Spanish succession tax is now much less of a concern in many regions. In 2023 the Balearics, Valenciana and Canary Islands followed Andalucía, Murcia and Madrid in eliminating or virtually eliminating inheritance tax for immediate family.
There are so many benefits to living in Spain, but, as with anywhere, there are both pros and cons. Many people find Spain’s succession regime to be complex and costly, and expatriates need to understand how Spanish succession tax and law works and affects their family.
The good news is that over recent years many Spanish regions have reformed their succession tax rates and allowances to protect spouses, children and parents from this tax.
Spanish succession and gift tax (SSGT) key facts:
1) SSGT applies to both inheritances and lifetime gifts.
2) It is charged to each recipient, including spouses.
3) It is due when:
- The beneficiary is resident in Spain, or
- The asset being gifted or inherited is a Spanish asset (Spanish property, bank account, etc).
4) Beneficiaries are divided into groups:
- Group I – children and other descendants under 21
- Group II – descendants over 21, parents and other ascendants, spouses
- Group III – siblings, cousins, aunts/uncles, nieces/nephews, in-laws, stepchildren
- Group IV – everyone else, including unmarried partners even if registered as a pareja de hecho, unless the region grants them the same rights as spouses (Andalucía and Valenciana do)
5) The tax rates and allowances are determined by the state each year, but the regions can make them more beneficial for local residents.
6) UK nationals can be liable to both Spanish and UK inheritance tax since UK inheritance tax is based on domicile not residence, but a credit is given in Spain for tax paid in the UK to avoid double taxation.
You can learn more about Spanish tax by downloading our free guide.
Canary Islands succession tax reforms
Following the Balearics and Valencia announcements in July 2023, the government in the autonomous region of the Canary Islands has also introduced substantial changes to its succession tax rules.
With effect from 6 September 2023, the succession tax liability is reduced by 99.9% for inheritances received by Group I, II, and III beneficiaries. In effect, no tax will arise for spouses, children, grandchildren, parents, siblings, nieces, nephews, etc.
The same 99.9% reduction applies for lifetime gifts, but in this case only for Groups I and II.
This makes the Canaries a very attractive region to live in from an inheritance tax point of view.
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Balearics succession tax reforms
In July 2023, the government of the Balearic Islands approved a substantial change to the succession tax rates applicable in the region.
The following deductions are available for both inheritances and gifts received from 18 July 2023 onwards:
- The succession tax liability is reduced by 100% for group I and II beneficiaries. In other words, children, parents, and spouses of the deceased will not pay any tax.
- Where there are no children or grandchildren, the succession tax liability is reduced by 50% for siblings, uncles, aunts, nephews, and nieces, and by 25% for the rest of group III beneficiaries (children in law, in-laws), as long as the deceased did not have any other descendants.
The initial amendments limit the changes to Spanish tax residents, but it is expected that further amendments may extend the scope of the changes to non-residents who own assets on the islands as well.
Valencia succession tax reforms
In September 2023, the Valencia government approved a draft law to apply a 99% succession tax reduction for group I and II beneficiaries. Originally announced in July, it applies retrospectively to inheritances and gifts received after 28 May 2023 (the date the regional elections were held).
Spanish succession and gift tax has therefore been virtually eliminated for spouses, children, grandchildren and parents in the Comunidad Valenciana region (Valencia, Alicante and Castellón provinces).
It is a significant improvement from the previous 50% reduction, and aligns the rules with the those already in place in its Costa Blanca neighbour, Murcia, as well as in Andalucía.
The €100,000 tax-free allowance for group I and II beneficiaries also remains in place.
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Andalucía succession tax rates and allowances
The southern Spain region’s latest succession tax reforms came into effect on 1 January 2022.
For inheritances (not gifts), descendants, ascendants, and spouses benefit from both a 99% tax relief and a €1 million tax-free allowance.
The allowance for group III beneficiaries increases to €10,000 and the highest tax rate applied is 26%. The multipliers only depend on kinship.
Madrid
Comunidad de Madrid also applies a 99% relief in the tax payable for inheritances and lifetime gifts received by group I and II beneficiaries.
And starting in 2023, a tax relief of 25% has been approved for those inheritances or lifetime gifts between brothers/sisters, uncles/aunts, and nephews/nieces.
Other beneficiaries
Under state rules, group III beneficiaries only receive a €7,993 allowance, and group IV does not have any reduction.
Succession tax rates start at 7.65% for inheritances up to €7,993 and rise progressively to 34% for any amount over € 797,555. Multipliers based on the level of kinship and pre-existing wealth of the beneficiary can increase the tax liability.
Estate planning
These recent tax reforms will certainly be welcome news for anyone living in these regions or planning to move there. There may be substantial tax savings if you are planning to make gifts or if you expect inheritances in the future. You also have less to worry about when it comes to your estate planning and making life easier for your heirs. But it emphasises more than ever the need for specialist advice from experienced advisers, to not only take advantage of these changes but also other aspects of the regional Spanish tax system.
You also need to be aware of how Spain’s succession law imposes ‘forced heirship’. In general terms, children are entitled to receive two-thirds of an estate’s assets, so under Spanish law you cannot, for example, leave everything to your spouse. This applies to foreign nationals living in Spain by default.
You can however use the European Succession Regulation ‘Brussels IV’ to opt for the succession law of your country of nationality to apply on your death. You need to specifically state this in your will. This applies to all foreign nationals living in the EU, it is not restricted to EU citizens.
Every family is different. Take personalised advice with Blevins Franks, based on your situation and objectives, to help ensure your estate is divided as you wish and with as little tax and bureaucracy as possible. You can take steps now to make life easier for your family and heirs when you’re gone.
Contact Blevins Franks today.
