Inheritance and Gift Tax in Spain: everything you need to know
It is well known that when you receive an asset as an inheritance in Spain you are obliged to pay a tax. This tax is the so-called Inheritance and Gift Tax Spain (Impuesto de Sucesiones y Donaciones).
Regulation of Inheritance and Gift Tax in Spain
This tax is regulated by state law and it is mandatory throughout the Spanish territory.
As provided by Law 29/1987, of December 18, on Inheritance and Donations Tax, the Inheritance and Donations Tax levies the capital gains obtained free of charge (inheritance, donation, legacy …) by natural persons.
If it is a company the one that receives the assets is taxed by Company Tax and not by Inheritance Tax.
The management of the Inheritance and Donations Tax is assigned to the Autonomous Communities and its regulation varies from one to another.
Almost all the Autonomous Communities establish reductions or bonuses, and the tax may vary considerably from one to the other.
When are you obliged to pay the Inheritance and Gift Tax in Spain?
There are 3 cases in which this tax must be presented:
If you receive assets and rights by inheritance, legacy or other inheritance title (acquisitions “mortis causa”).
If you acquire assets by donation in life (acquisitions “intervivos”).
If you are the beneficiary of life insurance.
In what period do you have to file the tax?
It will be different depending on whether it is an inheritance or a donation.
In the case of inheritances, the presentation period will be 6 months from the death.
For donations, the submission deadline will be 30 business days from the day the donation is made.
Can you request an extension of these deadlines?
Only in the case of inheritance, you can request an extension of another 6 months to file the Inheritance Tax.
The extension must be requested within the first 5 months of the submission period.
Where do you have to file the Inheritance and Tax in Spain?
Inheritance Tax
You must file the tax in the Autonomous Community where the deceased had his last habitual residence.
If the deceased has not had habitual residence in Spain, the place of presentation will be the Tax Office of Madrid.
If some or all of the heirs have habitual residence in Spain, in the Autonomous Community where any of them reside.
Donations Tax
The place of presentation of this tax will vary according to the donated property.
Donation of real estate. The place of presentation of the Tax will be:
The Autonomous Community where the real estate is located.
If the properties are in different Autonomous Communities, where the most valuable assets are.
If the donated properties have the same value, in the Autonomous Community where one of them is located.
If the donated property is abroad, you must present the tax at the Madrid Tax Office.
Donation of personal property. For example, if you have received donation money:
In the Autonomous Community where you reside.
If there are several grantees with different residences, the tax will be presented in the Community where the grantee of higher value goods resides.
If all the goods have the same value, in the Community of residence of one of the donees.
If neither resides in Spain, in the Madrid Tax Office.
Donation of real estate and personal property. If you have been donated a home and money, you must submit the tax:
In the Community where the home is located if it has more value than money.
In the Community of your habitual residence, if the value of the money is higher than the value of the home.
How much will you have to pay for Inheritance Tax in Spain?
INHERITANCE TAX
State regulations:
To know what you have to pay, you will have to:
1) Calculate the value of the estate. The estate is calculated by adding the real value of the assets (at the time of acquisition) and subtracting debts and deductible charges.
The total of the inheritance constitutes the taxable base of the Inheritance Tax.
2) Make the appropriate reductions according to the degree of kinship with the deceased or the type of inherited asset.
Reductions will be applied to the taxable base of the tax, which change according to the degree of kinship. Once these reductions are applied, the taxable base is obtained.
Statewide, the following reductions will apply:
Group I.- To descendants and adoptees under 21 years of age, 15.956.87 euros, plus 3,990.72 euros for each year less than 21.
Group II.- To descendants and adoptees 21 years of age or older, spouse and ascendants, 15,956.87 euros.
Group III.- To brothers, uncles, nephews, in-laws, brothers-in-law … 7,993.46 euros.
Group IV.- To cousins or more distant relatives and strangers, no reduction will be applied.
In addition, the law provides for other reductions: for disability, type of inherited asset (life insurance, company or business), disability …
For example, if a son over 21 years of age corresponds to 100,000 euros in inheritance, the first 15,956.87 will be exempt. The taxable base would be 84,043.13 euros, unless you are entitled to another reduction of those provided by law.
3) Set the tax rate. The tax rate is determined by applying to the taxable base:
The applicable rate that will range from 7.65% to 34% depending on the amount inherited.
A multiplier coefficient based on the pre-existing assets, which will range from 1 to 2.4.
4) Amount to pay. Deductions or bonuses established by law will be applied to the tax quota. Applied the deductions or bonuses you will get the fee to pay.
Autonomous regulations:
At the regional level, state reductions and bonuses can vary a lot.
1) Regarding the reductions applicable to the tax base:
For example, in Andalusia, there is an autonomous reduction for the spouse, descendants, adopted and ascendants, of 1,000,000 euros. If a child, spouse, stable partner or ascendant inherits up to 1,000,000 euros, they do not pay Inheritance Tax.
However, in Aragon, Murcia and Castilla-La Mancha it will be 15,956.87 euros on the tax base.
In other Communities, it varies between 16,000 euros and 100,000 euros (Madrid, Balearic Islands, Castilla-León, Valencia ..).
In addition, in each Community, other reductions are established on the taxable base.
2) Regarding the bonuses on the quota: There are also significant differences between autonomous communities.
But, which are the cheapest and most expensive Autonomous Communities for Inheritance Tax purposes?
Although there is no clear rule that determines this, it can be said that:
The cheapest communities are Andalusia, the Canary Islands, Madrid, Extremadura, Murcia, Catalonia or La Rioja.
And among the most expensive, Aragon, Asturias, Castilla y León, Comunidad Valenciana or Castilla-La Mancha.
DONATION TAX
State regulations:
No reduction is applied to the tax base.
The tax base is made up of the real value of the assets acquired less deductible charges and debts. With the exceptions established by state regulations.
Autonomous regulations:
There are great differences in the amount to be paid for a donation depending on the Autonomous Community.
There are Communities in which, once the appropriate calculations have been made (reductions, applicable rate, coefficient, bonuses …), it is almost non-existent.
For example, in the Community of Andalusia, Madrid, Murcia and La Rioja to donations between parents and children, a 99% discount will be applied on the tax quota.
Which means that only 1% of the tax fee would have to be paid. Provided that the donation is formalized in a notarized public document and the origin of the funds is justified, when the donation is made in cash.