Spanish Inheritance Tax - The Basics

Published on 15/11/2006 in Taxes in Spain

Inheritance tax is a huge concern for anybody who owns property in Spain. It is a vast subject but I will attempt to clarify for you the basics. For more in-depth information, you will need to do further research.

Wills

Although foreign wills are valid in Spanish inheritance cases, it is advisable to have a Spanish will to avoid complications during the inheritance process. Spanish law requires that two-thirds of an estate must go to the children, as compulsory heirs. However, all British property owners can choose their heirs and this will not be challenged by forcible heirs under Spanish laws.

The most commonly used form of will is the “open will”. It is usually in double barrel column format, in both Spanish and English. This is signed before a Notary Public and is directly enforcemed without the need for grant of probate. The Notary Public will keep the original and a copy is sent to a central registry of wills in Madrid.

Who pays Inheritance Tax in Spain?

Expats resident in Spain and paying tax are liable to pay Spanish Inheritance tax regardless of the country in which the inheritance is situated. Non-residents are liable to pay Inheritance Tax in Spain only on assets which are physically located in Spain. There is no exemption on inheritance tax in Spain.

Categories of Inheritors

Inheritors fall into four categories with the allowances conceded shown in brackets::

Group 1: Descendants and adopted children under 21. The older the child, the more tax to pay (15,956.87€).

Group 2: Descendants and adopted children over 21, spouses, parents and adoptive parents (15,956.87€).

Group 3: Brothers/sisters, nephews/nieces, aunts/uncles (7,993.46€).

Group 4: Relatives in forth degree or friends (No allowances).

Calculating Inheritance tax

Once the above allowance has been deducted the Tax authorities apply the following tax rates on the remainder of the inheritance, with Group 1 paying the least and Group 4 the most.

 

AMOUNT  Percent (%)
0 up to 7,993.46€ 7.65
Up to 15,980.91€ 8.50
Up to 23,968.36€ 9.35
Up to 31,955.81€ 10.20
Up to 39,943.26€ 11.05
Up to 47,930.72€ 11.90
Up to 55,918.17€ 12.75
Up to 63,905.62€ 13.60
Up to 71,893.07€ 14.45
Up to 79,880.52€ 15.30
Up to 119,757.67€ 16.15
Up to 159,634.83€ 18.70
Up to 239,389.13€ 21.25
Up to 397,55.08€ 25.50
Up to 797,555.08€ 29.75
Over 797,555.08€ 34.00

   

Ways to avoid and minimise Inheritance Tax

  • Buy jointly with future inheritors
  • Sell the property to future inheritors either fully or partly.
  • Take out a mortgage loan on the property.
  • Organising life insurance ensuring adequate funds to cover the Inheritance Tax bill.
  • Buying or owning through a Spanish limited Company
  • Buying or owning through an EU company
  • Buying or owning through a UK limited company

Again, this is a very basic but uncomplicated guide to Inheritance Tax. For a more in-depth guide, you will need to investigate the subject further and get professional financial advice.

 

Written by: Susan Pedalino

About the author:Women In Spain


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Comments:

john said:
28 June 2013 @ 02:26

Everyone cashes in on this, after 4 years of not being able to work because I have been looking after my partner, I do not have the 9,000E to pay funeral expenses/inheritance taxes, I am financial ruined, our savings have gone, I fear my future, Alone, I have done nothing wrong, I'm just facing financial difficulties with the death of my loved one.


Andrew Moore said:
15 May 2013 @ 01:07

If you inherit money from your (deceased) father's house sale (in England) PRIOR to emigrating to Spain, do you declare it for inheritance tax in Spain, or just as ordinary savings to be taxed on the interets it accrues?


SIMON JAMES said:
04 October 2012 @ 16:41

Could anybody kindly tell me how to gift a spanish property that is already owned by a uk taxpayer to a UK company?
Is there not a spanish tax on that also?



