How Does Inheritance Tax Work in Spain?

Inheritance tax, known as “Impuesto sobre Sucesiones y Donaciones” (ISD), plays a significant role in Spanish tax law. If you’re a British expatriate residing in Spain, it’s crucial to understand how this tax works, as it can have substantial implications on your estate planning.

In Spain, inheritance tax is charged on the beneficiary rather than the estate, differing from the UK approach where the tax is levied on the deceased’s estate. Therefore, each beneficiary must file their own inheritance tax return in Spain.

Here are some key aspects of how inheritance tax works in Spain:

1. Tax Rates: Spanish inheritance tax rates are progressive, ranging from 7.65% to 34%. However, the final tax rate can be influenced by various factors such as the amount inherited, the beneficiary’s pre-existing wealth, and their familial relationship to the deceased.
2. Tax Allowances:
• Group 1 Tax Classification: This group involves children of the deceased, including adoptive ones, under 21 years of age. They are eligible for a total tax allowance of 47,859 euros.
• Group 2 Tax Classification: This category consists of offspring over 21 years old, the deceased’s grandchildren, parents, grandparents, and spouse. This group can benefit from an allowance of 15,957 euros.
• Group 3 Tax Classification: This encompasses siblings, nieces, nephews, aunts, uncles, along with descendants, ascendants, and in-laws. They are granted a tax allowance of 7,993 euros.
• Group 4 Tax Classification: This classification consists of cousins, non-married partners, and any other individuals with no relation to the deceased. Regrettably, this group is not eligible for any tax allowance.
3. Regional Variations: Each autonomous community in Spain can apply its own deductions and allowances. This means inheritance tax can significantly vary across different regions. For instance, some communities like Andalusia and Madrid offer substantial reductions for inheritances between spouses and direct descendants and ascendants.
4. Double Taxation Treaties: Spain has double taxation treaties with various countries, including the UK, to avoid taxing the same income or assets twice. These treaties can provide relief for assets liable to inheritance tax in both countries.
5. Worldwide Assets: If you are a resident in Spain at the time of your death, your worldwide assets are subject to Spanish inheritance tax. This includes assets located outside of Spain, such as property in the UK.

Given the complexities of the Spanish tax system and the potential for changes, it’s highly recommended to seek professional advice for estate planning. At Chorus Financial, our experts are well-versed in the tax systems of both Spain and the UK. We can provide comprehensive advice on inheritance tax planning based on your individual circumstances. Please contact us if you need further assistance or have any queries.