How Spain’s succession tax reforms are protecting family inheritance

There are many benefits to living in Spain, but, as with anywhere, there are both pros and cons. Many people find the succession regime to be complex and costly, and expatriates need to understand how Spanish succession tax and law works and affects their family.

The good news is that over recent years many Spanish regions – including Andalucía – have reformed their succession tax rates and allowances to protect spouses, children, grandchildren and parents from inheritance tax. Lifetime gifts may still be liable. Understand how your local rules will affect each of your beneficiaries and take specialist, personalised advice on how you could mitigate tax for your heirs.

1) Spanish succession and gift tax applies to both inheritances and lifetime gifts.

2) It is charged on each recipient, including spouses.

3) It is due when either the beneficiary is resident in Spain, or the asset being gifted or inherited is a Spanish asset.

4) Beneficiaries are divided into groups:

• Group I – children and other descendants under 21

• Group II – descendants over 21, parents and other ascendants, spouses

• Group III – siblings, cousins, aunts/uncles, nieces/nephews, in-laws, stepchildren

• Group IV – everyone else, including unmarried partners (unless registered as a pareja de hecho in Andalucía).

5) Tax rates and allowances are determined by the state each year, but the regions can make them more beneficial for local residents.

6) UK nationals can be liable to both Spanish and UK inheritance tax, but a credit is given for tax paid in the UK.

Under state rules, Groups I and II beneficiaries receive a personal reduction of €15,957 for inheritances, while Group III get €7, 993.

The main home can benefit from a 95% reduction up to €122,606 per inheritor – but only where the recipient is a spouse, ascendant or descendant who retains the property for 10 years.

Tax rates range from 7.65% to 34%, but the liability is subject to multipliers between 1 and 2.4 based on the recipient’s existing wealth and relationship with the donor.

Since January 2022, in Andalucía descendants, ascendants and spouses benefit from both a 99% tax relief and a €1 million tax free allowance for inheritances. The allowance for group III beneficiaries increases to €10,000 and the highest tax rate applied is 26%. The multipliers only depend on kinship.

A 99% tax relief is also available for Groups I and II beneficiaries for lifetime gifts.

Tax reforms, even positive ones, reinforce the need for specialist advice.

If you plan to leave assets to beneficiaries besides your immediate family, take advice early on. Establish their succession tax liability and how to improve the situation for them. Be particularly careful if you have children from a previous relationship. If you leave assets to your current spouse, who later passes them back to your children, they will be taxed as stepchildren.

Note that Spain’s succession law imposes ‘forced heirship’. In general terms, children are entitled to receive two thirds of an estate’s assets. This applies to foreign nationals living here by default, but you can use the European Succession Regulation ‘Brussels IV’ to opt for the succession law of your country of nationality to apply on your death. This must be specifically stated in your will.

Every family is different. Take personalised advice, based on your situation and objectives, to help ensure your estate is divided as you wish and with as little tax and bureaucracy as possible. You can take steps now to make life easier for your family and heirs when you’re gone.

Blevins Franks has 50 years’ experience providing tax, estate planning and wealth management solutions to British expatriates in Spain. Get in touch to find out how we can help your assets pass smoothly to your chosen heirs, with as little tax as possible. www.blevinfranks.com

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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