Spanish Inheritance: Tax Rates and Rules - Inheritance Law in Spain

Spain is on the top list of the European countries where British citizens purchase holiday homes. Among the important questions that arise in terms of property are linked not only with the topic of taxes, but also inheritance. This article will help you to understand how the inheritance works in Spain, and what inheritance taxes must be paid by the testators and heirs.

Inheritance is the transition of property, rights and related obligations of the testator to the heirs. Because here we talk about the immovables, the result of such a transition is a re-ownership, which often requires tax payment.

Rules can vary depending on a country, but usually, it is the law of last place of residence that is in power of a person's inheritance, especially if there was no will. Provided that Great Britain is still a member of the EU, according to the law, since 1^st of January 2015, the citizen of the EU/EEA may choose which law will apply to their will – the country of your nationality or your residence.

In Spain, spouses, as well as the heirs of the first stage (children and parents), enter the rights of inheritance in a notarial procedure. Any disputes, as well as situations where there are no direct heirs, are resolved in civil litigation.

Unfortunately, Spanish law can limit the freedom of people to include any wish in a will. There is the Law of Obligatory Heirs that determines who should inherit and what portion of the assets.

Half of the jointly owned property receives a spouse.
The 1/3 of the rest is divided between children in equal shares.
The 1/3 is divided between children in any manner. Spouse also get usufruct of these inherited part of the children, so kids can get this only when this parent dies.
The remaining 1/3 can be distributed freely.
If there are no kids, the ancestors get 1/3, and if there is no spouse, they receive 1/2.

The higher the value of the inherited property, the higher the real tax rate. With regard to property that is classified as "wealth", for example, the second real estate, yachts, jewelry, no deductions are available. Distant relatives and third parties specified in the will have practically no deductions and are obliged to pay tax at least double the amount. In the case when the only real estate in Spain is inherited by close relatives, the inheritance tax is not so high, as we'll see in an example.

Unfortunately, if the UK leaves the EU and do not join EEA, there is a small chance that Britain can still enjoy the resident tax rates and allowances. Rather the UK will become a subject to national tax rates. Nevertheless, there is a way to minimize negative outcome: to donate the property in Spain to your children before the Brexit. You can do it with retention of right to rent and use this home. As a result of this action, you will need to pay capital gain tax, which is likely to be less than inheritance taxes. Anyway, each case must be studied individually.

The difference between these two is quite simple. Testate means that person who passed away has left a valid will that describes who gets what after the death of a testator. In case of Spanish will and the foreign citizen, the testator has chosen the law that will be applicable, draw the will in accordance with a Spanish law and wrote the will in a closed or opened manner.

In case there is no will, the person died intestate. In case it happens, and a deceased had a Spanish citizenship, all his or her assets in Spain are subject to the law of Obligatory Heirs, that we described earlier.

According to British law, there are two cases, when the Spanish inheritance law will be applied:

• All assets of the deceased are in Spain
• A deceased has a Spanish citizenship

However, there have been other cases, as case law is often used in this matter, and you will most likely need the help of a lawyer, especially if there is no will. What is more, this law is a subject to frequent change, so we warn you to get the latest information on it, especially bearing in mind the Brexit.

How to write a will? There are certain requirements to the format of this document. First of all, it should be written in two columns (one on your mother tongue, another in Spanish). Second, it must be approved by a certified translator.

When writing a will, you should pay attention to the following:

• You can write a will in Spain, in accordance with local laws and sing it at notary's;
• You can also write a will according to English law, it can be done two ways:
• A will can be written on a computer and signed in the presence of 2 witnesses. It also must be submitted in probate to the competent authority in Great Britain, so that will can become valid;
• You may draft a will which considers only your Spain real estate at the Spanish notary or in accordance with the law of Great Britain. Thus, Spanish law will determine the manner of inheritance.

You can write both open will and closed will at the notary's, the difference is only that closed will is sealed and signed after it is placed in the envelope. The solicitor/notary should register the will and give its copy to a testator.

If you get divorced or married, your will becomes invalid! Thus, you will need to visit the notary again to draw up a new will. In case of divorce, your spouse will not have a right to inherit from you even if you have common children.

If you have children under legal age, the ex-spouse will not inherit anything BUT he or she have an access to all the inherited through the children, as a legal guardian who manages their assets until they reach the legal age. This includes selling, buying or renting out real estate!

How to prevent the ex-partner from managing your assets, now owned by our children? For this you will have to draw up a will and appoint an administrator of the assets. It can be a relative (a grandfather, another son or daughter of legal age) or a third party.

In case you get married, the previous will also becomes invalid and you have to draw a new one if you do not want the law of intestacy to decide on division of your assets.

We advise you to consider drawing up a Spanish will, because it is:

• Cheap
• Fast
• Convenient

If a person makes a foreign will, he or she will have to translate it, legalize, apply for Grant of Probate, etc. All of this requires time, money and sometimes too many steps. If these are the tasks for children, they will have to do it in 6 months after the death date, or they will be fined for 5% for every 3 months of delay!

What is more, contacting tax specialist and dividing your assets between several people might be beneficial in terms of amount of payable tax. However, it is not a legal requirement to have exactly the Spanish will, and the final decision is completely yours.

If the deceased foreign citizen did not leave a will, then the Spanish Civil Code proposes to apply to the legislation of his native country. At the same time, the rules of private international law allow return reference.

You need to be prepared for the fact that the Spanish side will require a conclusion signed by a lawyer in your country, containing references to the norms of the legislation of your country of citizenship. It is on the basis of this conclusion (do not forget to apostil it) that a decision will be made on the possibility of the application of Spanish law.

