Inheritance and Gift Tax
This tax is levied on heirs, beneficiaries, and donees residing in Spain for all assets they receive, whether located in Spain or abroad. Non-resident beneficiaries are subject to this tax on their real property rights and must pay taxes in Spain on the acquisition of assets and rights, whatever their nature, that are located, can be exercised, or must be fulfilled within Spanish territory.
The taxable base consists of the net value of the assets and rights acquired, understood as the market value or the most probable price at which an asset could be sold free of encumbrances between independent parties. In the case of real estate, for taxable events occurring after July 10, 2021, its value will be the reference value established in the Land Registry regulations on the date the tax accrues.
A series of reductions to the taxable base are established, among which the following stand out:
- A 95% reduction in the taxable base derived from inheritances to the spouse, natural or adopted children, and, in their absence, natural or adoptive ascendants or relatives up to the third collateral degree, of a sole proprietorship, a professional practice, or participation in entities or usufruct rights in the assets of the donor or deceased that were exempt from Wealth Tax. The requirements are as follows:
- The acquirer mortis causa must retain the acquired assets for at least 10 years.
- The purchaser may not carry out transactions that result in a substantial reduction in the value of said goods.
- A 95% reduction in the taxable base for those cases of inter vivos transfer of shares in a sole proprietorship, professional business or shares in entities of the donor, which were exempt from Wealth Tax (or met the requirements for said exemption), made in favor of the spouse, descendants or adopted children, provided that, in addition, (i) the donor is 65 years of age or older, or is permanently incapacitated and (ii) if he/she was exercising management functions, he/she must stop exercising them and receiving remuneration for the exercise of them.
The tax is calculated by adjusting a scale of progressive rates (according to the amount of the inheritance or donation) based on a coefficient that takes into account the pre-existing net worth and its degree of kinship with the transferor.
As with other taxes transferred to the Autonomous Communities, the regulations governing this tax have been adapted to recognize the autonomous communities' regulatory capacity to approve reductions in the tax base and tax rates, as well as in the adjustment coefficients used to determine the tax liability based on the taxpayer's pre-existing wealth. However, Law 22/2009 stipulates the reductions, rates, and coefficients to be applied if the corresponding Autonomous Community has not assumed the transferred powers in this regard or has not yet regulated this aspect.
The applicable tax rates and correction coefficients vary depending on the Autonomous Community.
Some Autonomous Communities (e.g., the Balearic Islands), however, have established tax breaks that result in no tax payable (or a tax that tends towards zero). This applies to inheritances and/or donations, depending on the Autonomous Community, when the heirs or donees are "close relatives" (children, grandchildren, spouses, ascendants).
With regard to the place of tax settlement, we must generally distinguish between transfers mortis causa and inter vivos:
- Inheritances upon death: As a general rule, in the Autonomous Community in which the deceased had his habitual residence.
- Inter vivos transfers: As a general rule, in the Autonomous Community in which the acquirer has his habitual residence, except in the case of real estate, in which the place will be that of the Community in which these are located.
These general location rules were applicable until recently to taxpayers resident in Spain; non-residents were required to pay taxes in accordance with Spanish national regulations (which often led to discrimination because, as mentioned, some Autonomous Communities have established significant tax breaks). Following the CJEU judgment of 3 September 2014 (case C-127/12), specific connecting factors were established for taxpayers resident in the EU or the EEA, which were extended, for taxable events occurring after 10 July 2021, to residents of third countries. Thus:
- When the deceased was a non-resident, taxpayers will be entitled to the application of the regulations approved by the Autonomous Community in which the greatest value of the assets and rights of the estate located in Spain is situated. If there are no assets or rights located in Spain, the regulations of the Autonomous Community in which each taxpayer resides will apply.
- When the deceased was resident in an Autonomous Community and the taxpayers are non-residents, the taxpayers will be entitled to the application of the regulations approved by said Autonomous Community.
- In the event of the acquisition of real estate located in Spain by donation or any other legal transaction free of charge and inter vivos, non-resident taxpayers will be entitled to the application of the regulations approved by the Autonomous Community where the aforementioned real estate is located.
- In the case of acquisition of real estate located abroad, by donation or any other legal transaction free of charge and inter vivos, taxpayers resident in Spain will be entitled to the application of the regulations approved by the Autonomous Community in which they reside.
- In the case of acquisition of movable property located in Spain by donation or any other legal transaction free of charge and inter vivos, non-resident taxpayers will be entitled to the application of the regulations approved by the Autonomous Community where the aforementioned movable property has been located for a greater number of days of the period of the five years immediately preceding, counted from date to date, ending on the day before the accrual of the tax.
Specific rules are established to calculate the fee to be paid in the case of donations in which, in a single document, different assets or rights are donated by the same donor to the same donee and by application of the previous rules the regulations of different Autonomous Communities are applicable.