Spanish inheritance tax for expats explained

Spanish inheritance tax for expats explained

Spanish inheritance tax for expats explained

With retirement on the horizon, it’s only natural for many of us to start thinking about how we’d like our estate to be split between our nearest and dearest. While creating a will is an invaluable first step, it’s also wise to consider how much tax will be levied against your relative’s inheritance; especially if you’re an expat.

No matter if you live in your home country or abroad, inheritance tax is a legal obligation that we all have to adhere to. Inheritance tax is a tax levied on anything acquired as a gift or as inheritance, meaning your relatives will actually receive slightly less than the original sum promised to them in your will.

Rates and rules can also vary widely between countries, so if you are living abroad, you need to know how these rates will impact your next of kin.

To help those who’ve retired to Spain get started, here’s everything you need to know about Spanish inheritance tax rates and Spanish inheritance law for non-residents.

What are the differences between UK and Spanish Inheritance laws?

For British expats living in Spain, having knowledge of Spanish inheritance law is vitally important. While UK tax law is fairly comprehensive, Spanish inheritance law is much more complicated and potentially far more punitive if not followed carefully.

For instance, in the UK, assets left to your surviving spouse or civil partner are free from UK inheritance tax. However, in Spain, as there is no concept of a person’s ‘estate’, all beneficiaries are liable to pay Spanish inheritance tax in one form or other.

Furthermore, Spanish inheritance law recognises children in a different way to UK law. While under Spanish law, 50% of the estate will go to your spouse, two-thirds of the remaining 50% must legally go to your children, with the final remaining third being distributed as you wish.

Alternatively, if you have no children, then any surviving parents can claim one-third of the estate if your spouse is still alive; and 50% if not. If you have no next of kin, then you may leave your estate to anyone you wish, whether they’re living in Spain or abroad.

If the above rules are not in line with your wishes, it is vital that you insert a clause into your will that states your inheritance must be administered in accordance with the UK rules; something our expert team at Blacktower can advise on.

Finally, it’s worth noting that Spanish inheritance law includes something called Succession Tax, which is both an inheritance tax and a gift tax on worldwide assets.

Fortunately, this tax is not applicable on assets outside of Spain, provided the beneficiary is not a Spanish resident, limiting Spanish inheritance tax to your Spanish possessions.

How much is inheritance tax in Spain?

Although Spanish inheritance tax is applicable across the country, tax rates may differ from region to region. In some cases, these variations can be rather substantial.

To keep things simple, we’re only going to cover overall Spanish inheritance regulations. If you’re concerned that your region has differing tax laws, it’s best to speak to a local expert in the region or find a reputable Spanish inheritance law calculator.

Based on current state regulations, the different Spanish inheritance tax rates apply to the following amounts:

• €7,993 or less = 7.65%
• €7,993 to €31,956 = 7.65% to 10.2%
• €31,956 to €79,881 = 10.2% to 15.3%
• €79,881 to €239,389 = 15.3% to 21.25%
• €239,389 to €398,778 = 25.5%
• €398,778 to €797,555 = 29.75%
• €797,555 or higher = 36.5%

However, there are re also further multipliers applied on top of these rates, depending on the beneficiary’s pre-existing wealth and their relationship to the deceased.

Pre-existing wealth (€)	Groups 1 & 2	Group 3	Group 4
€0 – €402,678	1.0000	1.5882	2.0000
€402,678 – €2,007,380	1.0500	1.6676	2.1000
€2,007,380 – €4,020,771	1.1000	1.7471	2.2000
Over €4,020,771	1.2000	1.9059	2.4000

So, for example, if your relative received an inheritance of €40,000, they would be taxed 10.2% on the total value, after exemptions, alongside an additional 1% if they fell into the first category of group 1 or 2, for a total overall tax rate of 11.2%.

How to avoid Spanish inheritance tax

Much like all countries, there is no real way to avoid paying tax on Spanish inheritance. While it is possible to avoid paying any inheritance tax in the UK thanks to exemption limits¹, in Spain, these are much smaller and varied.

Once again, these exemptions will be determined by either state law or that of the autonomous region you live in. But on top of this, exemption rates will also be determined by what previously mentioned group your relatives fall into.

Below are the following criteria to determine who sits in which group.

