt, if the beneficiary is the surviving spouse, descendants, or adopted. The business must have been the principal source of income of the deceased, and the deceased must have carried on the business activity habitually, personally and directly.

Spousal Taxation

Spouses are not exempt from Spanish Inheritance Tax. Spanish inheritance tax law does not recognize the concept of partners or common law spouses. If the spouses own community property in Spain and one spouse dies, half the value of the community property interest must be includible in the first dying spouse's gross estate.

Calculation of the raw tax figure

After calculating the allowance from the net value of the acquisition the "raw" Spanish inheritance tax figure must be calculated according to the following table:

Taxable

Acquisition in €

up to...

Tax levied on this

acquisition in €

further

acquisition

in €

tax rate

in %

0.00

0.00

7,993.46

7.65%

7,993.46

611.5

7,987.45

8.5%

15,980.91

1,290.43

7,987.45

9.35%

23,968.36

2,037.26

7,987.45

10.2%

31,955.81

2,851.98

7,987.45

11.05%

39,943.26

3,734.59

7,987.46

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

39,877.16

18.7%

159,634.83

23,063.25

79,754.30

21.25%

239,389.13

40,011.04

159,388.41

25.5%

398,777.54

80,655.08

398,777.54

29.75%

797,555.08

199,291.40

Thereafter

34%

Calculation of the tax due

Finally, the relevant co-efficient must be applied. This is derived from the table below which takes into account the tax class and the taxpayer's pre-existing net wealth: 

Savings tax base

Gross tax charge

Rest of savings tax base

Applicable rate (percentage)

0.00

0.00

6,000.00

21.00%

6,000.00

1,260.00

18,000.00

25.00%

24,000.00

5,760.00

Thereafter

27.00%

Example: Mr. Brown is resident of London and is the owner of a property in Palma de Mallorca, Spain where he spends his holidays (20 days) every year. In his last will and testament he appoints his common law wife, Ms. Honeywell, as his sole heir. The property is valued EUR 850,000. Ms. Honeywell has no property in Spain. As a common law marriage is not recognized by the Spanish tax authorities, tax class IV applies. Ms. Honeywell`s allowance is therefore "0". The raw tax figure is therefore, according to the table, EUR 217,122.67. A co-efficient of 2.1000 applies as Ms. Honeywell is taxable in tax class IV. The tax due on her acquisition is therefore EUR 455,957.60. 

Spanish Inheritance Tax Return

The Spanish inheritance tax return must be filed within six months of the date of death. Most international cases inevitably require an extension of time. An application for an extension of time must be made within five months of the date of death. Only one extension will be granted for six months. A Spanish inheritance tax return must be filed with the Tax Authority in the region where the deceased had his habitual residence. In the case of a non-resident deceased, the tax return must be filed with central tax office in Madrid unless an heir is resident in Spain, in which case it may be presented to the Tax Authority in the region where the heir resides. Generally, the taxpayer calculates the inheritance tax himself and makes the payment upon presentation of the inheritance tax return together with additional documentation.

Once the Tax Authority is satisfied with the values attributed to the assets, it will issue an assessment. If the assessment is notified to the taxpayer between the 1st and 15th of the month, the duty must be paid on or before the 5th day of the following month. If the assessment is notified between the 16th and last day of the month, the duty must be paid on or before the 20th day of the following month. In either case it is possible to apply for payment of the duty by installments, subject to the payment of interest. In case of late payment, the Tax Authority may impose a surcharge of up to 20%of the duty payable together with the payment of interest.

Jerome Synold
Letzte Aktualisierung: 21.03.2011


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