Raymundo Larraín NesbittLawyer Raymundo Larraín Nesbitt offers a basic step-by-step guideline for non-residents inheriting assets in Spain, and an outline on Spain’s Inheritance Tax. This is the first of a two-part series of guides he has written on Spanish Inheritance Tax, or IHT.
21st of February 2016
The following article has been greatly simplified to avoid unnecessary tax technicalities. The quoted tax rates are subject to change from one year to the next. Seek professional legal advice on your matter – see disclaimer below.
Inheritance tax is one of two taxes (the second one being plusvalia tax, if you inherit property in Spain) that beneficiaries need to pay on inheriting an estate in Spain.
Introduction to Spanish Inheritance Tax for Non-Residents
Death and taxes are uncomfortable matters that most people loath to think about and put away at the back of their minds. I understand and share this reluctance to some extent but at some point, sooner or later, it affects us all. If you own assets in Spain, you should plan ahead for your demise which will make things considerably easier on your appointed heirs at a time of bereavement. The following article supplies tips on how to streamline the succession procedure in Spain saving your heirs time, money and hassle. My article is tailored to cater to British and Irish nationals but may also apply to other nationalities.
The initial idea behind it was to keep it short and simple; unfortunately over time it grew considerably longer than I anticipated so I apologise in advance for the wall of text. I have split my original article into two parts; the second article deals with state and regional tax allowances: Spanish Inheritance Tax for Non-Residents (Part II). As it is a long winding article I strongly advise readers to skip through sections they can’t be bothered with and focus only on what may interest them. This article was not written expecting people to read through it entirely, as would normally be the case, but rather to focus on specifics.
This article does not provide Spanish inheritance tax avoidance strategies – which doesn’t mean there are plenty. I simply don’t want to get ahead of myself and wander off topic. I’ll leave these strategies for another article.
The topic of inheritance tax in Spain is a fairly complex and technical one, allowing for multiple articles on the matter (see my full list of inheritance tax-related articles at the bottom). Besides a national legal framework (Inheritance Tax Act of 1987 and Regulation 1629/1991), which acts as a backbone, each of Spain’s 17 regions (Autonomous Communities) are also empowered to rule on some aspects enacting their own laws i.e. on applying their own tax allowances, which differ significantly from one region to the next, or else on applying their own tax rates (within limits).
There’s an ongoing trend to abolish Spanish Inheritance Tax (IHT, going forward) fostered by Spain’s conservative party. These trends are always very popular amongst voters. Many Autonomous Regions have jumped onto the band wagon and are now applying reductions on IHT to such an extent which in practice translates to almost suppressing it i.e. Madrid, Basque Country, La Rioja, Navarre, Catalonia, Valencia, Balearic and Canary Islands.
As examples of this tendency the Canary Islands have just approved with effects as from the 1st of January 2016 a drastic cut to inheritance tax for non-residents which will result in taxpayer’s saving over €30 million per annum. You can read further in English here. You can also read here how some political groups have been campaigning collecting signatures throughout February 2016 to suppress inheritance tax in Andalusia. EDIT: 8th September 2016. New regulation has recently been passed in Andalusia which greatly reduces the inheritance tax burden. More details in my article.
Other regional communities, despite not having suppressed IHT, apply their own tax allowances in addition to those set by the Government in the above laws. We can glean from the above there are two tiers of regions in Spain when it comes to inheritance tax; some are more tax-friendly than others (to the point of suppressing this tax). In a section further below (under the heading “Regional Tax Allowances”) I give a full breakdown of these exemptions in the six most popular regions with English expats (coastal areas).
For those individuals holding large estates in Spain, it is your responsibility to contact a Spanish lawyer and do some careful tax planning to mitigate your heir’s tax bill (or even suppress it). I strongly advise that beneficiaries, on inheriting assets in Spain, appoint a Spanish lawyer to oversee the succession procedure and file IHT on their behalf. You cannot realistically attempt to do this on your own as it is overtly intricate (even for seasoned experts).
Feel free to add inheritance tax-related queries below and I will do my best to address them. Please do NOT ask how much Spanish Inheritance Tax you stand to pay as the answer is not straightforward and often requires an elaborate study which escapes the purpose of this forum.
Spanish Inheritance Tax Frequently Asked Questions
What is Spanish Inheritance Tax (IHT)?
The full name of this tax in Spanish is ‘Impuesto de Sucesiones y Donaciones’ (you will often see it abbreviated as ‘ISD’). I will simply call it IHT, in line with English terminology, for the sake of this and other articles. This tax actually rules on both inheritance and gift tax. So anyone who inherits an asset in Spain or else is gifted one is personally liable to pay for this tax. This article will focus almost exclusively on the inheritance side to keep it simple and not be lead astray. But it should be noted that the same tax rates listed below apply to both.
Who is Liable for Spanish Inheritance Tax?
Broadly anyone who inherits assets or rights in Spain is liable to pay Spanish Inheritance Tax; regardless if they are resident or non-resident.
• Residents: are liable for IHT under personal obligation (taxpayer’s fiscal residency is in Spain).
• Non-Residents: are liable for IHT under real obligation (location of assets or rights bequeathed/inherited is in Spain).
What Law Applies?
This is a tricky question. In general, both the state law and the regional law (in Spain) where the deceased had his residence over the previous five years or where the majority of the assets are located apply. So both state law and regional laws apply in tandem.
Where is Spanish IHT Filed?
This depends on whether the deceased, or the beneficiaries, are tax resident in Spain.
If both the deceased and beneficiaries are non-residents, IHT needs to be filed in Madrid.
If either the deceased or the beneficiaries are tax resident, IHT can be filed at the local Tax Office. Each of Spain’s 17 autonomous regions has one.
Due to a legal change last year, brought about by a ECJ’s landmark ruling, non-resident Europeans will be taxed by the Autonomous Community tax rate of the place where the higher value property inherited is located.
