INHERITANCE TAX IN SPAIN

Spanish Inheritance Tax for Non Residents

• New regulation for the inheritance tax in Spain


• Who is bound by the Inheritance Tax in Spain


• The tax base of the Inheritance Tax in Spain


• The tax benefits. Reductions on the base


• The tax rate


• The tax liability


• Deduction in case of international double taxation


• The rules of the different Autonomous Communities

New regulation for the Inheritance Tax in Spain

The Act 26/2014, of November 27 has changed the rules on inheritance and gift tax in Spain applicable to non-residents who are citizens of an European Union country (EU) or European Economic Area (EEA). From now on, the Europeans citizens non-residents in Spain will be taxed by the Autonomous community tax rate of the place where the higher value property inherited is located, and not by the State regulation, as has occurred until 2015.

This change is due to the recent ruling of European Court of Justice (September, 3, 2014 in Case C-127-12) that considers illegal the discrimination between residents and non-residents on the application of the inheritance tax in Spain. While the residents were paying the inheritance tax according with the autonomous legislation (with possibility of better deductions and tax reductions), the non-resident was governed by the state standard, extremely unfavorable.

The amendment in the inheritance tax is based on establishing a special regime for non-residents in Spain, who are citizens of a country of the EU or the EEA, consisting of equalize their treatment with residents in Spain,

The most significant changes in the inheritance tax are:

REAL LIABILITY

• When the deceased is non-resident in Spain, the heirs will be taxed by the inheritance rules of the Autonomous Community in which the properties representing the largest value of the estate are located.

PERSONAL LIABILITY

• If there were no property to inherit in Spain, will apply the rules of the Autonomous community in which each heir resides.
• When the testator is resident in Spain, may apply the rules of the Autonomous community where he was resident.

Regarding to the inheritance tax, is considered that a resident in Spain resides in certain Autonomous Community, when lives in its territory the greater number of days in the period of the immediately preceding five years to the tax accrual (decease date).

Who is bound by the Inheritance Tax in Spain

• Taxpayers who have their habitual residence in Spain, regardless of where are located the properties or rights inherited.
• Are also required to pay the tax, the non-residents in Spain receiving property and / or rights located in Spain by the way of inheritance.
• Likewise will be obliged by the Spanish inheritance tax, the reception of amounts resulting from life insurances when the contract was made with Spanish insurers or has been hired in Spain with foreign entities which operate in the Spanish territory.

The tax base of the Inheritance Tax in Spain

The tax base of the inheritance tax in Spain is the net value of the individual acquisition of each heir, being understood as the real value of the property and rights reduced by any charges and debts that may be deductible in accordance with the State or Autonomous communities regulations.

Can be deducted generally the amounts owed by the deceased as long as their existence is proved. Also will be deductible of the Inheritance tax the amounts owed by the deceased to any of the public administrations in Spain.

The tax benefits. Reductions on the base

In the calculation of the inheritance tax in Spain, to the net value (value of properties and rights minus debts) of the goods inherited, depending on the family relationship with the deceased and the type of property inherited, will apply reductions on the tax base. These are the reductions according to the State regulations

Relationship groups	Reductions according to State rules
Group I: descendants and adopted under 21 years	Reduction € 15,956.87 + 3.990'72 € / year less than 21. Límit: € 47,858.59
Group II: descendants and adopted 21 years and over. Ascendants. Spouses	Reduction € 15,956.87
Group III: Family collaterals 2nd and 3rd degree. Ascendants and descendants in law	Reductión € 7.993,46
Reduction for habitual residence	95% limit of € 122,606.47
Disabilities	Disability =/> 33% and less than 65% » € 47858.59 Disability =/> 65% » € 150,253.03
Life insurance spouse, ascendants and descendants	100% Limit € 9,195.49
Reduction conveyancing Family business	95%

These reductions of the inheritance tax in Spain are according to State law. This regulation applies to the taxpayers who are not resident in Spain nor in a country pertaining to the EU or EEA. For the rest of the cases, the inheritance tax is ruled by the Autonomous community where the properties, representing the largest value of the estate, are located.

Not existing property to inherit in Spain, will apply the rules of the Autonomous community in which each heir resides. And, being the deceased resident in Spain, by the rules of the community where he resided.

Once already it's been implemented the appropriate reductions to the tax base of the inheritance tax, we have the net tax base, on which the tax rate will apply.

The tax rate

To the reduced net value is applied the following tax rate:

Tax rate according to State rules
Net tax base Up to €	Gross Tax payable €	Rest net tax base Up to €	Applicable Rate %
0,00		7.993,46	7,65
7.993,46	611,50	7.987,45	8,50
15.980,91	1.290,43	7.987,45	9,35
23.968,36	2.037,26	7.987,45	10,20
31.955,81	2.851,98	7.987,45	11,05
39.943,26	3.734,59	7.987,45	11,90
47.930,72	4.685,10	7.987,45	12,75
55.918,17	5.703,50	7.987,45	13,60
63.905,62	6.789,79	7.987,45	14,45
71.893,07	7.943,98	7.987,45	15,30
79.880,52	9.166,06	39.877,15	16,15
119.757,67	15.606,22	39.877,16	18,70
159.634,83	23.063,25	79.754,30	21,25
239.389,13	40.011,04	159.388,41	25,50
398.777,54	80.655,08	398.777,54	29,75
797.555,08	199.291,40	higher amounts	34,00

These Tax rates of the inheritance tax in Spain are according to State law. This regulation applies to the taxpayers who are not resident in Spain nor in a country pertaining to the EU or EEA. For the rest of the cases, As seen above, the inheritance tax is ruled by the Autonomous community where the properties, representing the largest value of the estate, are located.

Not existing property to inherit in Spain, will apply the rules of the Autonomous community in which each heir resides. And, being the deceased resident in Spain, by the rules of the community where he resided.

The tax liability

The tax payable inheriting in Spain is obtained by applying to the Gross payable tax, the multiplying coefficient depending on the pre-existing assets of the heir.

Multiplying Coefficients. State rules
Pre-existings assets €	Relationship Groups
	I y II	III	Rest
From 0 up to 402.678,11	1,0000	1,5882	2,0000
Over 402.678,11 up to 2.007.380,43	1,0500	1,6676	2,1000
Over 2.007.380,43 up to 4.020.770,98	1,1000	1,7471	2,2000
Over de 4.020.770,98	1,2000	1,9059	2,4000

These multiplying coefficients used to calculate the inheritance tax in Spain are according to State law. This regulation applies to the taxpayers who are not resident in Spain nor in a country pertaining to the EU or EEA. For the rest of the cases, the different regulations of the Autonomous communities determine the inheritance tax.

Deduction in case of international double taxation

When the taxation is due to PERSONAL LIABILITY, the taxpayer is entitled to deduct the lower of the following two amounts:

• The actual amount of the paid abroad in respect of similar tax that affects the current capital gains subject to tax in Spain.
• The result of applying the effective average rate of the inheritance tax in Spain to the capital gains coming from goods or rights located abroad, on which is been already applied a similar tax by a foreign country.