One of the main concerns people have is the impact that having to pay inheritance tax might have on those they leave behind.
How is inheritance tax applied in Spain?
Inheritance tax is applied very differently in Spain to many other countries. To begin with, all beneficiaries must declare it, even the husband or wife of the deceased. What often comes as a surprise to inheritors is that this tax must be paid before a property can be sold. It’s not only property that’s taxed. Money held in bank accounts, vehicles, deposits and other assets are all taxable too.
Only six months is allowed for the inheritance tax declaration to be made. After this time an additional levy of 5% every three months is applied up to a maximum of 20%. A very good reason for making sure that you are as prepared as you can be.
How much is inheritance tax in Spain?
Two factors influence the calculation of how much tax you must pay:
- The autonomous community in which your property is located
- Your relationship to the deceased
Whether you and your inheritors are resident or non-resident was another factor, but an EU ruling on this now means that there is no discrimination when it comes to residency for EU citizens.
Where your property is located
In Spain there are two laws that govern inheritance tax:
- national law (Ley estatal)
- local law governed by the autonomous regions of Spain
In other words, procedures and taxes vary according to where you live or the property is located. These regional variations only apply to residents in the EU as non- community citizens are governed by the national rate.
Not all autonomous regions implement their right to place an additional tax. However, location can make a difference in other ways too. For example, some regions have additional allowances i.e. the amount you can inherit before you have to start paying inheritance tax. In Valencia this allowance is 100,000€ for close relatives.
Resident or non-resident in the EU
It used to be that residents and non- residents in Spain had different amounts of Spanish inheritance tax to pay. However the European Commission told Spain that this practice was discriminatory against non- residents and must change.
A modified European law was passed on the 28th November 2014 and applied to all bereavements and donations occurring after January 1st 2015. According to this law, Spanish inheritance tax must not be discriminatory.
All EU citizens are now taxed in the same way as a resident in Spain according to the regional rules that apply. The differences across regions still apply. However, Spanish inheritance tax for non-residents in Spain who are residents in the EU is now in line with residents in each Spanish region. It remains to be seen what the implications of any country leaving the EU will be upon this ruling.
Your relationship to the deceased can make a significant difference to the amount of inheritance tax you have to pay.
There are four groups of inheritors:
- Children and grandchildren under the age of 21
- Children and grandchildren over the age of 21, parents, grandparents and spouse
- Brothers, sisters, uncles, aunts, cousins, parents-in-law, daughter/ son-in-law
- Anyone else
Residents in some autonomous communities might find that an unmarried partner falls into category four, no matter how long they have been living together.
Close relatives of the deceased (categories 1 and 2) benefit from additional allowances.
For example, spouses, children and parents benefit from an allowance of 15,956.87€ according to national law.
There are also differences according to the age of the children. There is an increase in allowance of 3,990.72€ for every year that an inheritor is under the age of 21. This is incremental up to a maximum of 47,858.59€.
Inheritors have to voluntarily declare the value of their inheritance. It is wise to take advice on this as extra tax will be charged if the tax authorities do not agree with the declaration value.
Property is normally valued by taking the current market value when the inheritance is distributed. However, there are two instances when a more precise valuation is needed:
- if the inheritors are considering selling the property as soon as they sign the Inheritance Deed – they must declare the same value on the Sale Deed
- if your inheritors require an official evaluation in their home country for probate matters – the value of the estate must tally
The contents of a property – furniture, clothing and personal effects – are usually valued by calculating 3% of the value of the estate or portion inherited. Vehicles and boats are valued either by an official valuation or approximately, according to the model, age and mileage.
Declaring inheritance tax in Spain
Inheritance tax in Spain must be declared by the beneficiary and does not come directly from the estate. This means that each of your inheritors needs to declare tax on their share of the inheritance within six months in order to avoid penalties and fines. What many people are unaware of is that inheritance tax has to be declared at the same time as the assets change hands.
There is no automatic transfer, even where it is a spouse who has died, the formal procedure has to be followed. This involves collecting, legalizing and translating several documents and applying for the certificates required by the Spanish Notary to sign the inheritance Deed. A joint bank account may be frozen if you inform the bank until the process is completed. Once the Deed is signed and the taxes declared the inheritors become the official owners of the estate.
You should be aware that omitting to inform the authorities of the death of a co-owner of a property means that when the property is handed on again, a retrospective transfer will need to be made. For example, if a husband died and no proper transfer to his wife was arranged, then when she dies the missing probate will still have to be executed. Those left to inherit will not only have one set of inheritance procedures to go through, but two.
Reducing inheritance tax
There are ways in which you can legally reduce the amount of inheritance tax your inheritors will have to pay. When making a will you should be advised about what the implications are.
Here are some points you should be aware of:
- The more heirs you have, the greater the allowance – each inheritor benefits from their own allowance so by dividing up your property between more people you reduce the amount to pay
- Appointing close relatives as heirs makes a big difference to the amount payable
These points should be taken into account when making decisions about inheritance.
Power of Attorney
Inheritors don’t have to come to Spain to sort out the details. Instead, they can sign a Power of Attorney. This gives representatives in Spain, such as Ábaco, permission to act on the behalf of the client.
Where Power of Attorney is given the representative can:
- apply for documents and certificates
- obtain copies of wills
- change names on documents
- sign the Inheritance Deed
- apply for NIE numbers for the heirs
Inheritors do not need to have an NIE number when the will is written and signed but will need to have one when it comes to declaring any inheritance tax.
To receive their inheritance inheritors must declare inheritance tax in Spain and will have to be fiscally identified by means of the N.I.E. number.
The NIE is the tax identification number for non-Spanish property owners. Non-residents must have an NIE if they are in an inheritance process to receive a property in Spain or if they wish to open a bank account.
As it is an identification number it must be applied for personally at the Foreigner’s Office or National Police Station. However, a special clause can be included in the Power of Attorney, mentioned above, enabling a representative to obtain an N.I.E. numbers in Spain without inheritors having to travel here.
The original death certificate is the first document required in order to start the inheritance process.
- If the death occurred in Spain the death certificate cannot be issued before 15 days have elapsed. After this period the civil registry generally issues the certificate and the funeral parlour will hand over several copies to the relatives.
- If the death occurred abroad, the death certificate needs to be issued by authorities there and then needs to be legalised. This process only applies to some countries which have signed up to an international agreement. These include France, Germany, Belgium and Netherlands. Only when the death certificate was issued by the civil registry is it applicable.
To be confident about your inheritance tax calculations in Spain, we recommend you consulting with an experienced tax professional. If you have further questions, would like more information or a call back, don’t hesitate to get in touch.