How Does Spanish Succession Tax Affect You? (Comunidad Valenciana and Murcia)

If you live in Spain, the chances are that your heirs, or perhaps even yourself, will be hit by Spanish succession and gift tax. Many British nationals also remain in the UK inheritance tax net – being non-UK resident alone is not enough to escape this tax.

If you live in Spain, the chances are that your heirs, or perhaps even yourself, will be hit by Spanish succession and gift tax. Many British nationals also remain in the UK inheritance tax net – being non-UK resident alone is not enough to escape this tax.

While they are both taxes on inheritances and gifts, there are significant differences between how they taxes are applied, and the Spanish tax rules can come as a surprise to some.

Spanish succession tax is due when –

1. the assets being inherited/gifted are located in Spain (even if the recipient lives abroad), or
2. the recipient of a gift or inheritance is resident in Spain (even if the assets are outside Spain).

Here are the key considerations of Spanish succession tax.

• Tax is paid by each recipient, rather than by the estate.
• Spouses are not exempt.
• Allowances under the state rules are very low. The highest is just €15,957. There is a 95% allowance against the main home (maximum €122,606 per inheritor) when inherited by a spouse or descendant, but only if they keep it for 10 years.
• Under state rules, tax is applied at progressive rates from 7.65% to 34%. Multipliers depending on the relationship between the two parties and the recipient’s pre-existing net worth can take the tax much higher, up to 82% in some cases.
• Currently, in Cataluña, Andalucía, Islas Baleares and Islas Canarias unmarried couples registered as ‘pareja de hecho’ benefit from the same reliefs as spouses; in other regions they are treated as not related so tax can be much higher.
• If you leave assets to your spouse, who passes them to children when he/she dies, tax will be due again on the second death.
• Succession tax also applies to pension funds.
• Tax is paid at the time of the inheritance, even if the funds are not accessed at the time.
• Succession tax is governed by both state and local autonomous community rules; each community has the right to amend the state rules.

So, for example, unless exempted by local rules, if you own a property in joint names with your spouse, succession tax will be due on the part they inherit from you.

If you leave your Spanish property to UK resident children, they will pay tax on it.

If you are resident in Spain and receive an inheritance from parents in the UK you have to pay Spanish succession tax on it.

Many autonomous communities have amended the state rules to make them more beneficial. In Comunidad Valenciana spouses and children receive an allowance of €100,000 each. They can also benefit from a 75% reduction in the amount of succession tax payable. In Murcia, the taxable inheritance for children under 21 is reduced by 99%, while older children and spouses get a 50% reduction.

UK inheritance tax

If you are a British expatriate living in Spain you could easily be liable to UK inheritance tax as well as Spanish succession tax. If inheritance tax is paid in the UK the amount is usually deductible against the Spanish liability. You need to consider what the best solutions are should the surviving spouse remain in Spain or return to the UK.

You need specialist advice to understand the intricacies of the two tax regimes, and how to potentially save your heirs a considerable amount of tax.

Any questions? Ask our financial advisers for help.

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 is advised to seek personalised advice.