If you live in Spain, and intend to remain there for the foreseeable future, you need to be prepared for how Spain’s version of inheritance tax could affect you and your family.
The Spanish succession regime can come as an unwelcome surprise for the unprepared.
Spanish succession and gift tax (SSGT) is due in either of these situations:
- The beneficiary of an inheritance/estate, or the recipient of a lifetime gift, is resident in Spain. This will therefore apply to any of your heirs who live in Spain, as well as to yourself if you receive an inheritance, even if it’s coming from abroad.
- The asset being inherited or gifted is a Spanish asset (e.g. a property located in Spain or a Spanish bank account). This applies even if the recipient does not live in Spain.
It is possible to be liable to both Spanish and UK inheritance taxes, on the same assets, though you won’t pay tax twice (just whichever liability is higher).
Key considerations of Spain’s succession and gift tax:
- SSGT is governed by both state and regional autonomous community rules; each community has the right to amend the state rules. Whether the state or the regional rules apply depends on where the beneficiary and donor are resident and where the assets being inherited/gifted are located.
- Tax is paid by each recipient.
- Spouses are not exempt.
- Beneficiaries are divided into categories. Children and grandchildren under 21 are Group I. Spouses, older descendants, and ascendants (parents, grandparents) are Group II. Group III is comprised of siblings, cousins, nieces, nephews, aunts and uncles. Most other people fall into Group IV, though in-laws and stepchildren can be either Group III or IV depending on circumstances.
- Unmarried partners are generally categorised as Group IV, even if they’ve registered as a pareja de hecho. However, some regions can treat pareja de hecho as married couples for succession and gift tax purposes.
- Under the state rules, allowances are just €15,956 for spouses, descendants, and ascendants (children under 21 get an extra €3,990 a year); €7,993 for Group III beneficiaries and nil for everyone else (Group IV). Disabled beneficiaries receive an extra allowance of €47,859 or €150,253, depending on the level of disability.
- There is a 95% reduction against the value of the main home (maximum of €122,606 per inheritor) when inherited by a spouse or descendant, but only if they keep the property for 10 years.
- Under state rules, tax is applied at progressive rates from 7.65% to 34%. However, depending on the relationship between the two parties and the recipient’s pre-existing net worth, multipliers can take the tax much higher.
- If you leave assets to your spouse, who then passes them on to your children when he/she dies, succession tax will be due again on the second death.
Canary Islands regional inheritance tax rules
Under the local Canary Islands rules, children under 21 basically escape succession tax as they receive a 99.9% relief on both inheritances and gifts. It increases to 100% for limited amounts of inheritance, based on age.
The allowances for inheritances (gifts follow the state rules) for Group II and III beneficiaries are as follows:
|Spouses & pareja de hecho registered couples||€40,000
|Children over 21||€23,125
|Other descendants and ascendants||€18,500
|Group III beneficiaries||€9,300
|Beneficiaries over 75 years||€125,000
|Beneficiaries with 33%-65% disability||€72,000
|Beneficiaries with higher disability||€400,000
Also, in the Canary Islands, the main home deduction increases to 99%, with a maximum of €200,000, and the property only needs to be kept for five years. There can also be substantial reductions for inherited family businesses.
Inheritance tax planning for UK nationals in Spain
It’s important to understand the various succession tax rules (not to mention UK inheritance tax) and how they apply to your family situation. You need specialist advice to understand the intricacies of the two tax regimes, the interaction between them, and how to lower tax liabilities for your family and heirs.
Blevins Franks has 45 years of experience advising British expatriates in Spain on cross-border estate planning. In many cases, we can recommend solutions to help lower the tax liabilities for your family and heirs, as well as to protect them from the Spanish forced heirship rules.
Contact us today for a personalised estate planning review.