Inheritance tax (IHT) is paid when a relative or friend leaves you money, property or assets after their passing.
If you accept similar assets such as gifts or a donation, IHT is also liable.
Regardless of your official residential status, IHT in Spain affects everyone leaving assets in this country.
Heirs will have to pay IHT when receiving those assets, depending on how they are left and who they are left to.
Where the assets are located in Spain also makes a difference, because each region has different rates of tax, and different taxable deductions too.
When arranging inheritance for your family and loved ones, all of these factors should be considered.
Beneficiaries have six months from the death or receiving the gift, to declare receipt.
An extension can be requested which, if accepted, gives you an extra six months..
Importantly, the inheritance won’t be paid to the beneficiary until the tax due on it has been paid.
To ensure that your heirs pay only the tax they should, professional legal advice is essential.
NB: IHT is known as Impuesto de Sucesiones y Donaciones (ISD) in Spain.
How Is the IHT Calculated?
Spain has a basic three-step process for calculating IHT:
Determine the tax value of the assets.
With property, the value is calculated from the cadastral registry and local index.
Apply reductions and/or allowances to that taxable amount.
Apply tax credits on the resulting taxable amount.
What are the IHT Allowances?
Spain uses a system based on the direct relationship of the heir(s) with the deceased:
Natural and adopted children under 21.
Natural and adopted children over 21, spouse, registered civil partners, parents, adoptive parents, grandparents and great-grandparents.
Relatives of the second and third degree (e.g. in-laws, siblings, nephews/nieces and aunts/ uncles).
Relatives of the fourth degree or with no kinship, for example, a friend or common law partner.
NB: Note the importance of being married, as common law partners are two groups below husbands & wives.
What other allowances are there?
IHT in Spain has state, and also regional allowances.