IHT in Spain differs from the UK. After an allowance (typically 15,957€) the balance is taxed at rates from 7.65% up to 34%. If the inheritor is not a close relative of the deceased the tax can increase by 140%, to a possible top rate of 84%
In the United Kingdom, it is the estate of the deceased that is subject to taxation. In Spain however, it is the individuals who inherit that are taxed. The other major difference is that there is no marriage exemption in Spain for non domiciled people.
When a property is in the joint names of a couple and on the passing of one partner, the surviving spouse must pay inheritance tax on the value of the half he or she inherits. In the meantime the property and bank accounts are frozen by the Spanish government until all the taxes are paid. Unless there is careful planning ahead, a large proportion of your inheritance will go in taxes.
For a free IHT/ISD illustration demonstrating your Spanish Inheritance Tax liabilities in Spain for you and your beneficiaries from the leading specialist in Spain and UK, simply submit a question to the right, or click the image for a more detailed enquiry form.
Spanish resident taxpayers are moving towards practically total exemption from inheritance and gift tax (IGT) in transfers to descendents and spouses. These improvements may be soon extended to non-residents. Although IGT legislation is regulated by each Autonomous Community, there has been a general trend towards full or almost full exemption in the last years.
However, exemptions are not applicable to non-residents, who are charged IGT on their Spanish property at progressive rates ranging from 7.65% to 34%. And this basic rate can increase significantly when the beneficiary’s kinship with the deceased is not close and his pre-existing wealth was high. For example, for a beneficiary whose pre-existing wealth in Spain is in the top bracket, the rate can jump to 40.8 %, even for inheritance from a parent.
This tax burden is one of the reasons why many non-residents have acquired their properties in Spain, for example many coastal residences or operating companies through off-shore vehicles.
However, on 5 May the European Commission issued a reasoned opinion that could bring about a landslide change in the Spanish IGT treatment of non-residents – at least for EU residents. According to the press release published by the Commission, it has asked Spain to amend, within two months, the IGT provisions which impose a higher tax burden on non-residents. The Commission also refers to the less favourable treatment of assets held abroad by Spanish residents as compared to assets held in Spain.