Deadline to File Inheritance Tax in Spain
The deadline to file and pay Spanish Inheritance Tax (IHT) is six months as from the time of death of the testator.
Fines, Penalties and Surcharges for Late Payment
Payment after the six-month deadline will attract fines, penalties (delay interests) and surcharges (which mount over time).
| Up to 3 months | 5% |
| Up to 6 months | 10% |
| Up to 12 months | 15% |
| +12 months | 20% |
Surcharges are 5%, 10% and 15% if paid in the next 3, 6 and 12 months as from the six-month deadline. If you pay after 12 months you have a flat surcharge of 20% plus delay interests which mount exponentially. Additionally there are fines for not submitting the right amounts inherited (under-declaring).
Extension to File IHT
You can request a one-time extension, within the first five months, for a further six months. So in total, you would have 12 months as from the death of the testator to file and pay inheritance tax.
You can also request to pay the tax in instalments.
Does Drawing up a Spanish Will Reduce the Heir’s Inheritance Tax Burden?
Categorically no.
I am unsure where the rumor mill originated but I repeat for the avoidance of doubt that making a Spanish will means not one iota to the amount of inheritance tax payable, nada.
That said, making a Spanish will is highly advisable and I repeat this advice throughout this article like a mantra. It is worthwhile because it streamlines the inheritance procedure in Spain and avoids attracting all the following under normal circumstances (by that I mean filing IHT within the six-month deadline) thus saving time, money and hassle:
- Avoids fines for late payment of filing IHT.
- Avoids surcharges for late payment of IHT.
- Avoids delay or penalty interests for late payment of IHT.
- Avoids paying for two sets of legal fees.
- Avoids expensive sworn translations.
- Avoids your heirs wasting unnecessary time following redundant legal procedures which could have easily been avoided altogether.
- Avoids them extra hassle at a time of bereavement.
All the above points are detailed below so I will not go into them just now. Be very wary of any company or individual that advises you not to make a Spanish will.
In my professional experience (over a decade) people that give this flawed advice have vested interests of their own in selling you a legal or financial service which may not be above board (i.e. tax evasion which is a criminally pursuable offence in Spain for amounts defrauded in excess of €120,000). There are good reasons why Spanish registered professionals (lawyers, accountants, economists) strongly advocate non-residents to make Spanish wills (exclusive to their Spanish assets).
Frozen Spanish Assets
It is important to note that all Spanish assets belonging to the testator are frozen legally at the time of his death. This means that Spanish bank accounts cannot be accessed (you cannot withdraw funds) nor can you sell his house for example.
In order to release these assets and rights, inheritors must first settle the death duties (file and pay IHT). Only then, as described below, will heirs have unfettered access to bank accounts and be able to sell on the property.
Can you Inherit Debts in Spain?
Yes. On inheriting assets and rights you may also acquire all the debts the deceased had in Spain; in which case you become personally liable with all your assets. Which is why your Spanish lawyer must ensure your liabilities do not outstrip the assets and rights, in which case it is advisable to refuse the inheritance altogether as a heir would be making a loss on accepting it.
Inheritance Scenarios: Step-by-Step Guide
Three inheritance scenarios unfold dependent on whether a Spanish will was made, or not, by the deceased.
I. Deceased made a Spanish Will.
This is the best, or most advantageous scenario, from a beneficiaries’ point of view as it saves them considerable time, money and hassle. More on the perks of drafting a Spanish will in my article: Non-residents: Advantages of Making a Spanish Will.
A. A beneficiary/heir must first gather the following three documents:
- Original Death Certificate. If the death took place in Spain there should be no problem attaining it. If the testator died in the United Kingdom then this document needs to be translated into English by a sworn translator and have the Apostille seal of the Hague Convention affixed.
- Certificate of Last Will. This document can be attained from the Ministry of Justice in Madrid. It will normally be your lawyer who will procure it (takes a couple of weeks). This document basically confirms there is no other Spanish will. A full explanation in English on what this document is and how to attain it here.
- Notarised copy of the testator’s Spanish will.
B. The Spanish lawyer – Deed of Inheritance Acceptance
Once you have all three documents above, your lawyer in Spain can now draft what is known as a Deed of Inheritance Acceptance (‘Escritura de Aceptación de Herencia’) which is witnessed by a Spanish Notary Public. Getting a lawyer involved from the outstart is essential as you cannot possibly hope to complete this procedure on your own. This deed is basically a formal acceptance that appoints you officially as heir to the testator’s assets in Spain.
With this deed you are now able to file, pay and lodge the death duties.
C. Filing and paying IHT
Anyone who had the good sense of making a Spanish will, ensures his heirs will file IHT on time in Spain thus avoiding fines, penalties and surcharges for late payment. Anyone who did not make a Spanish will (see two sections below) will in all likelihood force his inheritors into paying all three (besides many more expenses detailed below). Bottom line: make a Spanish will if you own assets in Spain, you will save your heirs much time, money and hassle.
As from the time of signing the Deed of Inheritance Acceptance you have 30 working days to file and pay inheritance tax (tax model 650). Depending on which region in Spain the assets are located, non-residents now benefit from lenient regional tax allowances besides state allowances (see below section on Tax Allowances).
Once IHT has been paid you now have unfettered access to the deceased’s bank accounts (they will request a copy of the Deed of Inheritance Acceptance as well as prove of having settled IHT).
You may now also change the ownership of property at the Land Registry (takes one month plus). Likewise, they will also request a copy of the Deed of Inheritance Acceptance plus a copy of having settled IHT. The change of ownership at the Land Registry enables you to sell on the property (more on this in my article Taxes on Selling Spanish Property).
Be aware that you have now officially become the new owner of the Spanish property and are therefore liable for the following annual Non-Resident Taxes in Spain.
