Spanish succession tax (SST) is charged on inheritances and gifts. This article mainly covers inheritances, so if you wish to make a gift you should look into the specific rules for this. The Sp
Spanish succession tax (SST) is charged on inheritances and gifts. This article mainly covers inheritances, so if you wish to make a gift you should look into the specific rules for this. The Spanish term for this tax is Impuesto sobre Sucesiones y Donaciones, and it becomes due in the following situations –
1)The asset/s being inherited is/are in Spain (Spanish property, local bank accounts etc). This applies whether or not the beneficiary lives in Spain.
2)If the person receiving an inheritance is resident in Spain, regardless of where the inheritance is coming from.
Three key things to note, especially for British people who are used to a different system, are that each beneficiary pays tax on the amount they receive (it is not paid by the estate); there is no blanket exemption between spouses; there are both State and Regional rules, and where the regional rules apply, the reliefs, rates and allowances can vary across the regions.
State rules
The progressive rates for SST range from 7.65% for inheritances under ?7,993 to 34% for inheritances over ?797,555.
The amount of tax payable is then subject to multipliers, depending on the relationship between the deceased and the inheritor and their net wealth. Spouses and descendants worth under ?402,678 suffer no increase, but for everyone else the tax due is multiplied by between 1.05 and 2.4, making a top rate of almost 82%.
There are personal allowances, but they are low. For spouses, children and other descendants the allowance is just ?15,957. Siblings, cousins, nephews/nieces, uncle/aunts and in laws receive ?7,993. No allowances are available to anyone else, not even to unmarried partners registered as a pareja de hecho (unless eligible for a disability allowance).
There is also a 95% deduction against the main home, provided the inheritor is a spouse or child (or someone over 65 who has lived with you for the last two years) and also provided they do not sell the property for at least 10 years. The maximum deduction per inheritor is ?122,606.
Regional rules
The Autonomous Communities (AC) can vary the State rules to lessen the impact and in some regions the rules are particularly beneficial, to the point where it can be virtually eliminated.
– Comunidad Valenciana (Valencia, Alicante, Castell?)
Valenciana has slightly different tax bands and multipliers to the State rules. The main home relief remains the same as under the State rules but the personal allowance for spouses and descendants is increased to ?40,000.
Since January 2007 there is a 99% reduction in the tax payable on inheritances received by spouses, children and grandchildren who are habitually resident in the Valencian Comminity at the time of your death.
– Murcia
Personal allowances are the same as the State ones, and descendants under 21 can receive a 99% deduction against the tax payable. Since 2007 this 99% deduction also applies to spouses and children and grandchildren over 21 provided the taxable value of the inheritance received is less than ?450,000 per beneficiary.
– Andalucia
The personal allowances are the same as the State rules but unmarried couples registered as a pareja de hecho are treated the same as spouses. The main home relief is increased to 99.9% but still capped at ?122,606. The same conditions apply as under the State rules but with the additional provision that it must be the main home of both the deceased and the recipient at the time of death.
It gets even better though, as since June 2008 no tax is payable at all, provided the recipient is a spouse or direct line descendant and the taxable value of the inheritance received is no more than ?175,000 per beneficiary, and the wealth of the recipient is no more than ?402,678.
– Canary Islands
Spouses and children receive a 99.9% reduction in inheritances payable on death (100% for children under 18 up to a maximum of ?1 million). The allowance on inheritances for spouses and children is ?18,500 and for the other relatives listed above it?s ?9,300. Unmarried couples registered as a pareja de hecho are treated as spouses. The main home relief is still capped at ?122,606 but increased to 99% and the property only needs to be kept for five years.
– Balearics
Since 2007 spouses and children receive a 99% reduction against the taxable inheritance. The same conditions apply to the main home reduction as per the state rules, but it is increased to 100% and with a higher maximum of ?180,000. Unmarried couples are treated as spouses if they register in the Community Registro de Parejas Estables. Islas Baleares also has slightly different tax bands and multipliers to the State rules.
State or regional rules?
You can only benefit from the regional rules if you are ?habitually resident? in that region, i.e. have been living there for five years at your death. If not, or your AC cannot be determined, the State rules apply.
So if you own assets such as property and bank accounts in a particular region but remain tax resident elsewhere, your family will suffer the more pernicious State rules. The same applies if you have been living here but not submitting a tax return locally.
Spain has been referred to the European Commission for discriminatory treatment of residents and non-residents living in the EU and the Commission has asked Spain to end this discrimination. We will have to wait and see what Spain does about this.
UK inheritance tax
If you are a British expatriate you could easily be liable to UK inheritance tax (IHT) as well as Spanish succession tax. IHT applies to the worldwide assets of British domiciles. There is no double tax treaty between the two countries on inheritances, but if IHT is paid in the UK the amount is usually deductible against the Spanish liability. However, if the IHT bill is higher than the succession tax bill, the Spanish authorities will, of course, not provide a refund of the difference.
It is important to understand the various SST rules and how they apply to your situation, as well as how they affect any IHT liability. A wealth management firm like Blevins Franks will guide you through them and also explain how you may be able to lower your SST and IHT liabilities and potentially save your heirs a considerable amount of tax. You can often combine your estate planning with your personal tax planning.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.
