Irrespective of one’s domicile, inheritance tax is a mandatory legal obligation that must be complied with. This tax is imposed on any asset received as inheritance that is in Spain or if there is any connection with the country.
It is important to note that rates and regulations regarding this issue vary greatly between Spain and the UK. As such, if you are living abroad, it is crucial to understand how these rates may affect your family.
How is it calculated?
The calculation of the final amount of Inheritance Tax to be paid depends on the calculation of a series of variables that consider value of the assets, burdens (debts and deductible expenses), life insurance, application of reductions and allowances.
In addition to that, other factors that are taken into account and may impact on the final quota to pay are: the last domicile of the deceased, the heirs and/or location of the assets.
And it is precisely at this point that the main differences arise.
In Spain, the inheritance tax is decided by the Central Government, however its administration and implementation has been handed over to the autonomous communities (regions), and each of them is allowed to regulate certain specifications such as: minimum exempt amounts, deductions and allowances or the tax rate.
With Spain having 17 (+2) different regions, these can vary significantly from one region to another. Therefore, depending on where one lives in Spain, the economic consequences for the heirs will be different.
Although there are differences (sometimes substantial) between the tax burden of one region and another, we would like to highlight a couple of ideas which are common to all:
- Deadline: the deadline for filing the tax return is 6 months from the date of the death of the deceased or from the day on which the declaration of death becomes final. It can be extended for an additional six months, upon request. The request for extension entails the obligation to pay late payment interest.
Late payment of the tax will result in surcharges, late payment interest and sometimes penalties.
- General classifications of heirs: In some regions, close family members (spouses, children, and parents) may be eligible for substantial tax reductions or exemptions, while more distant relatives or unrelated individuals may face higher tax rates. Here are the general classifications of heirs common to all the regions in Spain:
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- Direct Descendants and Adopted Children (Grupo I): This group typically includes children, grandchildren, and adopted children.
- Spouse, Parents, and Adopting Parents (Grupo II): This group includes the spouse, parents, and adopting parents.
- Other Relatives (Grupo III): This group includes other relatives such as siblings, nieces, nephews, and more distant relatives. Inheritance tax rates for this group are generally higher compared to the first two groups.
- Non-Relatives and Distant Relatives (Grupo IV): This group includes non-relatives and very distant relatives. Inheritance tax rates for this group are usually the highest.
Sorting inheritance with cross-border components can be a long and difficult process and legal assistance is highly recommended to ease the process.
If you need more information on how to overcome the common difficulties related to Spanish inheritance tax for non-residents, or if you require assistance with any of the mentioned aspects, we recommend reaching out to our Spanish lawyers at info@mwnotary.com