II. Deceased has only a UK Will (no Spanish will).
This is a scenario you categorically want to avoid for your heirs at all costs. It entails for your loved ones spending greater time, money and hassle. It has no associated advantage and numerous drawbacks.
The reason being is that Probate, in my experience, will exceed the six-month deadline to file IHT. Moreover it will exceed 12 months. This means that your beneficiaries (the people you name in your will to inherit your assets) will attract penalties and surcharges for late payment from the Spanish Tax Office on top of the Spanish Inheritance Tax which will add greatly to their tax bill. The translation of an English will into Spanish costs more than if the deceased had made a Spanish will in the first place…
But it gets worse, because heirs will also need to follow an expensive legal procedure in England & Wales, Scotland or Ireland that could have been easily avoided had the testator made a Spanish will. This is because a solicitor must be hired in the United Kingdom (or Ireland) to follow probate besides a Spanish lawyer; so you are effectively forcing your heirs to pay for two sets of legal fees when only one was required! I am sure the lawyers involved are indebted to your boundless generosity (and lack of judgement).
As can be gleaned from my explanation, on completing step A below, you will now have to follow exactly the same steps as if the deceased had made a Spanish will in the first place. The only difference is that you have added a redundant extra step (A) to your heirs which will prove extremely time-consuming, expensive and will attract penalties and surcharges on the Spanish side for late payment of IHT – not a smart choice any way you look at it.
A. Grant of Probate (England) or Confirmation (Scotland).
You must first obtain what is known as a Grant of Probate (England & Wales, Northern Ireland) or Confirmation (Scotland). You will require the assistance of a UK solicitor to act on your behalf. This document requires to be officially translated into Spanish by a sworn translator (or at a Spanish consulate) and requires the Apostille seal of the Hague Convention affixed for it to be valid in Spain.
B. Same steps as outlined above in section “I” for a Spanish will.
III. Intestacy – Deceased Dies without a Will.
A. If the deceased is English, Welsh or from Ireland (north or south) his heirs must appoint a solicitor, who will need to obtain a Grant of Letters of Administration.
If the deceased is Scottish, his heirs must appoint a Scottish solicitor, who will need to obtain Confirmation in Scotland.
Once you have this document, it must have affixed the Apostille seal of the Hague Convention affixed. This document then needs to be translated into Spanish, by a Spanish consulate or by an official translator (‘traductor jurado’), for it to be valid in Spain.
B. Same steps as outlined above in section “I” for a Spanish will.
Spanish Inheritance Tax (IHT)
The following points provide an overview on how much inheritance tax you stand to pay.
Tax Categories
Giftees and inheritors are grouped into four categories for tax purposes. Depending on the relationship with the deceased, allowances are conceded. As a general rule, the closer the kinship, the more generous the allowance.
Group I: Natural and adopted children under 21.
Group II: Natural and adopted children over 21, spouse, registered civil partnerships, parents, adoptive parents, grandparents and great-grandparents.
Group III: Relatives in second and third degree: in-laws, brothers/sisters (siblings), nephews/nieces, aunts and uncles.
Group IV: Relatives in fourth degree, or without kinship: a friend, common law partners, mistress.
Tax Allowances (National & Regional)
Please follow this link to the second part of my article on Spanish Inheritance Tax dealing specifically with tax allowances:
Spanish Inheritance Tax (Part II)
Not everyone is interested in this level of technical detail, so to keep this article short and snappy it makes sense to remove the content from this article and post it in a separate article. Tax allowances are hands down the key to paying little to no Spanish Inheritance Tax for the majority of beneficiaries (including European non-residents).
National Tax Rate
Once we have deducted the above tax allowances, national and regional, which reduce the taxable base we then apply the corresponding tax rate. Bear in mind the following is the national tax rate. If an Autonomous Community in Spain has exercised its competence over the matter they will have their own tax scale which will differ slightly from the one shown below. The tax rate follows a sliding scale; the more you inherit, the more you stand to pay.
| Up to amount (in Euros) | Tax rate (%) |
|---|---|
| 7,993.46 | 7.65 |
| 15,980.91 | 8.50 |
| 23,968.36 | 9.35 |
| 31,955.81 | 10.20 |
| 39,943.26 | 11.05 |
| 47,930.72 | 11.90 |
| 55,918.17 | 12.75 |
| 63,905.62 | 13.6 |
| 71,893.07 | 14.45 |
| 79,880.52 | 15.30 |
| 119,757.67 | 16.15 |
| 159,634.83 | 18.70 |
| 239,389.13 | 21.25 |
| 398,777.33 | 25.50 |
| 797,555.08 | 29.75 |
| Over 797,555.08 | 34.00 |
Multiplicand
The above applicable tax rate must then be multiplied by a multiplicand depending on which group a beneficiary is classified in as well as his pre-existing net wealth (in Spain).
| Pre-existing Net Wealth in Spain (in Euros) |
Groups I&II | Group III | Group IV |
|---|---|---|---|
| 0 up to 402,678.11 | 1.0000 | 1.5882 | 2.0000 |
| 402,678.11 up to 2,007,380.43 | 1.0500 | 1.6676 | 2.1000 |
| 2,007,380.43 up to 4,020,770.98 | 1.1000 | 1.7471 | 2.2000 |
| Over 4,020,770.98 | 1.2000 | 1.9059 | 2.4000 |
What beneficiaries are likely the worst off with Spanish Inheritance Tax (IHT)?
Beneficiaries included in one or more of the following categories below will likely be landed with a hefty IHT tax bill:
- Beneficiaries classified in Groups III & IV for IHT purposes (distant relatives or else with no family ties i.e. friends, mistress, common law partners).
- Large estate inherited. It is difficult to give a precise number as it is in relation with multiple factors.
