Spanish law states that if a foreign citizen owning assets in Spain dies, the inheritance process will be governed by his national law, no matter whether the deceased was a resident or not in Spain. Additionally the basic principle of universality will state that only one national law will govern the inheritance of the totality of the assets.
While the national law and the testament of the deceased will dictate who are the heirs and in which percentages the inheritance will be distributed, inheritance taxes for assets located in Spain will be governed by Spanish fiscal laws.
Transferred jurisdiction to the autonomous regions
Spanish law 29/1987 establishes how to calculate the tax base (in Spanish “base imponible”) and the assets to be taxed. However, law 21/2001, which regulates the fiscal and administrative system of financing of the Autonomous Communities, empower regions to apply tax rebates and discounts.
The result of this transfer of jurisdictional authority is that inheritance and gift tax is not constant throughout Spanish territory, but varies dramatically depending on the location in which the taxable assets are located and the place of residence of the heirs and the deceased.
Inheritance for fiscal residents in Spain
Law 29/1987 differentiates between the heirs who are fiscal residents in Spain and those who are not.
- If the heir is a fiscal resident in Spain, he will have to pay an “impuesto por obligación personal” which means that he will have to pay Spanish inheritance tax on the full assets legated regardless of whether they are on Spanish territory or abroad.
- If the heir is not a fiscal resident in Spain he will have to pay an “impuesto por obligación real” which means that he will have to pay Spanish inheritance tax only on assets located in Spain.
In both cases there is the danger of double taxation depending on the fiscal residency of each heir. A lawyer specialized in international inheritance laws will be able to guide you through this process.
Inheritance in Andalusia
If the deceased was a resident in Andalusia and the heirs are fiscal residents in Spain, they will benefit from various tax reductions.
- If the property inherited was the habitual residence of the heir at the time of death the taxable base of the property will be reduced by 99.99%, making the transmission of the property to the heir almost “tax free”.
- Exemption of inheritance tax for direct relatives or the spouse of the deceased, if the total individual assets received are not in excess of 175,000€ and if the total assets owned by the heir is less than 402,678€.
- Reduction of the taxable base of 47,859€ for heirs with disabilities equal or greater than 33% on condition that the total individual taxable base is less than 250,000€.
- Reduction of 99% of the taxable base for the inheritance of companies, self-employed businesses and company shares.
We can see that there are extensive tax breaks for the heirs who are resident in Spain when the deceased was resident in Andalusia. Other autonomous regions offer extensive tax breaks for residents, for example Cataluña has recently abolished inheritance taxes for direct relatives of the deceased.
Spanish inheritance tax and the European commission
In May 2010 the European Commission formally requested Spain to change inheritance tax rules as they give a clear advantage to residents in Spain. This bias is in breach of the Treaty on the Functioning of the European Union (Articles 45 and 63 respectively) and this discriminatory tax treatment constitutes an obstacle to the free movement of people and capital, fundamental principles of the EU’s Single Market.
The lack of action from the Spanish government forced the European Commission to refer Spain to the EU court of justice for discrimination between resident and non-residents in relation to inheritance tax.
It is not clear how this will develop, but depending on the verdict of the EU court of justice we might see in the future these tax breaks extended to non-residents as well.