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Succession Tax in Spain
Information on succession tax (ISD) in Spain: what it is, when it's payable, which heirs must pay, whether nationality is taken into account, how to calculate what's due and how to defer payment...
Spanish succession tax or Impuesto sobre Sucesiones y Donaciones (ISD) is a tax on inheritance and gifts and is paid by the recipient of the inheritance or gift. It is due only if the recipient is resident in Spain or the asset being inherited or gifted is an asset located in Spain such as real estate or moveable property situated in Spain.
Allowances are available depending on the relationship with the deceased or donor. In the first instance the State rules apply but these can be varied by the different Autonomous Communities (ACs) providing conditions set by the relevant AC are met. The State rules always apply to non-residents owning assets in Spain.
There is currently no blanket exemption between a husband and wife under the State rules. Where a married couple are both resident in Spain and one spouse dies, the surviving spouse can be fully liable on all assets inherited from the deceased spouse, subject to the allowances and reliefs available, wherever these assets are located. An unmarried couple can register as a pareja de hecho and benefit from the same reliefs given to a married couple providing they lived in one of the ACs which grant such concessions, but not all ACs do so.
The worldwide estate of those who are UK domiciles on death will also be liable to UK inheritance tax, as well as to Spanish succession tax on chargeable Spanish assets. Any succession tax paid in Spain can be deducted from any UK inheritance tax liability on the same asset to avoid double taxation.
Beneficiaries are divided into the following four groups depending on the closeness of relationship to the donor or the deceased:
- Group 1: Natural and adopted children and other descendants (e.g. grandchildren, great-grandchildren) under 21
- Group 2: Natural and adopted children and other descendants aged 21 and over; parents and other ascendants (such as grandparents, great-grandparents), and spouses
- Group 3: In-laws and their ascendants/descendants, step-children, brothers and sisters, cousins, nieces and nephews, aunts and uncles
- Group 4: All others including unmarried partners even if they have registered as a pareja de hecho
There are tax-free State allowances on inheritances (not life-time gifts) for members of the different groups as follows:
- Groups 1 and 2: €15,956.87
- Group 3: €7, 993.46
- Group 4: nil
Group 1 inheritors under the age of 21 can have an additional deduction of €3,990 for each year they are under 21, restricted in total to €47,858.59 per recipient.
There are further reductions where the recipient is physically or mentally disabled depending on the recognised degree of disability.
State Tax Rates and Multipliers
The state succession tax rates are:
The tax liability is subject to multipliers dependent on the relationship of the recipient to the donor/ deceased and the wealth of the recipient prior to the transfer (“pre-existent net worth”). The highest effective rate of tax is just under 82% on this basis, though before any multipliers the maximum rate stands at 34%.
Main home relief
There is a 95% allowance against the inherited value of the main home of the deceased up to €122,606 per inheritor, provided that the beneficiary belongs to Group 1 or 2 or is a remoter relative over the age of 65 who lived with the deceased during the two years prior to their death. The property must be retained by the beneficiary for 10 years following the death, but it does not need to be the beneficiary’s main home.
Autonomous Communities (AC)
The ACs can vary the State rules in the taxpayer’s favour – and many do.
For example, in certain ACs, spouses and children can receive a 99% reduction in the inheritance tax payable on death. This reduction currently applies in the Canary Islands, Balearics, Murcia, Madrid, and the Comunidad Valenciana, although there may be restrictions on the amount inherited, or the pre-existing wealth of the recipient.
In Andalucía, spouses and children are exempt from inheritance tax where the taxable value of the inheritance received is no more than €175,000, and the wealth of the recipient does not exceed €402,678.
In Cataluña spouses and unmarried couples registered as a pareja de hecho are able to benefit from allowances of up to €500,000, and each child can have an allowance of up to €275,000 (plus extra €33,000 for each year under 21 up to max of €539,000).
Other reliefs, such as the main home relief and relief for businesses, or even the child and spousal exemptions, may also be higher in certain ACs.
In many ACs, unmarried couples registered as a pareja de hecho are recognised as spouses.
You would need to look closely at the rules relating to a specific AC to obtain full details of the range of allowances and exemptions available.
Succession tax is paid under the AC’s rules if the deceased was habitually resident there, in the case of an inheritance; or, in the case of a gift of real estate, if the real estate is located in that AC; or, in the case of a gift of any other assets, in the AC where the recipient is habitually resident.
In the case of real estate in Spain owned by a non-Spanish resident, the State rules will always apply on the death of the non-resident owner.
To be habitually resident in a particular AC, you must have been resident there for five continuous tax years. So, the deceased or donee (as the case may be) must have been continuously resident in an AC for the past five years for that particular AC’s rules to apply, otherwise the State rules will apply.
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.
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.1102ww
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