- Pre-existing net wealth in Spain of the inheritor is large (see multiplicand table above for the minutiae). The worst-case scenario is an inheritor classified in Group IV who already has a pre-existing net wealth in Spain of over €4,020,770.98 (over £3,000,000) and who inherits over €797,555. In such a case, the inheritor would be applied an extreme tax rate of 81.6% (34%*2.4). This is clearly a problem that only affects someone who was already a multimillionaire before inheriting; not exactly a problem that affects us all (unfortunately!).
- The assets or rights inherited are located in what I label as a ‘tier 2’ region for IHT purposes; meaning the regional exemptions are negligible or non-existent.
- Aged between 21 and 65 years old (because multiple lavish exemptions would not apply to that age group).
- Beneficiaries are non-resident in the EU or EEA (this is because lenient regional tax allowances do not apply to those resident outside the European Union or European Economic Area).
If you plan to leave an estate in Spain to your loved ones, and your appointed beneficiaries qualify for a combination of one or more of the above then you (NOT the beneficiary!) should consider contacting a lawyer to do some serious estate planning to mitigate their inheritance tax exposure – they will be forever grateful.
Double Taxation Treaty and Inheritance Tax Relief
Absurdly neither the United Kingdom nor Spain have included this matter in article two of their double taxation treaty when it affects thousands of British citizens every year. British nationals alone account for almost 800,000 residents in Spain (source: BBC). Spain is the second most popular destination worldwide for British to settle in after Australia (minus the white sharks).
For some bizarre reason (only privy to politicians) Spain has only signed such a treaty with the following three countries: France, Greece and Sweden.
Which indeed makes perfect sense because – as we all know – Spanish costas are crawling with Greek, French and Swedish nationals, not. I’ll leave that bullet for politicians to dodge.
This translates in practice into having to pay for inheritance tax both in the UK and Spain. My article only covers the Spanish side of succession.
Dispelling Spanish Inheritance Tax Myths
Over the last eight years a few rogue companies have been set up with the sole purpose of putting the fear of God into British to entice them to incorporate corporate structures on top of the Spanish real estate or else buy into obscure equity release schemes to avoid Spain’s IHT (the latter led to hundreds of senior citizens losing their homes to these cunning predators). Truth is most people didn’t even need them in the first place. On average inheritors pay 15% on Spanish Inheritance Tax, a far cry from what’s been shouted from the rooftops.
For a full comprehensive list of IHT-related tax myths peddled by unscrupulous non-regulated outfits or IFAs (Independent Financial Advisors) with a vested interest to coax fellow British into incorporating expensive (and often unnecessary) corporate structures, or else set up devious equity release schemes, to elude Spanish Inheritance Tax please read my article Dispelling Spanish Inheritance Tax Myths which debunks them.
Before you hire an IFA in Spain make sure it is registered by the CNMV (Spain’s equivalent of the UK’s Financial Conduct Authority; what used to be the FSA). Just follow the link I provide and you can find out if they are registered in English. Regulated IFAs have mandatory professional indemnity cover. If the IFA is not registered at the CNMV, steer well clear from them.
Some of my all-time favourite IHT sales pitch poppycock:
- “Spanish Inheritance Tax legal fees can be at least 40 to 50%”.
- “Your heirs will be hit by a 40% plus Inheritance Tax Bill.”
- “Heirs will be forced to sell the property in Spain (to pay off Spain’s extreme inheritance tax).”
- “The financial debt of your heirs is maybe as much as 50% of the value of your property.”
- “Want to avoid Spanish Inheritance Tax extreme 82% tax rate?”
- “If you incorporate a UK Limited Company and place the Spanish real estate inside you will be 100% shielded against Spain’s ISD/IHT. After death, only the shares are reorganised, the company owns the asset, and so it doesn’t change hands. This falls outside Spanish Inheritance Tax.”
Ten Key Points to Keep in Mind on Spanish IHT
- Non-residents should make two wills; one in their home country ruling on their national assets and a second Spanish will which will rule exclusively on their Spanish estate. Making a Spanish will has a number of advantages which saves your heirs time, money and hassle at a time of bereavement (for a full list of perks please read my in-depth article: Advantages of Making a Spanish Will).
- Preparing a Spanish will does NOT avoid nor reduce heirs paying Spanish Inheritance Tax; this is a widespread misconception that should be cast away. It does however significantly reduce the overall succession expenditure burden for heirs, as it avoids attracting: penalties, fines, surcharges, paying for two sets of legal fees, paying for unnecessary sworn translations as well as streamlining the whole procedure, as explained above.
- The Statutory limitation on IHT in Spain is 4 years, six months and one day (sic). It is not four years as many people mistakenly post on internet.
- From the moment of death, heirs have a maximum of 6 months to pay the death duties. You may however request a one-time extension of a further 6 months, in writing, within the first five months. So the total deadline to file and pay IHT would be 12 months. If you file IHT after the above deadline you will incur in penalties and/or surcharges that add up considerably to your tax bill. Those who do not make a Spanish will force their beneficiaries to pay additional fines, penalties and surcharges, increasing their tax bill, which could have been easily avoided with some careful tax planning (i.e. on making a Spanish will). You can request to pay IHT in instalments.
- Residents and non-residents are liable to pay Spanish Inheritance Tax.
- There is no blanket exemption between husband and wife, or spouses.
- Unlike the UK, where it is the estate that is taxed, in Spain it is the appointed beneficiary who is liable to pay and settle IHT.
- Until the death duties are settled, all Spanish assets belonging to the deceased will be ‘frozen’ i.e. money cannot be withdrawn from bank accounts, houses or other assets cannot be sold on (as they officially still belong to the deceased). Heirs cannot bank on the Spanish estate itself to foot the tax bill – won’t happen.
- Any document signed by a foreign public official, needs the Apostille of the Hague Convention of 1961 affixed before it is valid in Spain.
