A guide to Spanish inheritance tax
If you own a property in Spain, it is best to acquire some basic knowledge on Spanish inheritance tax to avoid future confusion.
The rules and rates for Spanish Succession Tax vary according to the relationship between the donor and beneficiary but unmarried couples and step-children usually pay more tax than spouses and natural children.
The individual regions can vary the Spanish succession tax (SST) allowances and tax rates, but only if the beneficiary and the deceased are habitually resident in the region. Habitual residents mean they need to have lived in the country for five years.
In some regions like Comunidad Valenciana (Alicante, Valencia and Castellón provinces), the Balearics and Madrid, there is almost complete exemption for spouses and children.
National rules will apply if the deceased and/or beneficiaries do not live in Spain.
The allowances and the tax rates vary depending on the Group the beneficiary falls into:
- Natural and adopted children under 21
- Natural and adopted children aged 21 and over
- Parents, grandparents etc
- Unmarried partners registered as a pareja de hecho (only in certain regions)
- In-laws and their ascendants/descendants
- Nieces and nephews
- Aunts and uncles
- Sisters and brothers
- All others including unmarried partners, unless registered as pareja de hecho in certain regions
Under state rule, the surviving spouse receives an allowance of EUR 15,956, but there is no automatic allowance for unmarried couples.
Unmarried couples living together can be treated like married couples for legal purposes in certain Spanish regions if they are registered as a ‘pareja de hecho’ (a de facto couple). It has different names in different regions.
For SST purposes, though, a pareja de hecho is currently only effective in Andalucía, Cataluña, Canaries, Balearics, Madrid, Asturias, Castilla y León, and Cantabria.
The state rules that a natural or adopted child will receive a EUR 15,956 allowance, but a stepchild only receives EUR 7,993. In addition, a natural or adopted child under the age of 21 can have an additional tax deduction of EUR 3,990 for each year they are under 21, up to EUR 47,858 per child.
The basic SST is in bands that start at 7.65 percent, on amounts over EUR 7,993, increasing in stages to 34 percent for amounts over EUR 797,555 per beneficiary.
The tax liability is multiplied based on the groups:
Group I & II – 1.0000
Group III – 1.5882
Group IV – 2.0000
This means that an unmarried couple not registered as pareja de hecho, or where it does not affect the tax, will pay twice as much SST as a married couple, and step-children will pay at more than 1.5 times what a natural or adopted child would pay.
The rates can also be further multiplied for the beneficiary’s existing wealth.
It is therefore important to take steps to lower your Spanish succession tax liability, where possible.
Spanish inheritance law
Where it applies, Spanish inheritance law limits who you can leave your assets to. This is to protect the family and provide for the children who will receive two-third in preference to the spouse.
A usufruct in Spain is where a beneficiary, often the surviving spouse, is left a ‘life interest’ over assets, normally the family home, rather than a direct share of the property.
This can reduce Spanish inheritance tax. By leaving the spouse a usufruct, full ownership of the house can eventually pass to the children without further tax at that stage, and in the meantime the surviving spouse can live in the property free for the rest of their lifetime.
However, the good news is that in general non-Spanish nationals can make a Spanish will bequeathing their assets as they wish under the law of their own country, so long as the will declares that is to be the case.
The Spanish Registrar of Wills has accepted this in the past, and when the time comes, the will is executed accordingly. Spanish lawyers routinely make such wills.
There can be a problem, though, if the estate substantially consists only of Spanish real estate as it can then be subjected to Spanish succession law and legitimate inheritors could contest Spanish will that seeks to disinherit them.
You may find that your plans agree basically with what Spanish law provides but nevertheless, it is advisable to make a Spanish will, particularly if you have remarried and have step-children, so that you can leave your Spanish property to whomever you chose.
Spanish succession tax and inheritance law is far from simple and in all cases it is advisable to seek qualified professional advice in order to make the best arrangements for you and your family.
Spanish Property Insight / Expatica
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