How inheritance tax works in Spain for non-residents

Inheritance taxes are levied on the transfer of assets from a deceased person to their heirs. Here's an overview

Patricia Rivas

Monday, 30 September 2024, 10:44

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In Spain, inheritance taxes are known as “Impuesto sobre Sucesiones y Donaciones” (ISD). These are levied on the transfer of assets from a deceased person to their heirs.

The tax system for inheritance can be complex because it is regulated by both national and autonomous region rules, leading to variations in tax rates, deductions, and exemptions depending on where the inheritance is processed.

Here’s an overview on how inheritance taxes work:

1. Taxation Scope:

• Residents: Spanish residents are taxed on all worldwide assets that they inherit.

• Non-Residents: Non-residents are taxed only on assets located in Spain.

2. Tax Rates:

• The national tax rates range from 7.65% to 34%, depending on the value of the inheritance.

• Autonomous regions can modify these rates, often leading to lower effective tax rates, especially for close relatives like children and spouses.

3. Beneficiary Groups:

• Beneficiaries are classified into four groups based on their relationship with the deceased:

• Group I: Direct descendants (children under 21).

• Group II: Other descendants (children over 21), ascendants (parents, grandparents), and spouses.

• Group III: Siblings, aunts, uncles, in-laws, etc.

• Group IV: More distant relatives and non-relatives.

Closer relatives generally receive more significant exemptions or reductions. Unmarried couples are considered Group IV heirs and pay significant more tax then married couples.

4. Deductions and Exemptions:

• Regional Deductions: Each autonomous region can apply its own deductions and exemptions. For example, some regions offer a 99% reduction on inheritance taxes for direct descendants and spouses.

• Andalusia has an allowance of 1.000.000€ per heir in Group I and II and then a discount of 99% of any tax due.

• The Comunidad Valencia has recently changed their system and now they include an allowance of 99% on the tax payable for beneficiaries in groups I and II.

• Primary Residence: Heirs (especially spouses and children) can receive significant reductions if the inheritance includes a primary residence, potentially reducing the taxable value by up to 95%.

• Family Businesses: There are often reductions available for inherited family businesses.

5. Payment and Deadlines

• Declaration: Heirs or their legal representatives, must submit an inheritance tax form and pay the tax within six months of the date of death. An extension of six months may be requested, but interest could be charged on the unpaid tax.

• Penalties: Failure to pay inheritance tax on time can result in penalties and interest on the unpaid amount.

In summary, Spanish inheritance taxes are elaborate and vary depending on the relationship between the heir and the deceased, the value of the inheritance, and the autonomous community’s regulations where the assets are based.

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