Andalusia to slash Inheritance tax for inheritances under 1 million euros

Lawyer Raymond Nesbitt explains the landmark tax change in Spanish Inheritance Tax (IHT) in the region of Andalusia.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
21st of September 2017

Senior Andalusian politicians agreed last night to significantly reduce Spanish Inheritance Tax (IHT) in the autonomous region of Andalusia. This landmark tax reform is without a shadow of a doubt the most important tax milestone in the autonomous region of Andalusia in the last 35 years (since its inception in 1982).

The change will mean 95% of inheritors in Andalusia will no longer need to pay inheritance tax on inheriting assets from their parents or spouse which is a welcome respite. These fiscal changes are in addition to those approved last year which I already reviewed in my article Inheritance Tax Novelties in Andalusia. FAQ on IHT.

This bold move allows Andalusia to finally jump onto the band wagon of other autonomous regions in Spain which are 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, Canary Islands and now Andalusia as well.

As I had pointed out in previous articles of mine relating to Spanish Inheritance Tax, there was an ongoing trend throughout Spain over the last decade to supress or greatly reduce inheritance tax to the point of negating it. Andalusia finally joined the trend yesterday. Better late than never. Notwithstanding yesterday’s agreement, there are still political forces vying to completely abolish it (Partido Popular).

Mrs Susana Sanchez (PSOE) and Juan Marin (Ciudadanos) agreed that as from the first of January 2018 these changes would come into effect. No law has been enacted yet with these changes.

To benefit from the new tax allowances, taxpayers must be EEA/EU-residents.

In a nutshell, the changes are:

Spanish Inheritance Tax

  • Inheritances equal to or below €1,000,000 will go untaxed (per inheritor).
  • Pre-existing wealth nil-rate band of inheritor raised to €1,000,000.

Gift Tax

  • Gifts between parents and children of up to €1,000,000 will also go untaxed provided certain criteria is met (gift for the purpose of job creation or to set up a company). Exact details to be specified by further regulation.

Who benefits?

  • Natural and adopted children.
  • Surviving spouse.

Conclusion

On average, every day 19 inheritors turn down their inheritances in Andalusia in order to avoid paying steep inheritance taxes. Following this new regulation, this will no longer be the case. 95% of taxpayers will benefit from this change as from next year.

The Autonomous region of Madrid had attracted last year alone the residence of over 2,000 HNWI (with average estates of 9mn) escaping other less lenient inheritance tax regions such as Andalusia. This new measure was also necessary to avoid wealthy individuals bailing out to other communities in Spain with the consequent loss of wealth and jobs this resulted in.

For once, I’m happy to commend politicians on adopting a sensible tax measure that benefits so many and contributes towards dynamising the Andalusian economy. Kudos to them!

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About Raymundo Larraín Nesbitt

After completing his dual law degree in Madrid (ICADE) in 2003 Raymundo went on to work for prestigious Spanish and English law firms in Spain before moving to the UK for several years to work for a British multinational. He is a prolific writer of legal & financial articles in English, with well over 140 articles published and widely used in the Spanish real estate sector. Raymundo now runs his own law practice in Marbella, where he advises local and foreign clients on all legal matters with a focus on conveyancing and non-resident taxation. He is regularly quoted by the international press as a reliable source in his field of expertise.