When you inherit property in Spain, there is a high chance you must pay an inheritance tax. This tax is based on the inherited property value and its location.
Read on to learn how to calculate your inheritance tax in Spain, and how to lower the tax rate for yourself.
You probably already know that if the property is located in a popular area, the value of the property is higher. On the other hand, when located in an agricultural area of Spain, the property’s value could be low in comparison.
That said, your inheritance tax in Spain is based on the value of the property, in addition to a few more factors!
Calculate the Inheritance tax in Spain with 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 you pay varies by the property’s location. Besides the type of area, the value fluctuates based on the Spanish autonomous region of the property’s location. This is because Spain has many autonomous regions and communities, and each has its own approach to taxes. All in all, this makes taxation in Spain challenging.
To begin, 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. You’ll pay it based on the home’s value, even if you do not immediately inherit it.
Next, the Spanish federal and regional governments impose a higher inheritance tax than many European Union countries. For example, if you inherit a property in France, you don’t pay inheritance tax. If you inherit a property in Spain, however, you will have to pay an inheritance tax. And that tax can be as high as 32% of the estate’s value. Keep in mind that is in addition to other assets owned by your relative.
Now let’s say you plan to leave a Spanish property in your will. It is vital to understand the inheritance tax in Spain to plan your estate. You should determine whether it is better to leave your property to your family members, or to sell it to pay the tax.
The Spanish government calculates inheritance tax based on the property’s value and other assets owned by the person who passed away.
These other assets include:
- Other real estate
- Bank accounts
- Insurance policies
- Pension plans
How Inheritance Tax Works in Spain
Once calculated, inheritance tax in Spain 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, you can deduct the property’s debts and mortgages from the taxable value.
Some regions have additional reductions on the “taxable base”, or amount taxable. This deduction depends on the family relationship with the deceased or the type of property. For instance, when the deceased’s spouse inherits their habitual residence, the Inheritance Taxable amount can be reduced up to 95%. However, there are certain requirements you must meet.
Let’s say you inherited a property worth €500,000 from your deceased parent. The value of the property, your relationship with the deceased, and the inheritance tax rates in the specific autonomous region where the property is located all impact the amount of inheritance tax you need to pay.
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. 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, within certain limits.
NOTE: In many regions of Spain, there are tax allowances that vary depending on the family relationship between the heir and the deceased.
For example, spouses and children may be entitled to a higher tax-free allowance compared to other relatives or unrelated beneficiaries. You can explain the specific allowances for different family relationships, such as spouses, children, parents, siblings, and other relatives.
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Ways to Reduce Your Inheritance Tax Bill on Property in Spain
If you inherit a property in a popular area, there are ways to reduce your inheritance tax. For example, renting the property you inherit can help you keep the value of the property low.
Renting a property out can also help you reduce the property’s value if the house is located in an agricultural area. Finally, you can choose to live on the property at the same time and still profit from tax reductions.
NOTE on exemptions: Some regions offer exemptions or reductions in inheritance tax for family homes or habitual residences.
You can outline the conditions and requirements to qualify for these exemptions. For instance, there might be restrictions on the value of the property or the length of time it has been in the family’s possession.
- Make use of tax allowances and exemptions
In Spain, there are tax allowances and exemptions available for certain types of assets or for specific family relationships. For example, spouses and children may be entitled to a higher tax-free allowance, and there may be exemptions for family homes or certain types of business assets.
- Plan ahead and consider making gifts
One way to reduce your inheritance tax bill is to gift assets during your lifetime. This can be particularly beneficial if the recipient is a close family member. That’s because there may be lesser tax rates or exemptions available.
- Consider setting up a trust
A trust is a legal arrangement where assets are transferred to a trustee to manage for the benefit of one or more beneficiaries. Depending on the structure of the trust, it may be possible to reduce or avoid inheritance tax.
- Seek professional advice
Inheritance tax planning can be complex, and the rules can vary depending on the region of Spain you are in. At Lexidy, we advise you to seek professional advice from a tax advisor or lawyer who specializes in inheritance tax planning.
Ways to Reduce Your Inheritance Tax Bill on a Business in Spain
Inheriting a business can come with its own set of challenges and tax obligations. However, there are strategies that can help reduce the tax liability on inherited businesses and potentially maximize the value passed down to the heirs.
Keep the business running
One option to consider is keeping the inherited business running. By continuing its operations, you can potentially take advantage of certain tax incentives and deductions available for businesses in Spain.
These incentives include deductions for the value of specific business assets or deductions based on certain conditions that the business must meet. Consult with a lawyer specializing in inheritance tax planning to explore the specific incentives applicable to your inherited business.
Sell off assets before liquidation
If you decide to shut down the inherited business, think about selling off some of its assets before the liquidation process. It may reduce the amount of inheritance tax you have to pay.
For example, consider selling furniture, equipment, or other non-essential assets to lower the overall value of the business, thereby reducing the tax liability.
Utilize tax incentives specific to business assets
Spain provides certain tax incentives and deductions that are specific to business assets. These incentives can help reduce the inheritance tax on your inherited business.
For instance, there might be tax deductions available for the value of certain business assets or for the overall value of the business if it meets specific conditions.
It’s crucial to understand the eligibility criteria and requirements for these incentives, as they can vary depending on the region of Spain where the business is located.
Consider a family business exemption
In some cases, you may be able to take advantage of a family business exemption, which can significantly reduce the inheritance tax on the business. The conditions for qualifying for this exemption can vary depending on the region in Spain.
Typically, the business must have been in the family’s possession for a certain period. Additionally, it must continue to be run by family members.
Lastly, it is important no matter what to:
- Plan ahead
Inheritance tax planning should be done well in advance, and it may involve restructuring the ownership of the business or transferring ownership to family members or a trust. This can help to reduce the value of the business that is subject to inheritance tax.
- Seek professional advice
Inheritance tax planning for a business can be complex and may require the advice of a tax advisor or lawyer who specializes in this area.
It’s worth noting that inheritance tax rules change over time, so it’s important to stay up-to-date on the latest developments as they come out.
NOTE on exemptions for certain types of business assets: In certain cases, there may be exemptions or deductions available for specific types of business assets.
For instance, there might be tax deductions for the value of certain business assets or the value of the business itself. Of course, you must meet certain conditions to qualify. You can explain the criteria for qualifying for these exemptions and provide examples of eligible business assets or business types.
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 figure out succession taxes while living in Spain is to work with a knowledgeable tax lawyer.
Lexidy’s tax experts help our clients understand their taxable income and capital gains. This ensures our clients only pay the correct tax. Remember that tax rates will vary depending on factors like residency in Spain, worldwide assets, marriage status, and Spanish sourced income.
Submit the form below with your unique circumstances and our expert team will reach out to make sure you are confident about what to do with Spanish Inheritance Tax, or any other legal query.
Updated by Lexidy Staff June 2023