- Any document written in English (or any other language) needs to be translated by a sworn translator into Spanish before it is valid in Spain.
Conclusion
Ideally foreigners should make two wills; one in their home country ruling on their national assets and a second Spanish will which will rule exclusively on their Spanish estate. As explained above, preparing a Spanish will – exclusive to your Spanish assets – will save your heirs considerable time, money and hassle at a time of bereavement.
Spanish wills can be drawn up in Spain (Notary Public) or else at a Spanish consulate in the United Kingdom. A Spanish lawyer can assist you making one, double-column, in English and Spanish. Make sure your Spanish will is fully compliant with the new European Regulation 650/2012 if you have an old Spanish will. More on this in my article: Spanish Wills and Probate Law In Light Of European Regulation 650/2012.
I stress that all actions to mitigate IHT exposure must be carried out in life by the person who will die and leave assets and/or rights to his heirs. The ones who will pay IHT are the heirs, as they are personally liable, NOT the person who dies nor his estate (as in the UK). Beneficiaries can do next to nothing to mitigate their tax bill; it must be the one leaving the assets who must do the brunt of the work to reduce his heir’s tax bill. And this may require planning ahead.
Appointed heirs or beneficiaries must retain a Spanish lawyer to act on their behalf. This is not a legal procedure one can realistically attempt to achieve on his own.
For large estates, I recommend tax planning is carried out well in advance (even before buying a property in Spain) to significantly mitigate your tax bill. I only advise corporate structures, for tax mitigation purposes, on amounts on or above €600,000 (£500,000) threshold as company incorporation and running expenses may be high even negating any potential fiscal advantage sought. In any case these require a case-by-case approach as there are no one-size-fits-all solutions.
Inheritance tax planning in Spain is a complex matter, so please seek legal advice from a qualified lawyer and be suspicious of anyone advocating property ownership through corporate structures is “always beneficial” – not the case and in fact may be even be counterproductive and a complete waste of money. Be wary of foreign non-regulated companies selling one-trick ponies to circumvent Spanish Inheritance Tax offering bespoke “100% protection” against it.
If you fear Spain’s Inheritance Tax (IHT/ISD) you should first ask for an estimation from a law firm before you do anything rash such as setting up a Spanish company or a UK Limited Company to place it on top of the Spanish real estate. You may be (pleasantly) surprised to learn how little you have to pay given the rampant scaremongering going on. Inheritance tax varies widely within Spain’s seventeen Autonomous regions (in some it’s not even taxed!). Truth is that corporate structures are neither needed nor recommended for the vast majority of people.
“In this world nothing can be said to be certain, except death and taxes” – Benjamin Franklin.
Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.
Larraín Nesbitt Lawyers, small on fees, big on service.
Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 by completing our contact form.
Legal services Larraín Nesbitt Lawyers can offer you
- Making a Spanish will
- Spanish Inheritance Tax Assessment Report (SITAR)
- Probate and Succession
- Death Certificate
- Land Registry Search (Nota Simple)
Inheritance-related articles
- New EU Regulation to be Passed on Succession and Wills –18th May 2010
- Non-residents: Six Advantages of Making a Will in Spain – 8th August 2012
- Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
- Taxes on Selling Spanish Property – 8th December 2014
- Spanish Wills and Probate Law In Light Of European Regulation 650/2012 – 8th January 2015
- Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
- Dispelling Spanish Inheritance Tax Myths – 8th August 2015
- Spanish Inheritance Tax for Non-residents (Part I) – 8th March 2016
- Spanish Inheritance Tax for Non-residents (Part II) – 8th March 2016
- Inheritance Tax Novelties in Andalusia. FAQ on IHT – 8th September 2016
Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politician was harmed on writing this article. Voluntas omnia vincit.
2016 © Raymundo Larraín Nesbitt. All rights reserved.
D.Bancroft says:
My husband and I have lived in Spain for over 20 years,he died in Feb.2013 I inherited his half of property 130.000euros. I am 76 years of age and only receive Uk ss.pension.my lawyer said that I should agree to keep my home for 10 years. Which
I did agree to.
Unfortunely I had to sell my home for financial reasons.it was sold in August 2015. I then bought a smaller home in Spain. Will I still have to pay inheritance tax? I really need to know as I am very concerned about this.please can you advise me.
Raymundo Larraín Nesbitt says:
Morning Mrs. Bancroft,
You are liable to pay Spanish Inheritance Tax, yes.
As I explain in my article above, surviving spouses have a national tax exemption on the main home which tax value can be reduced by 95% in calculating the tax base liable to succession tax, subject to a maximum reduction in value per inheritor of €122,606. The catch is that the property must not be sold in the following ten years.
In some regions of Spain the period is reduced to 5 years and the tax exemption is increased. In other words, some regions improve upon the said state allowance.
It would be very useful to me if you could give me more details on your matter as maybe that tax liability could be reduced despite you selling ahead of the ten-year deadline (thus negating the national state allowance on your main home).
In what region of Spain did both you and your late husband live in?
What was your pre-existing net wealth in Spain before inheriting from your late husband?
Did you only inherit 50% of the joint property worth 130,000 euros? Nothing else?
Do you have some form of disability (physical, other) medically recognized. If so what percentage?
Thank you.
Regards
angelman says:
Hi
My mother passed away NOV 2013, leaving an apartment in Gran Canary to myself and 3 siblings, My sister was dealing with all my mother affairs, however I do not think she registered her death and we where not asked to pay any inheritance tax within six months of her passing or since then, we are now starting the process of selling the property, will any inheritance tax be back dated to before the new laws came into effect ie: 20% late payment fee, or will the sale come under the 2016 laws. Any advice appreciated.
Regards
Paul
Raymundo Larraín Nesbitt says:
Hi Paul,
You won´t be able to sell on the property until you have paid IHT first and lodged the property under your names at the Land Registry.
