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Spanish Inheritance Tax: What You MUST Know Today

Spanish Villas can incur Inheritance Tax

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When you inherit a property in Spain, there is a high chance you must pay inheritance tax. This tax is based on the inherited property value and its location. 

If the property is located in a popular area, the value of the property you inherit could be very high. On the other hand, if it is located in an agricultural area, the property’s value could be very low. Inheritance tax in Spain is based on the value of the property you inherit.

Inheritance tax in Spain is calculated using the following:

  • the value of the property,
  • the family relationship the heir had with the deceased
  • and the inheritance tax rates in the region where the inheritance was received. 

The amount of tax that needs to be paid also has an impact on the property’s location. Also, Spain has many autonomous regions and communities. Each has its own approach to taxes, which makes taxation in Spain challenging.

Generally, you must pay inheritance tax even if you do not inherit the entire property. So, if your parents leave you a house and you rent part of the property, you will still have to pay inheritance tax on the home’s value even if you do not immediately inherit it.

The Spanish government and regions impose a higher inheritance tax than many European Union countries. For example, if you inherit a property in France, you will not pay inheritance tax. If you inherit a property in Spain, however, you will have to pay an inheritance tax. It can be as high as 32% of the estate’s value and other assets owned by your relative.

If you plan to leave a Spanish property in your will, it is vital to understand the inheritance tax in Spain to plan your estate. This will allow you to determine whether it is better to leave your property to your family members or sell it to pay the tax.

The government calculates the inheritance tax based on the property’s value and other assets owned by the person who passed away.

These include:

  • real estate
  • bank accounts
  • insurance policies
  • pension plans
  • investments

How Inheritance Tax Works in Spain

Inheritance tax works very similarly to any other tax. 

The first rule is to determine the event that makes the accrual. This depends on the tax residency of the receiver. 

  • If the receiver is a Spanish tax resident, the Inheritance Tax is independent of where the property is located. 
  • If the receiver is not a Spanish Tax resident, Inheritance Tax is paid if the property is located in Spain. 

The inheritance Tax return must be submitted within six months of death. 

After this, you must determine the inheritance value according to the property’s actual value. Then, the property’s debts and mortgages can be deducted from the taxable value. 

Some regions have additional reductions on the taxable base. It can depend on the family relationship with the deceased or the type of property. For instance, when the deceased’s spouse receives the habitual residency, there are reductions of up to 95%, but there are certain requirements you should consider. 

How Much Inheritance Tax in Spain Could You Pay?

Once you determine the property’s taxable value, the corresponding inheritance rates will apply. The government divides the value into value brackets using progressive tax rates, so the higher the value bracket, the higher the tax rate.

These depend on every region. For instance, it can go up to 31% of the property’s taxable value in Catalonia for the value bracket above €800,000. 

Once you have determined the Inheritance Tax, there are some tax breaks. Most regions reduce the tax liability by 99% if the heir is the child or a spouse of the deceased. 

Therefore, you will pay only 1% of the tax liability. 

Furthermore, suppose you have already paid taxes in another country on the inheritance received. In that case, you will be able to reduce the Spanish inheritance tax liability with the taxes already paid abroad, up to certain limits. 

Ways to Reduce Your Inheritance Tax Bill in Spain

If you inherit a property in a popular area, there are ways to reduce the inheritance tax you will have to pay. For example, renting the property, you inherit can help you keep the value of the property low. 

Also, you can choose to live on it and profit from tax reductions. Renting a property out can also help you reduce the property’s value if the house is located in an agricultural area.

If you inherit a business, you can choose to keep the business running. However, if you decide to shut down the company, you may be able to reduce the amount that you have to pay in inheritance tax by selling off some of the business’s assets. For example, you can sell off some of the business’s furniture and other assets to reduce the company’s value and keep the tax amount down.

Final Words: Planning for your Estate Early

Before you inherit a property in Spain, you need to understand the inheritance tax in the country. This will help you plan for your estate. You can also find out more about inheritance tax in Spain by visiting the Spanish Ministry of Economy and Competitiveness’ website.

The best way to navigate succession taxes while living in Spain is to work with a tax lawyer. Lexidy’s tax experts help clients understand their taxable income and capital gains and ensure they pay the correct tax. Sometimes, taxes vary depending on whether the client is a resident in Spain, has worldwide assets, has Spanish sourced income only or is even an unmarried partner.

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