Keep in mind, that foreign will have to be translated by an official translator and apostilled. Everything should be done in time so that penalties for delay of the process are not applied. If there is no will at all, then the Spanish Law of Obligatory Heirs will be in power.

Inheritance tax in Spain for residents and for non-residents is calculated differently. In Spain, there are national standards, as well as the laws of autonomous communities. In this case, in each autonomous community, the tax amount may differ significantly, since each region has the right to establish its own tax deductions and benefits.

If the heir is a resident, the inheritance tax in Spain will be calculated on the basis of the rules of autonomy, if heir is a non-resident — from national standards. Autonomous community is determined either by the location of the inherited property, or by the place of residence of the heir.

So, when calculating inheritance tax, a progressive scale is applied: from 7.65% to 34% depending on the size of the taxable base. This stage of tax calculation is rather difficult, so we describe it in as much detail as possible.

Tax allowances depend on the relation of the heir to the testator. Heirs are divided in 4 groups and the national amounts of allowances are the following:

Which tax reliefs can enjoy British citizens in Spain while being a member of EU? Let's take a look at the inheritance tax allowances of some popular Spanish destinations.

• Canary Islands, Madrid: 99,9% allowance for spouses, parents and children.
• Catalonia: 99% relief for spouses and parents/children for inheritances of less than 100,000 EUR and 84,5% for up to 1,000,000 EUR.
• Andalucia: 250,000 EUR allowance for direct family members.
• Valencia Autonomous Community: no tax for spouses. No tax for ancestors, descendants on inheritances of less than 100,000 EUR and 75% allowance on more than this sum.

In addition to the listed allowances, the 1st, 2nd and 3rd groups of heirs are provided with the possibility of a 95% deduction from the value of residential real estate. The maximum amount of such allowance is € 122,606.47 per heir.

To apply for this allowance, the following conditions must be met:

— Real estate must have the status of permanent place of residence of the testator, that is, the property in which he or she used to live in Spain or at the address where testator was registered (the deduction does not apply to second and other homes).

— Preservation of property by heirs in the next 10 years.

Example:

The testator and heir: citizens and tax residents of the UK
Heir: spouse of the testator + a child of 25 years
Inherited property in Spain: villa worth 500,000 EUR + 16,000 EUR houseware.
Will: Divide the inheritance between spouse and a child in equal shares.
Address of a house: Alicante

As there is no tax for spouses in Valencian community, the wife of a deceased does not pay anything. As for a child, the allowance is 75% on inheritance more than 100,000 EUR (in our case the allowance is 193,500 EUR, because the inherited amount is 258,000 EUR).

This leaves 64,500 to tax.
Tax rates in Valencia:

Last but not least, to determine the final tax amount, you need to apply a coefficient to the values calculated above. Its value depends on the value of real estate and the degree of kinship of the heirs.

The pre-existing net wealth here was 258.000 EUR, and the child is the first group of heirs, so we should multiply our amount by 1, so the tax to pay is: 9637.24 EUR.

For tax residents of Spain, the rates and conditions of regional legislation of the autonomous region, in which the testator resided, apply.

This is an example of a tax rate in Valencian Community:

— The first column: the part of the taxable base to which the fixed tax quota applies;
— The second column: fixed tax quota;
— The third column: the second part of the tax base to which the interest rate applies;
— Fourth column: interest rate.

Foreigners who are not tax residents of Spain/EU/EEA are subject to the general conditions provided by law 29/1987. These national inheritance tax rates are the following:

Up to €7,993: 7.65%
€7,993–€31,956: 7.65 to 10.2%
€31,956–€79,881: 10.2 to 15.3%
€79,881–€239,389: 15.3 to 21.25%
€239,389–€398,778: 25.5%
€398,778–€797,555: 29.75%
€797,555+: 34%

First and foremost, if a will is Spanish, a Central Registry of Spanish Wills in Madrid should be notified about the existence of a will. Next, the process of administration of the property can start. You will need a notarized and apostilled copy of the death certificate.

The procedure for the opening and entry into the inheritance in Spain is in hands of notaries and civil court at the place of residence of the testator. Inheritance process must take place no later than 6 months from the date of the testator's death (otherwise, fine will be added to the tax amount).

In case the will is foreign, these documents must be translated, notarized and apostilled before the process starts:

— death certificate
— will
— grant of representation (grant of probate, grant of letters of administration)


If there was no will:

— death certificate
— grant of representation (grant of probate, grant of letters of administration – optional)
— Certificate of Law to explain the law of intestacy in a country of deceased's citizenship (optional)

Then the Deed of Declaration and Acceptance of Inheritance ("Escritura de Declaración o Manifestación de Herencia") will be drafted at the notary's.

After describing and evaluating the property, you or your tax specialist should calculate a total value and the amount of tax due for payment (taking into account existing deductions and benefits).

Last, but not least, you are obliged to pay taxes within 6 months from the date of the testator's death.

You should fill in form 650 on-line

Or you can fill it in and print out to present it in Tax Agency

You may need to consult a tax specialist so he can assist you on this matter.

To pay this tax, you need to have a NIF (for non-resident Spanish taxpayers) or NIE (for non-resident foreign taxpayers). You can read here on how to get a NIE.
What do you need to apply for NIF at the Tax Agency office?

— ID/Passport
— Certificate from the Spanish Consulate that you should receive in the country of your residence that states that you are registered there as the Spanish citizen.

In conclusion, we want to warn you about the following: entry into the inheritance in Spain is a rather complicated process, since it affects several areas of law! Laws of inheritance, family, tax, property and others. Therefore, we recommend that you get advice from a solicitor or a tax specialist before you take any action.