As a result of the unusual political framework that exists in Spain, tax's are levied at both a regional and state level. For example, half of any income tax paid goes to the regional government while the other half goes to the state.
Towards the end of the 90's the central government decided to derogate responsibility for setting the rates at which inheritance and gift taxes are payable to the regional governments in order to finance that same regional government.
The result of this transfer has been that the regional governments have set about virtually abolishing the taxes for those who are legally resident in that region of Spain. While the legislation to virtually abolish the taxes has been welcomed by many, it has caused controversy in that it would appear to negatively impact any foreign residents with assets in Spain. The matter has been highlighted by the European Commission who believe the measures may not be compliant with European law, and the Spanish government has received a request from the European Commission to amend the laws.
Of course, the state is not itself responsible for the enactment of the laws as it derogated that responsibility to the regional governments. The response from the regional parliaments has been to reject the view taken by the European commission and instead insist that the laws are compliant with European law since anyone, be they European Community Citizens or Spanish, must be resident in the region to benefit from the generous deductions available.
It might be argued by the Commission that the laws will tend to disproportionately affect non-Spanish European Community citizens, but the matter continues to rumble on with no conclusion on the horizon.
In any case, where the regional exemptions and deductions are not applicable, the state level deductions are. The deductions available depend on the age of the beneficiary and the proximity of their relation to the deceased.
As an example, a 16 year old child who inherits from her parents, her situation falls into Group I and so she may claim an exemption of €15,956.87 + (€3,990.72 * 5) = €19,953.60 to give a total exemption of €35,910.47.
In addition, should any beneficiary be disabled, further exemptions are available ranging between €47,858.59 and €150,253.03
If the deceased took out a life insurance policy in favour of a beneficiary there is an exemption up to the value of €9,159.49 where the beneficiary is a spouse, child or parent.
An exemption also exists for tax payable on the permanent or habitual residence. This exemption applies equally to spouses, children and parents of the deceased at a rate of 95% of the value of their inherited portion of the property up to a maximum value of €122,606.47 each. An important proviso exists in that the property may not be sold for a period of 10 years after the inheritance.
Other relatives further removed, may also benefit from this exemption but must have been living with the deceased in the property for a period of at least two years prior to the date of death.