Inheritance Tax in Spain: What Expats Need to Know

Inheritance laws and taxes can be complex, especially if you’re living abroad. For expats in Spain, understanding how inheritance tax in Spain works and how to plan ahead is essential to protecting your assets and ensuring your loved ones benefit from them in the future.

How Inheritance Works in Spain

Spain’s inheritance laws differ significantly from those in the UK, US, and many other countries. One of the main differences is the concept of forced heirship.

Forced Heirship Rules

In Spain, you cannot freely distribute all of your assets as you wish. A portion of your estate must go to certain heirs usually children or other direct descendants. The typical division is:

• Two-thirds of the estate must be reserved for children.
  • One-third is divided equally among them.
  • Another third can be allocated to one or more children, but still must go to descendants.
• The remaining one-third can be left to anyone you choose, including a spouse or other individuals.

If there are no children, other relatives (such as parents) may have rights to a share of the estate.

Regional Variations

Inheritance law is set at a national level but can vary depending on the autonomous community where you live. Some regions offer significant tax reductions for close relatives, while others have higher rates.

Inheritance Tax in Spain

Inheritance tax in Spain is paid by the beneficiary, not by the estate. This means each person who inherits pays tax based on what they receive.

Who Pays Inheritance Tax in Spain?

Anyone receiving assets whether real estate, money, or other valuables may need to pay inheritance tax. The rules differ for:

• Spouses and children: Usually receive higher allowances and lower rates. In Andalucia for instance, there is a tax allowance of 1.000.000€ per heir.
• Extended family and unrelated beneficiaries: Often pay higher tax rates with fewer allowances.

How Is Inheritance Tax Calculated?

The amount of tax depends on several factors:

1. Value of the assets received. This includes property, bank accounts, investments, and personal items.
2. Relationship to the deceased. Closer relatives get larger exemptions.
3. Region of Spain. Tax rates and allowances vary by autonomous community.
4. Pre-existing wealth of the beneficiary. In some cases, if the beneficiary already has significant assets, their tax rate increases.

Rates can range from as low as 1%–7% in regions with generous allowances (like Andalusia for close family members) to over 30% in others, especially for distant relatives or unrelated beneficiaries.

Making a Will in Spain

If you own property or assets in Spain, making a will in Spain can save your heirs time, money, and stress. Without a local will, the process can be significantly more complicated.

Why Make a Spanish Will?

• Clarity: A Spanish will clearly states who inherits what, in line with local law.
• Efficiency: It speeds up the inheritance process, avoiding the need to translate and legalize foreign wills.
• Cost savings: Reduces legal fees and administrative delays.
• Tax planning: Allows you to structure your estate to take advantage of allowances and exemptions.

EU Succession Regulation

Thanks to the EU Succession Regulation (Brussels IV), most foreign residents in Spain can choose whether their estate is governed by Spanish law or the law of their nationality. This can allow you to avoid forced heirship in some cases, though you must state your choice clearly in your will.

Steps to Manage Inheritance as an Expat in Spain

If you live in Spain or own assets here, these steps can help ensure your inheritance process is smooth and tax-efficient:

1. Review Your Assets
Make a list of all your Spanish and overseas assets, including property, bank accounts, investments, and personal valuables. This will help you and your lawyer plan how to distribute them.

2. Understand Regional Tax Rules
Research the inheritance tax rates and allowances in the region where your assets are located. For example, Andalusia, Madrid, and the Canary Islands offer more generous exemptions for close relatives compared to other regions.

3. Draft a Spanish Will
Work with a qualified lawyer to prepare a will that complies with Spanish law and, if necessary, states which country’s law you wish to apply.

4. Consider Lifetime Gifts
In some cases, gifting assets during your lifetime can reduce the eventual inheritance tax burden. However, gift tax rules also apply in Spain, so seek legal advice before proceeding.

5. Plan for Taxes in Two Countries
If you have assets in more than one country, check whether there is a double taxation agreement in place. Spain has agreements with several countries to prevent heirs from paying tax twice on the same inheritance.

Frequently Asked Questions About Inheritance Tax in Spain

1. Do I need to pay inheritance tax if I’m a resident of another country?
Yes, if you inherit assets located in Spain, you may still need to pay Spanish inheritance tax, even if you live elsewhere.

2. How long do beneficiaries have to pay the tax?
The standard deadline is six months from the date of death, though a six-month extension can be requested.

3. Can I leave all my assets to my spouse?
Spanish forced heirship rules mean you cannot leave everything to your spouse if you have children. However, you can leave your spouse a life interest in your property, allowing them to live there for the rest of their life.

Plan Ahead for Peace of Mind

Inheritance law in Spain can be complex, especially for expats with assets in multiple countries. By understanding inheritance tax in Spain and taking steps like making a will in Spain, you can protect your estate and make the process easier for your heirs.

The right legal guidance can ensure your wishes are respected, your tax liabilities are minimized, and your loved ones are cared for without unnecessary stress.

If you own property or assets in Spain and want to make sure your inheritance is handled correctly, contact Property Law Spain today for expert legal advice tailored to expats.