Group 1	Group 2	Group 3	Group 4
Natural and adopted children under 21	Children over the age of 21	In-laws and their ascendants or descendants	All others, including unmarried partners not registered as Pareja de Hecho
	Grandchildren	Stepchildren
	Parents and grandparents	First cousins
	Spouses	Nieces and nephews
	Unmarried partners registered as Pareja de Hecho (domestic partner)	Aunts and uncles
		Sisters and brothers

As a result of these groups, the main allowance from the state for tax exemption for each relative are as follows:

• Group 1 – €15,957²
• Group 2 – €15,957
• Group 3 – €7,993
• Group 4 – Nil

Alongside these exemptions, those relatives with a disability will also receive and further allowance of €47,859 or €50,253, depending on their disability.

These exemption rates might seem small when compared to the UK, but depending on the region you live in, you may find that exemptions are much greater for spouses and children.

With all this being said, there are two final points to note about the State inheritance rules:

1. In the UK, a beneficiary in a will is not liable to pay tax on the first £325,000 of inheritance. Meanwhile, under Spanish Inheritance law, relatives falling into group one are only granted relief on the first €15,956. This is a huge consideration when planning for your family’s future.
2. It’s important to note that the tax allowance for children aged less than 21 increased by €3,990 for each year until they reach 21, up to a maximum allowance of €47,868.

Inheritance tax on Spanish property

When it comes to the inheritance of property in Spain, Spanish law stipulates that a 95% tax reduction can be applied to the value of your main residence, up to a maximum exemption of €122,000.

However, on a state level, this deduction only applies to groups one and two, or if a relative of 65 years or older was living with the deceased at least two years prior to their passing.

Furthermore, if your property is sold within ten years of your death, this tax liability may be recalculated, which will likely result in a higher tax bill being applied.

As for other property, standard Spanish inheritance tax laws will apply.

What is the tax on UK pensions for expats in Spain?

Although the initial tax on pensions in Spain will be determined by whether or not you’re considered a Spanish resident, as well as the varying Spanish tax rates for pensioners, once you pass on, any inherited pension fund you leave behind will be subject to the same inheritance laws as we’ve previously discussed.

Spanish inheritance on UK assets

While all assets are subject to Spanish inheritance tax, said tax is not applicable if these assets are located outside of Spain, provided your chosen beneficiary is not a Spanish resident. In this case, the country’s respective tax laws will apply instead.

Spanish gift tax laws

In Spain, inheritance and gift tax are treated as one and the same. But while inheritance tax applies upon death, gift tax in Spain becomes applicable when you send a financial gift to another person.

The definition of what constitutes a gift can be tricky, so it’s best to speak to a financial advisor for further clarification. And unlike inheritance tax, gift tax must be declared within 30 days of receiving the gift, with the beneficiary being liable for the tax.

Naturally, gift tax rates in Spain differ to those in the UK.

What is the deadline for paying Spanish inheritance tax?

In Spain, the estate of the deceased will not be released to their beneficiaries until inheritance tax has been paid. Beneficiaries have six months to pay this tax, starting from the date of your death, though they may apply for a six-month extension or the ability to make payments in instalments if the initial total amount is too large for them to cover.

Failure to meet this deadline will result in an additional 5% tax needing to be paid every three months, up to an additional maximum of 20%. After this point, if inheritance tax is not paid, the estate will go to the Spanish government to be sold off.

What if the deceased leaves no will?

In the event that an expat dies without leaving a will, Spanish law requires the inheritance process to be completed by their heirs within six months. You will need to apply for a grant of probate, translated and legalised for public notaries in Spain, and then get in touch with the appropriate Spanish departments.

You will also need to present a variety of documents, including, but not limited to, the following:

• Several death certificates (translated and legalized)
• A legalized copy of their passport
• Their Spanish Tax Identification Number for Foreigners (NIE)
• Power of attorney from their heirs
• A copy of the heirs’ passports
• Birth and marriage certificates, where applicable (to prove a relationship)
• NIE numbers of the beneficiaries, as applicable
• A list of the testators’ assets
• Up-to-date bank statements, as applicable

If nobody comes forward to claim an inheritance, or there are no legal heirs to inherit it, then the estate again passes to the Spanish state for sale. The same rules will also apply if all beneficiaries reject the inheritance.

Sorting inheritance without a will from the deceased can be a long and difficult process and legal assistance is highly recommended to ease the process.

As a Brit living or owning property in Spain, there is a raft of considerations when it comes to succession planning.  If you’d like more information on avoiding the common pitfalls around Spanish inheritance tax for non-residents, or require advice on any of the issues raised, it’s best to get in touch with our financial team.

Here at Blacktower, we’re experts in helping expats living abroad organise their finances, pensions, and international mortgages. You can find plenty of information on the countries we work in over on our locations page, and don’t forget to visit our news and insights page for up-to-date information on moving abroad.

This communication is for informational purposes only based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained  in this communication is correct, we are not responsible for any errors or omissions.