SIMON JAMES said:
04 October 2012 @ 16:40

Could anybody kindly tell me how to gift a spanish property that is already owned by a uk taxpayer to a UK company?
Is there not a spanish tax on that also?



john cardona said:
19 May 2012 @ 18:29

Can you please contact me on johncardona@btinternet.com re uk company owning a spanish house thanks


Patricia said:
18 March 2012 @ 18:21

My mum has re-written her will in a manor that I inherit her property in Spain but on the condition that I then leave it to my brother (my mum is an ex-English pat residing in Spain). I'd like to live in Spain for a few years but I reside in Canada and have UK/Canadian citizenship. I'm starting to feel uncomfortable with this arrangement because I don't want to be stuck paying inheritance taxes on something I'm technically not going to inherit in the true sense of the word. Can I refuse to accept the property. What are my options?


Vicky @ Wincham said:
25 January 2012 @ 13:58

Good afternoon,

Steve - please drop me a private message on here and I will be happy to assist.

Zannado - do also please drop me a message and I will be in touch.

Thank you

Vicky

For and on behalf of malcroach and Wincham International - Leaders in the Field of Spanish Tax Advice



Steve said:
16 January 2012 @ 18:27

My Parents have lived in Spain for 11 years and are currently renting.My wife,Myself and my Parents have talked about the Prospect of us retiring early,going to live with my parents in Spain, and myself and my wife to buy the house outright as joint owners so there is no Mortgage.
Eventualy, when its just myself and my wife living in the house on are own.What is the tax and inheritance tax implications when on of us is left on their own



zannado said:
28 November 2011 @ 21:57

Please can someone help me, my husband has paid inheritance tax on the 50% of a property left to him by his Father even though the property has not been sold as his mother in law has use of it until she passes. However, he has recently been told that he now also has to pay capital gains tax, please can someone help as we just don't have the money and wont be ending up with anything to pay off a loan!??


zannado said:
28 November 2011 @ 21:54

Please can someone advise me,
My husband has paid inheritance tax on 50% of a property



paul eastwood said:
06 August 2011 @ 14:06

I am acting on behalf of my in laws who will be inheriting a property ans money in Spain soon. Can they refuse to inherit parts of the estate and nominate others so they can reduce the IHT to be paid also does the tax need to be paid before they inherit or can they inherit then pay the tax?
Spanish IHT will not need to be paid on assests in the UK, the deceeased was Enlish residing in Spain with a NIE number if that makes a difference. Thanks



Evelyn said:
06 July 2011 @ 00:20

I am interested in finding out what to do if one is not a resident of Spain, but has inherited 50% of a property there. The other 50% were left to another person in Brazil, who is elderly and for her own reasons (not valid ones), does not wish to claim the inheritance. This has been going on for 10 years... and no inheritance yet. Please email evofsoske@hotmail.com if you can help. Thank you.


john said:
14 April 2011 @ 18:28

Need help .Inheritance tax spain.
Mum passed 2007 away leaving flat in spain to me and my brother.only english will .we are still sorting out estate in uk. but spanish friend advised flat in spain may be transferred to us after 5 years no iht tax to pay in spain.

does anyone know how this works,any info would be great.



james said:
13 March 2010 @ 18:25

can you expand on the idea of waiting 5 years.

my wife and i jointly own an appartment and and don't like the idea of paying tax if one us dies, why should the state profit from our loss? the cost of life insurance isn't getting any cheaper. i gather in france there is no tax due if a property passes between husband and wife. is there a eu law on inheritance tax



Confused said:
02 March 2010 @ 17:49

I part own a UK manufacturing ltd co with my father and brother. My parents have a house in Spain and my father wishes to transfer the land (not the house) into the ltd company to avoid inheritance tax.

He reckons this will get rid of the full IHT liability in Spain. Sounds a bit dodgy to me. Any ideas?



Confused said:
02 March 2010 @ 17:46

I part own a UK manufacturing ltd co with my father and brother. My parents have a house in Spain and my father wishes to transfer the land (not the house) into the ltd company to avoid inheritance tax.