Yes you will have to pay delay and penaltty interests for late payment. No it will come under the old law prior to 2.016.
Regards
ddada says:
Good afternoon Mr Larrain Nesbitt,
my mother (Spanish citizen ) passed away in USA in 2010. She had been living there for some years. She left no will. She owned a property (house) in USA. It was agreed house to be sold and gains to be distributed among her heirs.
House was sold in 2013 and I have now received my share after deductions of taxes, costs etc. in USA.
I am resident in Spain, Barcelona.
Do I have to pay inheritance taxes here according to “estatal” rates – or – according to the rates of the “autonómica” region?
As far as I understand it should be “estatal” rates.
However I would appreciate your advise on the matter.
Thank you in advance,
all the best,
David
Raymundo Larraín Nesbitt says:
Hi,
Reply to your query is Estatal.
That said, Tax Office can only tax going back four years and six months on IHT. She passed away in 2.010. Are you sure you are liable for IHT in Spain?
I would say you are liable for the proceeds of selling her house and receiving the funds in Spain considering you are resident.
Regards
ddada says:
Thank you for answering Mr Larrain Nesbitt!
Yes you are certainly right. I did receive my share from the proceeds of the sale.
And received that sum in Spain.
I do not know if it matters, but ownership of the house was never transferred into my name before the sale. My half-sister was in “control” of the estate of my mother (executrix). She is the one who sent me my share after expenses costs etc. Everything was done under the supervision of the local Probate Court and respective lawyers.
I am resident here in Spain with a Norwegian Passport. I am originally Spanish (born here – Spanish passport) but changed to Norwegian after living in Norway for many years. Norway does not allow dual passport.
Does taxation from the proceeds of the sale imply I have to tax otherwise? By that I mean different rates than “estatal” inheritance rates?
Thank you in advance,
best regards,
David
Raymundo Larraín Nesbitt says:
Hi David,
You are welcome.
As you are resident in Spain, you would need to pay your IRPF.
Again, I am unsure on whether the IHT is already time-barred as more than 4 years and six months have elapsed; it would need to be calculated to know for sure. Otherwise you would still be liable for IHT (estatal).
Either way the answer is that you must pay taxes in Spain, yes.
Regards
Martin says:
Hi Raymundo,
I’m an English expat resident in Madrid. My aunt, who passed away recently, had named me as sole heir to her estate in her UK will (she was also English, resident in the UK, and had no ties to Spain whatsoever). It was her wish that I share the money in question with my parents and a couple of neighbours who were very good to her in her later years (the inheritance is a large cash sum with no property or other assets).
My intention was to have a deed of variation drawn up in the UK, whereby my parents and her neighbours would receive a large share of the estate (which is exempt from UK tax as it falls under the threshold) and I would declare my share in Madrid, paying Spanish IHT on the quantity I actually receive. As a nephew, this would still mean paying about 21% tax to Hacienda. My question is whether you think Hacienda would decide they weren’t satisfied with this and try to tax me on the entire estate, despite the fact that I demonstrably wouldn’t have inherited it all and that, according to UK law, the will itself would effectively have been changed. I have sought advice from a reputable firm of international solicitors, specialists in inheritance issues, here in Madrid. They have assured me that Hacienda could NOT do this, but there is so much conflicting information out there that I wanted to seek more than one opinion.
Thanks in advance
Best regards
Martin
Raymundo Larraín Nesbitt says:
Hi Martin,
As you write, you are effectively changing her will as you are the sole heir.
I am unsure you can do this.It could be construed as a tax mitigation ploy.
If your aunt´s will was for them to inherit part of her late estate why didn’t she reflect it in her last will in the first place?
Regards
BillM says:
Hi Raymundo,
I’m a UK resident with a holiday home in Spain, I’ve been advised to include a Brussels IV clause in my English will to cover my Spanish property. Is this advisable? If so, do I no longer need the Spanish will at all?
I would rather not be bound by Spanish ‘Forced Heirship’ rules so using Brussels IV seems to make sense. Would there be any other associated problems with the Spanish will not being used?
Can the Spanish property pass free of any Inheritance Tax to my spouse using the English will? Otherwise I understand that to avoid paying IHT in Spain the property needs to kept for 5 years and be left to certain family members?
Regards
Raymundo Larraín Nesbitt says:
Good morning Bill,
Following your e-mail, if you are a UK resident, your heirs are not bound by Spanish “Forced Heirship” rules. The reason is because the UK opted out of this regulation and your residence is in the UK. So it makes no sense to add a Brussels IV clause to your UK will. More details on this in my article Spanish Wills and Probate Law In Light Of European Regulation 650/2012 with over 100 questions answered:
http://www.spanishpropertyinsight.com/2015/01/08/spanish-wills-probate-law-light-european-regulation/
Should your personal cicumstances ever change in the future (i.e. you become resident in Spain) then you need special wording added to your Spanish will.
Notwithstanding the above, you are strongly advised to make a Spanish will exclusively for your Spanish assets, even if you are not bound by “Forced Heirship” rules. The benefits of this are unrelated to Brussels IV and are listed by my article above. The benefits are related with streamlining the succession procedure in Spain. A Spanish will will have in your case (UK resident, non-resident in Spain) the following benefits:
• Avoids your heirs fines for late payment of filing IHT.
• Avoids your heirs surcharges for late payment of IHT.
• Avoids your heirs paying delay or penalty interests for late payment of IHT.
• Avoids paying for two sets of legal fees.
• Avoids expensive sworn translations.
• Avoids your heirs wasting unnecessary time following redundant legal procedures which could have easily been avoided altogether.
• Avoids them extra hassle at a time of bereavement.
UK wills / probate take in my experience over a year which exceeds the deadline to file and pay Spanish Inheritance Tax without attracting penalties and surcharges.
