Dear readers,

Again I write with good news.

There are important news about the inheritance tax in Spain but the news could be certainly better.

At first sight, this first line may look a bit pessimist despite the great news but surely it will be understood as not as such when I develop my explanation, in what is related to locals. For EU citizens its is absolutely great news.

In Spain, the inheritance tax and the tax over gifts (donations) are regulated at the same Law, the called Law for the tax over successions and donations (in Spanish Ley sobre el impuesto de sucesiones y donaciones – ISD).

The Law is a national law but the Autonomous regions such Andalusia, Madrid, Canary Islands, Catalonia, Galicia, etc have the possibility to operate in the tax and allow deductions, exemptions and reductions in the Inheritance tax (not in the tax over gifts).

As a matter of fact, there are many differences among the autonomous regions. Just an example. In Madrid, there is a 99% of the taxable base (meaning the value of assets over which the tax is applied) thing that didn’t exist in other autonomous region. In Madrid no one pays inheritance tax. This does not apply in the rest of the autonomous regions in Spain where the inheritance tax is hitting the population up to such an extremen that sometimes heirs have to borrow money t pay the inheritance tax or simple refuse the inheritance to avoid paying the tax, simply because most of the times there is not money to pay it.

So, after this brief introduction lets go to our own region, Andalucía.

In Andalusia, up until now, the regional allowance is: any heir receiving an inheritance worth below 250.000,00 € will not pay the inheritance tax. This means that in a very good number of cases families with no kids or with just one ot tow kids ended paying thi horrible tax.

Please note:

  • This is figure of 250.000,00 € not a threshold. If an heir received just a euro above, let’s say 250.001,00 € € worth inheritance, will pay the tax over this figure not over just 1 euro.
  • The heirs must be direct heirs meaning descendants (including grandchildren), ascendants and spouses. Brothers, aunts, cousins, nephews, etc. are excluded.

Under this scenario, at a family of four members owning a villa of 1.000.000,00 € (4 registered owners), let’s say the parents and two kids, none of them will be eligible for the inheritance tax since should any of them pass away (owning a wealth of 250.000,00 €), that wealth to be inherited divided between three (83.333,33 €) will be far below those 250.000,00 € allowance per heir.

However, if in the same case that villa of 1.000.000,00 € when owned by just one person only with, as an example 2 heirs, then each one will receive half of that property, meaning a wealth of 500.000,00 € what is beyond the allowance by far resulting in an awful big amount money to pay for the inheritance tax.

So, what is the good new?

The good news is that since 2018 the allowance will go from 250.000,00 € to 1.000.000,00 €. This means that the inheritance tax will be paid only when the wealth inherited has a value of a minimum of 1.000.001,00 €.

Are there any limitations?

Yes. The heirs should not have an existing wealth valued beyond 1.000.00,00€ (before the change was 402.678,11 €).

This is something not difficult to check out for Spanish authorities when the heirs are Spanish but it is still to see how this will be done in respect of foreigners. Perhaps it will be required any kind of certificate from the national revenue offices of the heir stating the absence if such a existing wealth.

And now the bad news.

The bad news is that the change of the Law about successions and gifts does not include any new advantage in gifts. The tax over gifts, which is also applicable between spouses or relatives of any degree, was and still is higher that the inheritance tax.

There are only a few allowances at the gifts tax.

There is an interesting reduction at the gifts tax when ascendants gift a running business to descendants, as long as the beneficiary continues with the business in trade for five years. In another case the tax benefit will have to be paid.

Also, it is free of tax gifting money to descendants by ascendants when this is used to purchase the first permanent residence, as long as the descendant has less than 35 year or is seriously handicap.

We believe that, as happens in may EU countries gifts to descendants or spouses should be tax free, at least up to a maximum amount of money per heir. Same as us think several political groups who have declared that the improvement in the Law for successions and gifts is not good enough.

In any case we believe that this tax change will be extremely valuable for EU citizens owning property in Spain. We believe that the best part of Europeans owning property in Spain will benefit from this legal change waiving the very much feared Spanish inheritance tax. This benefit is not applicable to non-EU citizens owning property in Spain.

We will be very pleased in Criado & Kraus Lawyers to assist you with your legal needs in relation with the inheritance and gifts tax.

Jose Francisco Criado Sanchez

Abogado – Lawyer


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