He reckons this will get rid of the full IHT liability in Spain. Sounds a bit dodgy to me. Any ideas?



pnut said:
24 February 2010 @ 20:09

Avoid inheritance tax (in the case of a spouse dying before another) by either selling within 6 months of the death, or waiting 4 years (recently changed from 5.5 years). Our Spanish accountant informed us of this loop hole, and as the property slump is so bad, i decided to wait 4 years...good luck.


Neal. said:
11 February 2010 @ 14:51

I am happy to pay the inheritance tax due on a Tenerife property.
How and where is it paid?



Paul H said:
04 February 2010 @ 16:26

Could someone help me with the following as my mother is receiving mixed info in Spain at present.

My mothers husband passed away in the UK in October, they have a joint property in Spain, which they have special wills on that they had written to over ride Spanish rules of passing down. Can you advise if the property now passes to her until her death (Inheritance tax free) and then we pay inheritance or if she has tax to pay now? Thanks



Ryan2009 said:
21 August 2009 @ 12:12

I agree with polopalicante that ownership through a UK company is probably the best way forward.

However, he is wrong about the UK tax treatment.

First, it would not be outside of your estate for inheritance tax purposes. That exemption - called business property relief - is only available for trading companies. This is not a trading company, it is an investment company since it only holds a property.

Second,, for capital gains tax purposes, the gain would be taxed at 18%, not 10% on the first £1m as he claims. This is called entrepreneurs' relief and again is only available to trading companies, not investment companies.

In short: tread carefully and get yourself a good lawyer or tax adviser, preferably with knowledge of both Spanish and UK taxes.

Ryan



polopalicante said:
19 July 2009 @ 10:52

Please send more info on gift your property to a uk Company.


VCD said:
19 February 2009 @ 11:48

Hi Mal,
I would be interested in some help in putting my property into a company. Could you please e-mail me vcd.net at virgin.net
Thanks
Vanessa



malcroach said:
21 September 2008 @ 10:16

Good article but I would comment on the options .
1)BUY JOINTLY WITH FUTURE INHERITORS.Not a good idea your children can have all sorts of problems in the future such as Matrimonial and debt problems this puts the asset at risk of being claimed by third parties ,if you still own part of the property then your inheritors will still need to probate in Spain and pay the taxes on your part of the asset.

2)SELL THE ASSET TO YOUR FUTURE INHERITORS. They would need the cash to do this ,they would have 7% to pay on the purchase and you would have CGT on the sale.you also loose control of the asset.

3)TAKE OUT A MORTGAGE OR LOAN ON THE PROPERTY. Not a real option to someone who has no borrowings ,what would you do with the cash ,it would cost you at least the bank margin and to do this you would have to have the income to support the loan.

4)TAKE OUT INSURANCE TO COVER THE LIABILITY. Good idea but your inheritors would still have to probate and this is costly and time consuming.

5) OWNING IN A SPANISH COMPANY.Not a real option you still have Spanish IHT to deal with and you have to deal with Spanish professionals to prepare and file your accounts a Spanish company is more costly and difficult to deal with than a UK Company.

6) OWN IN A EU COMPANY.this is the most sensible method of owning property in Spain.If you already own the property then you can gift your property to a UK company with no 7% tax or 3% retention .you would have no taxes in Spain to pay in the future and no IHT in Spain you can leave your Shares in a private trading ltd company in your UK will and these shares will be tax free to your inheritors in the UK . all your property coast such as Community fees ,water ,electric and repairs will be tax deductable to the company,Your spouse will not pay IHT on the inheritance of your share.If you wish to sell in the future you can sell the company this will save the buyer 7% and you the 3% retention.you may pay CGT in the uk but this is only 10% in the UK on the first million £ as to 18% in Spain and the UK on the disposal of property.

If anyone would like more info i would be pleased to assist.




malcroach said:
29 November 2007 @ 23:44

Why have you not commented about owning the property in a UK limited Company .There would be no tax in Spain No Wills in Spain and no Lawyers in Spain the savings are imence

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