No, your Spanish asset cannot pass free of any IHT to the surviving spouse; there is no blanket exemption unlike in the UK. There are however some lenient national and regional allowances, which depending upon the case, can bring the tax bill to zero as I explain in detail in the second part of the article above. Aditionally, as you happen to mention, leaving the assets to certain family members may ensure the tax bill is zero.
http://www.spanishpropertyinsight.com/2016/03/08/spanish-inheritance-tax-part-ii/
The statutory limitation for Spanish Inheritance Tax is four years, six months and one day. After said time, the Spanish Tax Office can no longer demand – successfully – payment of IHT.
I trust this answers your queries.
My law firm can suppply you with the following legal services:
http://www.en.larrainnesbittabogados.com/services.php
Regards
ophiothrix says:
Dear Raymundo,
Thank you for the extremely comprehensive articles (I particularly enjoyed your Geralt of Rivia reference :)). I wonder if you could provide some extra explanation of how the statutory limitation for Spanish Inheritance Tax works. Maybe it would be worth updating the main article (or Part II) with those details. I would like to better understand how it works in both scenarios (both “personal” and “real”). I’m particularly struggling to understand the “real” scenario, i.e. when a non-resident inherits a Spanish asset. As you described, upon the death of the benefactor all his Spanish assets become legally frozen. So what happens after 4 years, 6 months and 1 day? Do they become “defrosted” and available for the beneficiary and free of IHT? Similarly, when a Spanish resident inherits an non-Spanish asset, could you describe a situation in which the statutory limitation is applicable? Does it mean that if it takes longer than 4.5 year for the beneficiary to claim the tax (e.g. the property needs to be sold, etc), than he is not liable for the IHT? What is that event that has to happen after 4.5 years. Is it the money arriving in the beneficiary’s account, or the transfer of the deeds or something similar?
Many thanks,
Aliaksei.
Raymundo Larraín Nesbitt says:
Morning Aliaksei,
Thank you for your kind words.
I am glad you liked my reference. You are the first person to notice in over a decade that I have a penchant to bury easter egg references within my articles!
Regarding your legal query, the deceased’s assets are ‘frozen’ upon in his death in the sense that they cannot be transferred or exploited until a legal change of ownership takes place (known as transfer of estate to heirs or beneficiaries).
The statutory limitation I make reference to (four years, six months and one day as from the death) refers only to the ability of the Spanish Tax Office to claim tax; it is unrelated to the assets themselves. After said timeframe the Tax Office can no longer claim IHT (successfully) from the beneficiaries.
So for example, if six years have elapsed since the testator passed away, no inheritance taxes can be claimed by the Tax Office. However, that doesn’t mean the beneficiaries can merrily sell off his properties as these will still be in the benfactor’s own name. It is required that a transfer of estate to heirs is organized whereby the properties will be legally transferred to his heirs.
As mentioned above, no taxes will be due because the statutory limitation has kicked in time-barring any tax claims from the Tax Office. The heirs would now be able to freely sell on the properties as these will be in their own names and they can do whatever they please with them.
If you don’t carry out a transfer of estate to heirs, the assets remain frozen ‘for ever’; they cannot be sold by the beneficiaries as they are still under the benefactor’s name. Even if no tax is due (because more than six years have elapsed) you still need to file the associated tax forms to change at the Land Registry who the owner/s is/are. This is not an automatic process and requires the input of a lawyer to handle it. More details on this legal service in my law firm:
http://www.en.larrainnesbittabogados.com/service.php?id=23
I hope that clarifies.
Regards
ophiothrix says:
Dear Raymundo,
Thank you for the explanations. The statutory limitation is a lot clearer to me now. If I may, I would like to run a (currently) hypothetical situation by you.
I am a UK citizen living in Spain. I don’t have a job, let’s say I’m living off my savings. I have a property in Spain. Let’s assume that I spend more than 183 days in Spain in any one tax year, which in my understanding makes me a resident. I have two step-parents in the UK, who are currently in good health, but old. Let’s imagine a situation when one of them passes away and leaves me an inheritance. What would be the power of Spanish authorities over that UK inheritance? If I accepted it in the UK and left it in my UK bank account. Is there any way that Spanish authorities could hold me accountable and claim the tax on that inheritance? What if I didn’t accept my part of the inheritance and left it with the lawyer in the UK for 5 years? What if I moved to the UK and waited less than the statutory period, but long enough not to be considered a resident?
Effectively, my question is, given my situation, would I be liable for Spanish IHT on my UK inheritance and what would be the legal way to avoid paying it?
Many thanks again for your clarifications,
Aliaksei.
Raymundo Larraín Nesbitt says:
Morning Aliaksei,
If you are Spanish resident, then you must pay income on all your worlwide income.
This includes an inheritance received in the UK.
You would have to pay IHT in Spain (besides the UK). There is no double taxation treaty on IHT between Spain and the UK.
Spanish residents must fill in a tax model every year when they hold assets abroad in excess of 50,000 euros.
As from the 1st of January 2017 Spain and the UK, amongst many other countries, are now sharing fiscal information on residents and nationals to plug precisely the tax loopholes you are referring to with taxpayers who move in between countries.
Should more than 4 years, six months and one day elapse since the death of one of your step parents no Spanish inheritance tax would be due providing the Spanish Tax Office is not informed. Should a procedure be opened agaisnt you then this timeline is stopped. Nevertheless, you must still fill in a tax model assisted by a lawyer to justify those funds and bring them into Spain.
You are aware the UK is leaving the EU club shortly. The controls on money will now become stricter as the UK will be regarded to all effects as a foreign country.
Regards
Katherinee says:
Hello Raymundo
I am looking for some advice. I inherited a third of my parents Spanish property in Andalusia on their deaths four years ago. Along with my two siblings. They handled the paperwork and we paid a small bill to transfer the property into our names. They want to keep the property for ten years before selling to avoid tax bill. I believe they do not want to sell at all and are planning on living in the property in the future. Therefore I would like them to buy my share of the property. They are interested but said I would be liable for tax still. can you tell me what tax I would be liable for by selling them my share? And would that be because I am selling before the ten years. We are all non residents all living full time in the UK. I am currently a higher tax payer in the UK. Any advise? Many thanks in advance
Raymundo Larraín Nesbitt says:
Morning Katherine,
There is an exemption on paying IHT if the descendants were already living in the property of the deceased as their main home for the previous three years. If the property is not sold within the next five years of the death, this allowance kicks in.
It is explained in the second part to my above article on non-residents IHT in great detail:
https://www.spanishpropertyinsight.com/2016/03/08/spanish-inheritance-tax-part-ii/
So, if you sell before the five years are up, you would have to pay your share of IHT, correct.
Additionally, on selling your outgoing share you are liable for more taxes. This is called a dissolution of joint property ownership (DJPO, for short). My law firm offers this legal service (you can save up to 86% in transfer tax on following it):
http://www.larrainnesbittabogados.com/service.php?id=4
You can read more details on what a DJPO entails in my in-depth article which explains the taxes to be paid:
http://www.larrainnesbittabogados.com/article.php?id=132
I take the opportunity to offer you the legal services of my law firm should you decide to follow a DJPO.
You are welcome.
Regards
Katherinee says:
Hello ,
Thank you very much for the swift response and i will certainly be looking into using your company should i wish to proceed with the DJPO. One further question i have is the property was valued at 230,000 euros. and i am looking to sell my share to my siblings for 40,000 which is less than my third was valued at, would i still have to pay CGT on this? I understand 3% is kept initially as i am a non-resident. Any help in this matter would be much appreciated .
Kind Regards
Raymundo Larraín Nesbitt says:
Hi Katherine,
The answer is in my article on DJPO which link I supplied above.
Regards
Katherinee says:
Hello.
We would like to ask some legal advice on our particular scenario and wondered if you can tell us your company’s details and fees for advise on two matters 1)iht figures if property is sold and 2)taxes payable if i wish to sell!y third share to my siblings. We have detailed of all previous correspondence with lawyers who handled the estate and fees paid when our parents passed in 2014. Kind regards
Raymundo Larraín Nesbitt says:
Hi Katherine,
Send me an e-mail with your contact details and we will take it on from there.
http://www.larrainnesbittabogados.com/contact.php
Regards
Debbie says:
Dear Raymundo, my mother who lived in Spain passed away on the 1st of August 2016.
She lived with a man in his Spainish property.
She had both an English and Spanish Will.
We were given to understand by this man that she’d left all her Spanish assets to him so did nothing about the Spanish Will.
HMRC here in the UK wanted to know about my mother’s Spanish assets before the Will here in the UK could be sorted.
We managed after several months to obtain a copy of the Spanish Will plus certification stating that my sister and I were the beneficiaries. Something we were unaware of and so appointed a Spanish Solicitor in the area where my mother used to live to act on our behalf.
It would appear that she had joint accounts with this man at the time of her death and these have been emptied and closed; obviously not by myself or my sister.
We seem to be no closer to sorting this matter and now the Spanish authorities want details for all her assets here in the UK.
We’ve had to sign several lots of paperwork and have it notarized before sending if off to the Foreign Office and then onto Spain. My sister lives in another part of the UK, so we’ve both had to do this seperately.
Her English Will was I might add was witnessed by her Spanish Bank Manager and Notary in Orba plus it has an official Spanish stamp attached.
I would fly over to Spain to try and sort the matter myself but unfortunately on my return to the UK I was diagnosed with cancer and am currently undergoing treatment too.
We are now 14 months post her demise and no nearer to sorting this matter it would seem.
I have an email from my mother dated May if 2016 in which she states that she’d just paid her annual tax bill.
I wonder could you give me an idea if the kind of fines we’re incurring or the % of her estate that maybe taxed/ forefit?
Presumably we’ll have to pay money on the estate that was present at the time if her death and not the remaining amount?
Will we have to pay the Spanish some level of tax or fines for the English estate too?
We were told that since she had no UK property, her English assets belong to the Spaniards too? Is this true?
Kind regards, Debbie
Raymundo Larraín Nesbitt says:
Morning Debbie,
I wonder could you give me an idea if the kind of fines we’re incurring or the % of her estate that maybe taxed/ forefit?
Presumably we’ll have to pay money on the estate that was present at the time if her death and not the remaining amount?
Yes, you pay on the assets at the time of her death. The fines you are incurring for late payment are mentioned in my article:
Fines, Penalties and Surcharges for Late Payment
Payment after the six-month deadline will attract fines, penalties (delay interests) and surcharges (which mount over time).
Up to 3 months 5%
Up to 6 months 10%
Up to 12 months 15%
+12 months 20%
Surcharges are 5%, 10% and 15% if paid in the next 3, 6 and 12 months as from the six-month deadline. If you pay after 12 months you have a flat surcharge of 20% plus delay interests which mount exponentially. Additionally there are fines for not submitting the right amounts inherited (under-declaring).
Will we have to pay the Spanish some level of tax or fines for the English estate too?
For the Spanish, see reply above on fines for late payment.
On the English estate you pay nothing because you are non-resident in Spain, they are confusing you. I take it for granted your domicile is in the United Kingdom.
We were told that since she had no UK property, her English assets belong to the Spaniards too? Is this true?
Is she held no English assets how can they ‘belong’ to someone? The ones who are paying inheritance tax are both you and your sister who presumably are UK nationals. You need to pay inheritance in Spain on teh Spanish assets.
That said, the UK has no double taxation treaty with Spain regarding inheritance tax. So you may be requested by the HRMC to pay in the UK some inheritance tax on the assets you and your sister have inherited in Spain.
You are welcome.
Regards